Video Transcript Below
00:00:00 Introduction
Michelle Dexter: Thank you so much for joining us today. My name is Michelle Dexter and I am with Keystone Law Firm. I am an attorney here and I handle our estate planning, informal probates, trust administration, and our guardianship and conservatorship matters. We appreciate you being here today.
Alexis, I just want to confirm that you are recording today’s webinar so we can share it later. Thank you for confirming.
Today’s topic is what not to do and some of the horror stories from probate. For those of you who do not know me, my son plays football. For me, the scariest person on the field is the referee. One of my son’s refs was nice enough to let me hold the yellow flag. We like to have some fun at Keystone.
00:18:01 Why “simple estate” is rarely simple
Michelle Dexter: These are serious topics and they can be tough, but having people to guide you and knowing what to avoid really helps. We encourage everyone to get estate planning in place and to check those documents regularly. Otherwise you risk becoming one of the horror stories.
One of the biggest issues we see is people deciding their estate is so simple that they do not need planning. In estate planning, “simple” generally means everything to the spouse and then everything to the children outright. If your spouse might be incapacitated, if your children are not great with money, or if there are family dynamics that make “simple” risky, then your estate is not simple. I spend a lot of time walking people through options based on their specific needs.
00:19:12 No spouse or children: do not let the state decide
Michelle Dexter: If you do not have a spouse or children, deciding who receives your estate can be tricky. You do not want the state deciding. That can mean lengthy court action, misinformation, and assets being directed to the state.
We had a matter a couple of years ago. A woman was told she was the beneficiary of a property, and an investor wanted to buy it. The investor had traced the family tree and concluded she was the heir. She opened probate, sold the property, took the proceeds, and distributed to herself believing she was the only beneficiary. After she spent the money remodeling her house, she learned she was not the beneficiary. The investor missed a link in the family tree. She had to return all the money to the true beneficiaries. That distress could have been avoided with an estate plan naming beneficiaries.
Also, if you have named local charities, review them regularly. Churches and charities change names or close. In our documents we often say, “first this charity; if not in existence, its successor; and if there is no successor, the trustee may name a charity with similar purposes.” That way you do not end up in court or limbo. You can authorize the trustee to select a successor charity to avoid being caught without an existing organization.
00:21:26 Children as beneficiaries: prepare for real life
Michelle Dexter: Many people think an “all to my children” plan is simple, but they do not always recognize issues their children may have. We want to set kids up to use money wisely when their brains and habits are more developed.
For young kids, we set up a trust so they do not have direct access until later. For older kids, we might try to preserve funds for retirement or to improve their quality of life.
We had a case about two years ago. Mom died with no estate plan. She had two college age sons. An uncle fronted money to start probate, expecting reimbursement when the house sold and accounts were liquidated. After that happened, no one could reach the sons. It turned out one son had lied to grandma about attending college while she was paying his tuition. The uncle was never reimbursed. Family relationships were damaged. With a plan, mom could have protected the funds and the family.
As a mom of three boys, I know most twenty somethings have never managed a significant sum. I worry about kids who inherit in their twenties and think, “I will never have to work,” then skip education or fail to start a career. Those first five to ten career years matter for growth and retirement savings.
00:24:21 Government benefits and special needs
Michelle Dexter: If a child receives means tested government benefits, an outright inheritance can disqualify them. Families often do not discuss finances, but it is vital to know whether a beneficiary receives benefits. They usually cannot disclaim an inheritance to keep benefits, because the government treats available funds as resources that should be used first. Parents can plan with a special needs or supplemental needs trust so the inheritance helps rather than harms.
We had a case last year. Dad had not updated his will. He had one son who died, and that son had a son. The will was old, written before the grandchild was born and before the son died. The will did not provide past the son. We had to go to court with a copy of the will and prove the grandson was related to the decedent. The people named as personal representatives in the will were deceased. The mother of the grandson had to petition the court to be personal representative. In laws were upset that she would take control and that the grandchild would receive everything. If he had updated his documents, he likely still would have named the grandchild but perhaps would have chosen someone to oversee funds. It became contentious for no good reason.
