When a person dies in Arizona, it may trigger a court-ordered process known as Probate. The court empowers the Personal Representative (aka Executor/ Administrator) distributes the deceased person’s property (known collectively as an Estate) to their creditor, heirs and/or beneficiaries. Not all property a person leaves behind goes through probate. Sometimes the probate process addresses the distribution of only some of a person’s property, and other times it is not necessary to apply or file Formal Probate. Arizona offers three types of Probate Formal, Informal and Small Estate. In this blog post, we discuss which assets are included in the Arizona Probate process.
Assets Included in an Arizona Probate Estate
Probate addresses many of the types of assets that most Arizonans own at the time of their death. The following categories of assets are usually subject to probate. To qualify for Small Estate Probate the total value of real property must be under $100,000 and/or personal property (everything not real estate) must be under $75,000.
- Assets held solely by the deceased – These assets belong solely to the deceased person (such as assets owned before marriage) will constitute assets subject to probate. Property held “solely” often includes inheritance, cars, real estate, and personal assets such as jewelry, art, furnishings, and collectibles.
- Real estate assets held as “tenants in common” – In Arizona, real property is considered to be held “in common” unless the owners specifically agree otherwise by creating a “joint tenancy.” This is a common problem when quit claim deeds are used. In a “tenancy in common,” a person’s interest in real estate does not automatically pass to co-owners (such as a spouse) upon death. Instead, it that interest in the property becomes part of the deceased person’s “estate” that will be distributed according to that person’s will and Arizona probate law.
- Other assets owned as “community property” if no right of survivorship – Arizona is a community property state. All property acquired during a marriage is considered to be owned equally by each spouse. When one of them dies, that person’s half must go through probate unless the couple had previously agreed that the surviving spouse has a “right of survivorship” (i.e., to acquire ownership of the deceased spouse’s half of the community property interest).
Assets That Avoid Arizona Probate
Probate has a (somewhat undeserved) reputation for being slow and complicated. Over time, legislators, estate planners, and others have devised ways to exempt certain kinds of property from probate, so that it passes to a person’s heirs or beneficiaries more-or-less automatically upon death. The list below details some of the types of assets excluded from probate in Arizona.
Take note that while the list below appears quite long, many (but not all) of the types of assets and forms of ownership below are relatively rare for the average Arizonan. Also, unlike many states, in Arizona a deceased spouse’s assets do not necessarily transfer to the surviving spouse automatically, because of the community property laws described above.
Assets legally excluded from the probate process in Arizona include:
- Assets held in a living trust – When property is transferred to a living trust, the trust itself becomes the legal owner of those assets, thus excluding them from the probate estate. A common problem is when a pour over will is required to transfer assets into a trust or when a person’s property changes (buy a new home and not having it placed in your trust).
- Community property assets with right of survivorship – Arizona residents must affirmatively elect to create right of survivorship in community property. Without an election, community property is subject to probate.
- Assets held in joint tenancy with right of survivorship – In Arizona, property owners must elect to hold property as joint tenants with a right of survivorship. If they do so, then ownership of the real estate passes to the surviving joint tenant(s) automatically, and bypass the probate process.
- Retirement accounts – Assets held within IRAs or 401(K) plans will avoid probate if a beneficiary is named to receive the benefits upon death.
- Life insurance proceeds – All insurance policies have a named beneficiary who receives the proceeds upon death of the insured. A minor child who is listed as a beneficiary will need a Conservatorship set up through the Probate Court to hold their funds until they turn 18 years old which can be avoided with a structed plan.
- S. Savings Bonds – Any U.S. Savings Bonds that are co-owned avoids probate and ownership is transferred to the surviving owner(s). U.S. Savings Bonds registered in a payable-at-death form are also excluded and are paid directly to the named beneficiary.
- POD Bank Accounts – POD means “Payable on Death” and works the same as a beneficiary designation meaning the bank account proceeds are transferred directly and are not included as a probate asset.
- TOD-Registered Securities – TOD means “Transfer on Death” and is a designation that functions exactly like the above-mentioned POD bank account and therefore is not a probate asset.
- Real estate with a valid TOD deed – Similar to the above, a TOD deed designates a beneficiary to whom ownership transfers automatically upon death.
- Pension plan distributions – Any accrued pension plan distributions may be subject to income taxation but are not considered assets of the Estate, excluding them from the probate process.
- Wages, Salaries, and Commissions – These assets are earned income, not Estate assets. These types of assets need to be declared on the final tax return of the decedent but are not included for probate purposes.
How a Probate Attorney Can Help
Most Representatives are family members who have little or no experience with probate. Their responsibilities often conflict with the added difficulty of coping with their personal loss. A great Probate attorney helps a Representative avoid the pitfalls and headaches of probate. Keeps the process on track and helps protect the Representative from unknown liability issues. Even in matters that don’t need official Probate still may need help transferring assets such as Terminating a Joint Tenancy for a surviving spouse.
At Arizona Law Doctor, we aid and counsel those loved ones saddled with the burden of serving as Executor for a loved one. We have years of experience guiding Arizona residents and families through the Probate process in an efficient and compassionate manner.