Estate Planning

For most Arizona families, the Roth, and the reason is bracket arbitrage. Run the timeline: if you are 65 now, your children will probably inherit in their late 50s, near their peak earnings. The SECURE Act then forces them to empty a traditional IRA within ten years, stacking every withdrawal on top of their salaries at their federal bracket plus their state's income tax. An inherited Roth IRA faces the same ten-year clock, but the distributions are tax-free, there are no required annual withdrawals along the way, and the smart move, waiting until year ten, buys a decade of additional tax-free growth. You get to choose which account they inherit by converting during your low-bracket retirement years, paying Arizona's flat 2.5% instead of whatever their state charges later.

No, as long as the beneficiary designation is filled out and at least one named beneficiary is alive when you die. Retirement accounts pass by contract to the people on the form, outside your will and outside probate. They end up in probate when the form names your estate, names no one, or names only people who died before you, and that path usually costs your heirs both time and a faster tax payout.

If your spouse died this year, you can generally still file a joint return for this year, as long as you do not remarry before December 31. That means the joint brackets and the larger standard deduction ($32,200 in 2026, plus $1,650 per spouse 65 or older) apply one last time. Starting next year you generally file as single, unless a dependent child qualifies you for qualifying surviving spouse status, which can last up to two years (confirm with your tax preparer). Single brackets are about half as wide: in 2026, the 24% bracket ends at $201,775 single versus $403,550 joint, and the first IRMAA tier drops from $218,000 to $109,000. So the final joint year is often the cheapest year you will ever have to realize income, through Roth conversions, gain harvesting, or extra IRA withdrawals, as long as you check Medicare premiums two years out and your cash needs first. Only a few items carry real December 31 deadlines: any required minimum distribution your spouse had not yet taken, and any income decisions you want on this year's return. Most other choices, including what to do with your spouse's IRA, whether to sell the home, and how to claim Social Security, can wait six to twelve months. Report the death to Social Security promptly, and do not rush anything you cannot undo.

Lifetime gifting to adult children is feasible for most households whose retirement projections show a comfortable surplus and whose values point toward helping now rather than later. The federal annual gift exclusion ($19,000 per donor per recipient in 2026) lets each parent give that amount to each child each year with no gift tax filing required, meaning a couple can give a child up to $38,000 a year without using lifetime exemption. Direct payments to medical providers and educational institutions don't count against the exclusion at all. Beyond the tax mechanics, the harder question is structural: does the gift help the recipient build capacity, or substitute for it. The right framework asks four questions: can your retirement plan absorb the gift under stress assumptions, will the gift produce more value now than later, does it preserve the recipient's motivation and dignity, and is the gift size proportional to the situation. When the answers line up, lifetime gifting is one of the most rewarding uses of accumulated wealth. When they don't, restraint is the more loving choice.

When you die, your IRA passes directly to the beneficiaries named on your account, bypassing probate entirely. A surviving spouse has the most flexibility, including the option to roll the IRA into their own account and treat it as their own. Non-spouse beneficiaries (children, siblings, other individuals) are generally required under the SECURE 2.0 Act to withdraw the entire balance within 10 years of the original owner's death. Every dollar withdrawn by a non-spouse beneficiary from an inherited traditional IRA is taxable as ordinary income in the year of withdrawal.

Arizona's rules for inherited IRAs follow federal law directly, with no state-specific carve-outs. Under the federal SECURE Act, most non-spouse beneficiaries who inherit an IRA after January 1, 2020 must empty the account within 10 years rather than stretching distributions over their lifetime. Under IRS final regulations issued in 2024, federal law itself requires annual RMDs in years 1-9 of that window if the original owner had already started taking RMDs before death. This is not something Arizona imposes independently. Arizona does not offer a special deduction for inherited IRA distributions; its only relevant retirement-income subtraction (up to $2,500, under A.R.S. §43-1022) applies to government civil-service and military pensions, not privately-held inherited IRAs. Inherited IRA distributions are simply taxed as ordinary income at Arizona's flat 2.5% rate, and withdrawal timing should be coordinated against the federal 10-year/annual-RMD schedule to avoid preventable taxes and penalties.

A surviving spouse is the only beneficiary with real choices. You can roll the IRA into your own (the usual move, it becomes yours, with RMDs on your own schedule), or stay a beneficiary on an inherited IRA, which matters more than people think: beneficiary withdrawals skip the 10% early-withdrawal penalty if you're under 59½, and RMDs can wait until the year your spouse would have reached RMD age. SECURE 2.0 added a third option, electing to be treated as the deceased spouse for RMD purposes. The ten-year rule that hits your kids does not apply to you. But the bigger event is the tax-bracket change: the year after death, you generally file single (unless a dependent child qualifies you for qualifying surviving spouse status), with roughly half the bracket room and the same income. In Arizona that filing-status squeeze, not any state tax, is what needs planning.

A step-up in basis is a tax provision that resets the cost basis of an inherited asset to its fair market value on the date of the original owner's death. If your parent bought stock for $50,000 that was worth $300,000 at death, the heir's basis becomes $300,000, not $50,000. If the heir then sells the stock for $300,000, there is no capital gain and no capital gains tax. The $250,000 of appreciation that occurred during the original owner's lifetime permanently escapes capital gains tax. The step-up in basis is one of the most powerful, and most misunderstood, estate planning provisions in the tax code.

An inherited house and an inherited IRA are taxed in almost opposite ways, and the year you inherit either one is when the decisions that matter most actually get made. A house you inherit gets a step-up in basis to its fair market value on the date of the original owner's death, and in Arizona, a community property state, a surviving spouse typically gets a full step-up on both halves of a jointly owned home, not just the deceased spouse's half. That means if you sell the house soon after inheriting it, you likely owe little or no capital gains tax, because your cost basis reset to close to what it's worth today, not what the original owner paid decades ago. An inherited IRA works the opposite way: there is no step-up in basis, every dollar withdrawn from a traditional IRA is taxed as ordinary income to you, exactly as it would have been to the original owner, and under the SECURE Act, most non-spouse beneficiaries have to empty the account within 10 years of the death, with annual RMDs required within that window if the original owner had already started taking their own RMDs. The house rewards patience or a prompt sale with little tax consequence either way; the IRA rewards active, deliberate tax planning over a decade, because how and when you pull money out during those 10 years can be worth tens of thousands of dollars in tax, depending on your own bracket in each of those years.

With the federal estate and gift tax exemption at $15 million per person in 2026 and no Arizona estate or inheritance tax, most households with $1.5 million to $5 million will never owe estate tax. That shifts the real work of estate planning to two problems: who can act for you if you become incapacitated, and how smoothly your assets pass when you die. The core document set is a will with a pour-over provision, a revocable living trust, a durable financial power of attorney, a health care power of attorney and living will, a HIPAA authorization, current beneficiary designations on every retirement account and life insurance policy, and, where it fits, an Arizona beneficiary deed on real estate. Without a durable power of attorney, your family may need to petition an Arizona court for a conservatorship just to pay your bills. The most common failure is not a missing document but an unfunded trust: a signed trust that owns nothing does not avoid probate. The second most common is choosing a successor trustee based on birth order instead of skill, geography, and temperament. Review everything every three to five years and after any marriage, death, divorce, move, or major change in assets.