00:27:48 Siblings who do not get along
Michelle Dexter: When children do not get along, naming them together can invite conflict even though trustees and personal representatives have fiduciary duties. Early in my time here we had a complex case. Mom had a trust, a family limited partnership, and careful beneficiary designations, but a few assets still required probate. She had two daughters named to act together as co personal representatives, co trustees, and co partners in the limited partnership. At mom’s death, one daughter had a restraining order against the other. They refused to work together or apart and would not agree on a neutral third party. Mom died in May 2018. It was September 2019 before an agreement with a third party fiduciary was reached, and 2021 before everything was resolved. The neutral third party would have been cheaper than years of attorneys and court time. Be honest about whether your kids are right for these roles.
00:30:11 Short depth chart planning
Michelle Dexter: My son plays football, so here is a depth chart idea. In football you have starters, backups, and third string. In estate planning, build layers. Have plan A, plan B, and a worst case plan. Often kids are plan A, grandkids plan B. But if you only have one child and one grandchild, think hard about the remote contingency. Our standard remote contingency says if none of the named beneficiaries survive, then distribute under intestate law so it does not escheat to the state. You can name a charity or another person instead. If you do nothing, intestacy can send assets to a parent, then to siblings you might not want to benefit. Decide your worst case on purpose.
00:32:31 Beware cheap forms and fill in the blanks
Michelle Dexter: I understand wanting to save money and time, but inexpensive do it yourself forms often lead to litigation. In 2021 we had three different cases where decedents used store bought fill in forms. The ambiguities required the court to interpret intent. Each cost thousands in extra expenses.
People also use holographic wills, which are handwritten and signed directions to the court. Remember, a will is instructions to the probate court. A will does not avoid probate. A trust does. Probate becomes public record and can be lengthy.
Holographic wills often miss key elements: who is the personal representative, whether a bond is required, contingencies if a beneficiary predeceases, and more. That leads to hearings and judicial decisions that could have been avoided.
00:36:51 Know the law: intestacy, blended families, and separate property
Michelle Dexter: Do you know how assets are distributed if you die without a will or trust? Is that what you intend?
Blended families are a major area of confusion. In Arizona, if you have children from a prior relationship and die without a will, your spouse does not get everything. Your spouse gets their half of community property and one half of your separate property. Your children get your half of community property and one half of your separate property. That is not what many couples intend. We have had surviving spouses learn they do not own the house outright and must buy out stepchildren or move.
Separate property exists even in community property states, such as property you brought into the marriage or inherit during marriage. If you want inherited assets to go to your own children rather than your spouse, put that in writing.
Also, disclose all your children, including deceased children, in your plan. We had a wife who knew her husband had five children from a prior relationship, and they had two together. After his death, she learned he had a girlfriend and three additional children. Suddenly we had to provide for ten beneficiaries. In another case, a mom told me she had one child and was leaving everything to that child. During signing I reviewed the family section and she said, “Actually, I have nine children.” We must list them. It supports capacity, ensures proper notice, and prevents challenges.
00:42:11 Do not ignore your documents or lifetime transfers
Michelle Dexter: It feels good to complete documents, but you must review them regularly and make sure they match what you are doing during life. If you make gifts or transfers during life, reflect that in your plan. If you inherit or your spouse dies, handle title updates promptly.
We often see spouses on title with rights of survivorship, then one dies and the survivor does not record anything. Years later the kids have to handle multiple deceased owners at once. This week a client brought savings bonds in mom’s name, plus another stack in dad’s name from years ago, and another in grandma’s name. Now we need separate actions for all three.
We had a property where great grandma owned the home. After she died, her child moved in, then the grandchild, and now the great grandchild lives there. No one ever updated title. The great grandchild pays expenses and wants to remodel and get a loan. Because title was never transferred, we must notify all relatives. She estimates seventy people may have an interest. If the transfer had been handled at great grandma’s death, the group would have been smaller and more manageable.
Divorce can cause similar issues. One spouse is awarded the home but a deed was never properly executed. We had a case where an ex spouse recorded a death certificate and took title by right of survivorship due to a defective prior deed. Now we must file a quiet title action to correct it. That is added cost and stress.
