Probate is a legal process triggered after a person’s death. It can be lengthy, expensive and public, potentially adding unnecessary stress during an already challenging time. However, thoughtful planning and an understanding of Arizona’s specific probate laws could potentially help your estate bypass this process, aiming to ensure that your assets are distributed according to your wishes. A financial advisor can help you plan ahead so your heirs can potentially avoid probate altogether.
What Is Probate?
Probate is the court-supervised process for validating a deceased person’s will, identifying and cataloging their assets, appraising their property, settling their debts and paying the necessary taxes.
Probate is also responsible for distributing the person’s remaining property as directed by their will. If there is no will, state laws dictate how the assets are distributed. When a person dies intestate – without a will – the court appoints a personal representative to manage the estate, including paying off debts, taxes and distributing assets according to state laws. Otherwise, an executor of a will would be responsible for managing the estate.
For example, consider John Doe who had a valuable art collection. Upon his death, his will was presented in court for validation. His art collection was appraised and once all his debts and taxes were settled, the remaining pieces of art were distributed as per his will’s directives.
Though it can provide a clear path for asset distribution, probate can also be lengthy and costly, potentially eating into a significant portion of the estate’s value.
Avoiding probate not only can save time and money but may also maintain privacy because probate proceedings are a matter of public record. It may also provide immediate control over assets, which can be particularly favorable in situations where a delayed legal process might cause hardship.
Create a Living Trust
Establishing a living trust can enable individuals to avoid probate. Known also as a revocable trust, a living trust is established during an individual’s lifetime and can be modified or entirely revoked. Living trusts allow you to transfer ownership of assets to the trust but continue utilizing them throughout your lifetime. You’ll appoint a successor trustee who will assume management and distribution of the trust’s assets when you die.
In Arizona, the process of creating a living trust involves creating the trust document, signing it in front of a notary public and then transferring property into the trust.
A living trust can save your heirs time and money when you die since living trusts are not subject to probate. It also ensures privacy as the contents and terms of a living trust aren’t made public. A living trust offers control over the distribution of your assets following your death, allowing you to set terms or conditions for inheritance.
Having a living trust isn’t the only way to avoid probate in Arizona. Designating beneficiaries who will automatically inherit certain assets like bank accounts, real estate and other property can also help your heirs bypass probate.
Payable on Death Designation
A POD account – an arrangement between a bank or credit union and a client – designates beneficiaries to receive all of the client’s assets directly upon their death, negating the need for probate.
To establish a POD account in Arizona, visit your bank and request a payable-on-death form. You can then name a beneficiary who will inherit the money in the account upon your death. Keep in mind that you’ll maintain complete control over the account during your lifetime, and you can spend, invest or transfer the money as you wish. The beneficiary only gains access to the money upon your death.
Transfer on Death
If you own real estate in Arizona, you can consider using a transfer-on-death (TOD) deed. This legal document allows you to name a beneficiary who will inherit your property directly, without the need for probate.
Similarly, you can name a TOD beneficiary for your brokerage accounts, potentially allowing your portfolio’s assets to be directly transferred to your designated beneficiary whn you die. In Arizona, you can also transfer ownership of your vehicles without probate by designating a TOD beneficiary.
Rights of Survivorship
Rights of survivorship represent another potential route to avoid probate. Primarily used with jointly owned assets, rights of survivorship aim to ensure that the surviving owner automatically inherits the share of the deceased owner. Joint tenancy and community property are two types of joint ownership with rights of survivorship.
In a joint tenancy arrangement, two or more people jointly own a property. One key feature of joint tenancy is the right of survivorship. This means that when one owner passes away, their share automatically transfers to the surviving owner(s) without going through probate. This can be a useful way to ensure a smooth transition of assets upon death.
Community property with the right of survivorship is a legal concept applicable in some U.S. states, including Arizona. Assets acquired in a marriage are generally considered community property, meaning they are jointly owned by both spouses. When one spouse dies, the surviving spouse automatically becomes the sole owner of the community property, bypassing probate.
Small Estates Can Skip Probate
Lastly, some estates are too small to qualify for probate. In Arizona, an estate can be considered “small” and may bypass the probate process if the total value of personal property is less than $75,000 or if real property is valued at less than $100,000.
The executor or an heir needs to prepare a small estate affidavit, stating that they are entitled to a certain asset. This document, signed under oath, is then presented to the institution holding the asset, such as a bank, and the asset is released to the inheritor. However, this affidavit can only be used 30 days after the decedent’s death.
Although the probate process can be complex and time-consuming, understanding how to navigate it and knowing the strategies to potentially avoid it can facilitate estate planning in Arizona. Legal instruments such as living trusts, payable on death accounts and transfer on death arrangements can help ensure that your assets are distributed according to your wishes and mitigate unnecessary delays or expenses related to probate. Property that’s jointly owned and includes a right of survivorship will also bypass probate in the Grand Canyon state.
Estate Planning Tips
- A living trust is just one type of trust that you may incorporate into your estate plan. It’s useful to familiarize yourself with the many trust variations that exist to determine which one may fit your needs best.
- A financial advisor with estate planning expertise can be a useful partner to have as you organize your estate. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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