What Are the Estate Planning Options for Property Distribution?
No matter what your personal and financial circumstances are, the assets and property in your estate pass on to your heirs and beneficiaries when you pass away. If you take the time to make an estate plan, you make significant decisions about how your loved ones receive the estate, by choosing from three basic property distribution options. The fourth option is allowing the State of Arizona to make your decisions, by doing nothing and not creating an estate plan.
Property Distribution Basics
Most individuals own property and assets that are distributed to heirs or beneficiaries after their death. When you create an estate plan, you choose among several property distribution methods, each of which has benefits and drawbacks. An experienced estate planning attorney helps you decide which option(s) are most suitable for your circumstances.
The three basic estate planning options for property distribution are:
- Direct distribution to a beneficiary in a last will and testament
- Controlled distribution through a trust
- Direct distribution through a property title or beneficiary designation
Option 4 is to do nothing by not making an estate plan. In that case, the State of Arizona determines who receives your property under the laws of intestate succession.
Each option works differently. The most suitable option for an individual depends entirely on their estate planning goals and their unique personal and financial circumstances.
Option 1: Property Distribution in a Last Will and Testament
Virtually every estate plan includes a last will and testament, a document that accomplishes a number of important purposes. One of those purposes may be to distribute property directly to beneficiaries, by describing the property and naming the beneficiary in the will.
If you distribute property to a beneficiary in your will, your estate goes through the probate process under the guidance of your personal representative. After probate is completed, the personal representative distributes the property to the beneficiary, who receives full ownership of the asset. The beneficiary is free to use or dispose of the asset in whatever way they may choose.
When you leave assets to a beneficiary in a will, you cannot control how the beneficiary uses the property. They may use it wisely, give it away, waste it, or lose it to scammers or creditors. You cannot prevent any of those things from happening if you use a will to distribute property. Another disadvantage of using a will is that going through probate costs money and takes time, so the beneficiary must wait for their inheritance and may receive less, due to deduction of probate and administration expenses.
Option 2: Controlled Distribution With a Trust
A trust is an important method of distribution that can accomplish a wide range of purposes. There are many different types of trusts that achieve specific estate planning goals. Getting help from an estate planning lawyer is essential, to ensure that your trust is tailored to your circumstances, meets the applicable legal requirements, and accomplishes all your goals. Do-it-yourself trusts pose substantial risks that can have devastating personal and financial consequences.
There are two significant benefits of using a trust. The primary benefit is that the trust enables you to control distribution of the assets and property. In addition, certain types of special trusts can achieve important goals. The trust instrument created by your lawyer governs the terms of distribution to the beneficiaries by directing the designated trustee to distribute assets according to your specific wishes, even after you pass away. A trust allows you to control distribution in a way that a will cannot. You can time the distributions to the beneficiary, and you control the purposes for which the trustee can make distributions.
In addition to providing control over distribution, a trust can also avoid the probate process, if the trust is properly structured, established, and funded. In general, property placed into a trust during the life of the grantor (person creating the trust) does not go through the probate process. Avoiding probate saves time and expenses. Beneficiaries can receive their inheritance sooner and with fewer deductions for estate administration. Avoiding probate also keeps the decedent’s financial information private, whereas the financial details of the estate become public information when a will goes through probate.
Option 3: Direct Distribution Using Property Titles or Beneficiary Designations
Some types of assets lend themselves to distribution by titling the property in a manner that it passes directly to the intended beneficiary on death. Joint ownership with a right of survivorship, pay-on-death/POD and transfer-on-death/TOD designations, and a beneficiary deed, are all ways to accomplish direct transfer in Arizona. Property transferred in this manner does not go through probate.
In addition, some specific assets, such as retirement accounts and life insurance policies, can be distributed directly through beneficiary designations. Using this method requires discussion with a knowledgeable estate planning attorney. Naming an individual beneficiary for an asset can have unintended consequences, such as making assets vulnerable to creditors or subject to shortened distribution periods.
Option 4: Distribution by the State of Arizona
If you do not make an estate plan and choose an option for distributing your property, Arizona laws make the decisions for you. The State decides who receives your property, who administers your estate, and — if you become incapacitated during your life — who makes financial, medical, and personal decisions for you. In addition, your estate will go through the probate process before distribution.
Regardless of your situation, the wisest choice is making your own decisions by talking with a knowledgeable estate planning lawyer.
Finding the Best Option for Your Property Distribution
Determining the best option(s) for distributing your estate requires analyzing your personal and financial situation and identifying your goals and wishes for the future. Often, different options can be combined in your estate plan to achieve your goals. Estate planning with an experienced lawyer is the only way to make certain that you explore the benefits and drawbacks of each distribution approach before you make a final decision. Ultimately, when you put your estate plan in place, you have the peace of mind knowing that you have made the best decisions to protect yourself and your loved ones for the future.
Schedule a Free Consultation With an Experienced East Valley Estate Planning Attorney
At Peterson Law Offices, estate planning is a primary focus of our practice. There is no charge for your initial consultation with us. We provide top-quality services at affordable prices and welcome inquiries from clients throughout the East Valley, including Queen Creek, San Tan Valley, Gilbert, Mesa, and Chandler. Schedule your free initial consultation by calling 480-878-5998 or using our online contact form.