00:47:57 Insolvent estates
Michelle Dexter: An insolvent estate owes more than it owns. Sometimes beneficiaries should simply walk away and let creditors fight for what is left. Arizona has a creditor priority statute: administration expenses, last illness and burial, taxes, then unsecured creditors at the bottom.
When a family member is tied to a debt, they may need to open probate to resolve it. A sister was storing her brother’s trailer at her complex. To resolve the space lease after his death, she had to sell the trailer and therefore open probate to deal with creditors. The Arizona Department of Transportation has a simple beneficiary form for a trailer. If he had named her, she could have sold it without probate.
00:49:58 Estranged children and missing information
Michelle Dexter: If you have an estranged child but your plan still leaves assets equally, it complicates everything. We often cannot find the missing sibling. On the other side, when your children are estranged from you, they may not know your banks, assets, or creditors. Without information, they fear missing something and spend more time and money with attorneys. Help them by keeping a list of assets, debts, recurring bills, who gets paid, and how. Many statements no longer arrive by mail, so without a list people see only past due notices.
Keep passwords and access information for computers, email, cryptocurrency, and phones. Our calendars and contacts are on phones. Apple has a legacy contact feature. Android has similar options. Store credentials securely. Let trusted people know where to find them when needed.
00:53:58 Beneficiary designations: plan A, plan B, worst case
Michelle Dexter: Beneficiary designations are helpful, but you must understand what happens if a beneficiary dies. If I name three children and one dies, does that share go to the other two, to my probate, or to my child’s own beneficiaries by representation? Life insurance can often name the trust. Retirement accounts involve tax considerations, but there are options.
Update designations when a beneficiary dies or circumstances change. Our office updates full estate plans every five years for our trust care clients, even if you are not changing people, so documents are fresh. But you must also update beneficiary forms.
We had a client who named a married couple as beneficiaries. During the couple’s divorce, she came in and removed one of them from her trust. After her death we learned that both spouses were still named on some retirement accounts that passed outside the trust. The person she removed from the trust still received money. She would have been disappointed. Update both the plan and the account forms.
00:56:11 Restating versus creating a new trust
Michelle Dexter: Review documents annually and consider formal updates every two to five years. If you want changes, consult a professional. Do not be pressured into a brand new trust if a restatement of your current trust is possible.
In one case, husband and wife created a trust through a credit union. After wife died, husband returned to update the trust. The credit union could not restate; they could only create a new trust. He created a new trust but did not retitle every asset. When he passed, assets existed in both trusts with different beneficiaries, percentages, and trustees. Not everyone agreed to follow the new trust, especially those whose share was reduced, so the administration became far more costly. Multiple trusts can be done, but you must be intentional and retitle assets correctly.
00:58:23 Funding your trust: the three buckets
Michelle Dexter: Executing documents is only step one. If you do not fund your trust, your family must take extra steps later.
Think of three buckets:
First bucket: assets in your name alone. During life those require a financial power of attorney and, if the bank refuses, possibly a conservatorship. After death they usually require probate.
Second bucket: assets with beneficiary designations. After death, those avoid probate, but during life they still require a power of attorney for management. Review designations often and consider special needs issues.
Third bucket: trust assets. These do not require probate and do not require a power of attorney for management. The key is proper titling. For example, change a checking account from “Michelle Dexter” to “Michelle Dexter, trustee of the Michelle Dexter Trust.” The more in the trust bucket, the less chance a bank can force a conservatorship by rejecting a power of attorney.
Not funding your trust can force probate just to move assets into the trust. We include a pour over will as a contingency, but the goal is to fund the trust now.
01:00:22 Arizona small estate affidavits and real estate
Michelle Dexter: Arizona recently increased small estate limits. For personal property, the limit went from seventy five thousand to two hundred thousand with a small estate affidavit. For real estate, the limit increased from one hundred thousand to three hundred thousand. The real estate affidavit still gets filed with the court.
If your house is in your name, a beneficiary deed can avoid probate on that property. We have fewer power of attorney issues with real estate professionals than with financial institutions. Banks are the most likely to reject old powers and force conservatorships.
01:01:25 Plan for incapacity
Michelle Dexter: Beneficiary designations help after death. Who pays your bills if you cannot? Make sure you have assets in the trust, and an up to date financial power of attorney. Do not delay changes; once you are incapacitated, you cannot update documents. Without powers of attorney you may end up in guardianship for medical decisions and conservatorship for financial decisions.
