Arizona Estate Planning
Our family enjoyed another spring break trip to Tucson, Arizona. As in each of the past six years, we broke the monotony of Minnesota winter through golf, hiking, and pickleball in the warm sun. 1 While I was not paid for this tourism advertisement, I pay annual dues to maintain my Arizona law license.
In this month’s update, I note three distinctives of Arizona estate planning law relevant for your clients who are Arizona residents.
Community Property Characterization for Married Residents. First, Arizona law considers most assets owned by a married couple as community property. Community property is deemed to be owned equally between a husband and wife regardless of the title of the property. Upon the first death between a married couple, the deceased spouse’s estate plan controls the transfer of the one-half interest owned by the deceased spouse. This property characterization allows for a married couple to jointly create a revocable trust to achieve their shared estate planning objectives. In many cases, this legal framework allows Arizona residents to keep their estate planning relatively simple.2
Assets characterized as community property receive a full step-up in cost basis at the first death between a husband and wife. This step-up in basis allows for a surviving spouse to avoid capital gains taxes on any appreciated assets. At the surviving spouse’s subsequent death, all remaining assets owned by the surviving spouse receive a second full step–up in cost basis.
In blended family situations, or in cases where one spouse inherits property and wants to provide for children even if this spouse dies before a spouse, community property characterization can be problematic. In such situations, it may be wise for the couple to make a community property agreement to characterize certain assets as separate property and certain assets as community property. The assets characterized as community property can obtain the step-up in cost basis, and the assets characterized as separate property can be distributed to the appropriate beneficiaries.
Health Care and Mental Health Care Powers of Attorney. Second, as in other states, an Arizona resident can use a health care power of attorney to name a health care agent who would be authorized to make most medical care decisions if the resident became incapacitated. In Arizona, a resident might also want to sign a mental health care power of attorney, which would authorize an agent to make psychiatric care decisions on behalf of the resident.
No Arizona State Estate Tax. Finally, Arizona imposes no state-level estate tax. Our wealthier Arizona clients may face federal estate tax exposure, but there are no state inheritance or estate tax.
I’m glad to help you and your Arizona clients with their estate planning matters. Of course, our law firm is happy to help you or your clients with Minnesota estate planning matters as well. We look forward to hearing from you.
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