We had a husband and wife married for over thirty years. They had not updated documents in twelve years. Wife became incapacitated and needed twenty four seven care. Husband needed a few hundred dollars more per month and tried to access her retirement with a power of attorney that was thirteen years old. The financial company refused it due to age. We had to go to court to appoint him as conservator.
As conservator he had to file inventories, possibly post a bond, submit an initial budget and credit report, then annual accountings and budgets each year. When she passed away, we had to file a final accounting and seek court approval for distributions. All of that could have been avoided if the company had accepted a current power of attorney. Update documents before incapacity.
01:05:30 Documents for young adults and life stages
Michelle Dexter: We believe in education. We host a workshop for graduating high school seniors to sign a health care power of attorney and HIPAA authorization. When kids are away at college, parents often need to speak with doctors, get information, and make decisions in emergencies.
From mid twenties to mid thirties, add a financial power of attorney. If you buy a home, consider a trust. If you have children, add guardianship designations. From about thirty five to fifty five, you want a complete estate plan. It is less about the amount of assets and more about minimizing interruptions and empowering trusted people to act for you medically and financially. Over fifty five, confirm that assets will not go through probate and that documents are current. If you are in that thirty five to fifty five range, also make sure your parents have documents so you can help them if they become incapacitated.
01:06:38 Emergency guardianship story
Michelle Dexter: About eight or nine years ago, Francisco received a Thursday afternoon call. A nephew was in a coma after an accident. Because he was over eighteen and had no documents, the hospital convened a committee to decide whether to remove life support. They would not allow mom to decide.
We rushed to court Friday morning for an emergency hearing. There were multiple attorneys present. The court appointed mom as guardian, also appointed counsel for the ward, and a guardian ad litem. The hospital had attorneys. With the order, the hospital agreed not to remove life support on Saturday. Mom then transferred him to another facility over the weekend. On Tuesday the aunt called to say he woke up. Mom remains his guardian and we file annual reports. We do not know what would have happened otherwise. This shows why health care documents matter.
01:09:31 Arizona health care directives registry and practical access
Michelle Dexter: In Arizona, the health care directives registry lets you upload your health care documents. Hospitals can access them. You will receive a wallet card with a QR code that pulls up your documents and lists your agents. I have had clients use it when a spouse could not communicate and hospital staff would not provide information without documents.
Most health care documents can be used as copies. In addition to the registry, scan and email copies to yourself or trusted family, so someone can retrieve them quickly.
01:11:27 Audience Q and A and upcoming webinars
Michelle Dexter: I set aside time for questions. It looks like there is a chat box on the right. Please put messages there. We record these and other presentations. They are on our YouTube channel. Alexis will add links for our upcoming webinars. Alexis, can you remind us of the next one?
Alexis Rico Cortes: Yes, of course. The next webinar is November 7, hosted by Carmy Gutman, our financial planner at Lifestyle Planning. The topic is long term care. It is not just for older people. He will share pointers for those who should plan ahead rather than wait until they need long term care insurance.
The one after that is hosted by Francisco on November 18. It is more on the financial side: You are already paying one percent, but are you getting full value for it. It is for people who want to evaluate whether they are getting all the benefits from a financial planner. I will drop those links in the chat.
Michelle Dexter: Thank you, Alexis.
01:13:18 Q and A: updating powers of attorney
Michelle Dexter: Rachel asks: If we have powers of attorney, can we just write “update” and a new date so the document is not considered old?
I would not rely on that. You should sign a brand new financial power of attorney with a current date, in front of a third party witness, and with a notary. Simply writing an update does not meet those requirements. I know everyone wants the simple path, but do it accurately so we do not have to ask a court later to accept a handwritten update as valid.
Anyone else with questions?
We appreciate you joining us today. We want to share useful education with our community. It should not be locked away at the attorney level. I know this was a lot of information and many scenarios. Yours may be different. Feel free to call us to set up a consultation. We are happy to walk through your specifics. Please keep in mind these real stories so they do not happen to you. They are expensive, stressful for family, and often not what you intended.
Transcription ended at 01:28:09.
