What is estate planning?
Estate planning is the process of planning for the management and disposition of your assets when you are unable to manage your own affairs and when you are deceased. While many people think estate planning is about assets or minimizing taxes or avoiding probate, we believe it is much more.
It is about accomplishing your goals during life and beyond. For many, this means taking care of those you love with everything you have.
We use the following definition of Estate Planning:
"I want to control my property while I am alive and well, I want to take care of me and my loved ones in the event that I become disabled, and then I want to give what I have to whom I want, the way I want, and when I want while paying the minimum in court costs, taxes and professional fees legally possible."
Who needs to do estate planning?
We believe every adult can benefit from some form of estate planning. Your alternative to completing your own plan is to let the IRS and state government make decisions for you, neither of which is particularly concerned about your interests. Many people don't plan their estates. The government knows this and as a result, each state has a plan for you. The problem is that it is the same plan for everyone without regard to anyone's wishes. By not completing your own plan, you have effectively chosen to accept the state's plan for you. Don't let this happen to your loved ones.
What is a Last Will and Testament (“Will”) and what topics do they need to cover?
A Last Will and Testament is a legal document designed to tell the probate court want to do with your assets after your death. To be valid, a will must comply with the laws of the state in which you live. All states have requirements regarding the signing and witnessing of your will and these requirements vary by state.
In a will the Testator (willmaker) nominates the Personal Representative (the person or institution) who is to settle the estate. In addition, if the Testator has minor children, he or she typically nominates the Guardian or Guardians for those children. We say nominate because the court actually appoints the Personal Representative and or Guardian, typically those nominated by the Testator.
Do assets sometimes pass outside of probate?
Yes. There are assets that pass by beneficiary designations. Three common assets that often pass by beneficiary designations are: 1) insurance policies and annuity contracts, 2) retirement plans, and 3) accounts to which the decedent attached pay on death (POD) or transfer on death (TOD) designations.
What are the pitfalls of passing assets by beneficiary designation?
We see the following problems related to beneficiary designations:
1. Flat Wrong – the decedent forgot about or did not keep his/her beneficiary designations current and it is unlikely that
the named designated beneficiary at death is the one he or she would have wanted.
2. Decedent Loses Control – assets passing by beneficiary designations pass outright to the beneficiary. The decedent has
no control over the use of the proceeds. An inheritance can warm and comfort or it can burn and destroy. There are
better techniques available to protect the beneficiaries and to assure that the decedent’s wishes are followed.
3. The Beneficiary Is Too Young. – naming an underage beneficiary will result in a court supervised conservatorship. This
involves an initial inventory, a financial plan and annual inventories until the beneficiary is 21. Many feel that this is a
costly and unnecessary process.
4. Old Enough but Too Young – many beneficiaries are old enough, but not able to effectively manage their finances. A
solution to this is to use a trust to manage that beneficiary’s inheritance. This is particularly important if the beneficiary
is a “special needs beneficiary” and might be disqualified from essential government programs should he or she receive
an inheritance by beneficiary designation.
5. The Beneficiary is Too Old (or unable to manage) – sadly the elderly are vulnerable and elder abuse is all too common
and often committed by family members or friends. For this reason it is often preferable to use a trust with a trusted
family member as trustee or co-trustee to assure that beloved beneficiary is protected.
In sum, effective planning involves coordinating your assets and the various methods of transfer and asset ownership to make sure that your wishes are followed. We help simplify this process through knowledge and experience.
If I have a will, does there need to be a probate?
A will often guarantees probate. Your will generally is not effective until after your death and after the will has been submitted to, and accepted by, the court.
Many people incorrectly believe that if they have a will, their Estate will not need to go through probate. The will does not avoid probate; the will merely provides the court direction about your wishes for asset distribution through the probate process.
What is Probate?
Probate is the name for the court process through which an Estate is administered if someone dies with a Will (testacy) or without any estate planning (intestacy). During the probate process, various matters are addressed, such as payment of creditors, gathering of Estate assets, payment of any unpaid taxes, determination of beneficiaries, appointment of a guardian, and distribution of assets. In Colorado, an estate valued at less than $50,000 with no real estate can use a small estate affidavit instead of Probate.
How can I avoid or minimize probate?
This can be done using several planning strategies. A frequently used tool to avoid probate is a “Revocable Living Trust.” When a Revocable Living Trust is set up, assets are transferred into the Trust so that at death, the appointed Trustee has the ability to manage and transfer them without going through the probate process. This may allow for a less complicated, less time-consuming and less expensive means to distribute an Estate.
How is a living trust different than a will?
Living trust planning provides advantages over wills and three of them are:
Trusts are private instruments. Wills are filed in the counties where a decedent lived at death. Trusts are not filed with
the court at death.
2. Probate Avoidance
Properly funded trusts (when assets are titled to the trust) avoid the need for Probate after death. Estate settlement
typically moves without court involvement. Wills often guarantee probate. A small estate (less than $50,000) can use a
small estate affidavit instead of probate.
3. Disability Planning
A properly drafted trust may avoid a conservatorship process upon a disability because a trust provides for planning
instructions for the management of your property and finances in the event of your disability. You name the Trustee
that will act in the event of disability. This is often a family member. A will does not contain any "above ground"
Can Estate Planning help save my Estate from paying taxes?
Yes. A significant objective of estate planning is to minimize or avoid estate or inheritance taxes altogether at the time of death. Many people are shocked when they learn the amount an estate can be taxed if thorough planning is not done in advance. Thorough planning can often reduce tax burdens to $0. At present, federal estate tax rates are 35% for estates over $5 Million.
What are Advanced Healthcare Directives and do I need them?
Advanced Healthcare Directives include a healthcare power of attorney, a health insurance portability and accountability act (HIPAA) authorization, a living will, and an anatomical gift instruction. You need these directives because they provide guidance for doctors and nurses to care for you in accordance with your wishes in the event you cannot make decisions for yourself. Families often have difficulty with making decisions for an incapacitated loved one and these directives give guidance to families too.
What is a Healthcare Power of Attorney (HCPOA) and what does it do?
A Healthcare Power of Attorney (sometimes referred to as a “Medical Proxy” or “Medical Power of Attorney”) is an instrument authorized by Colorado law allowing you to appoint another person to make medical decisions for you in the event you are unable to communicate. It is important that the person you appoint understand your desires. A Healthcare Power of Attorney differs from a Living Will in that the Living Will typically deals with an end of life scenario and the Healthcare Power of Attorney involves situations which may not involve end of life decisions. If you are over eighteen years of age, you should have a Health Care Power of Attorney.
What is HIPAA and is it important?
HIPAA refers to the Health Insurance Portability and Accountability Act of 1996. Part of HIPAA is known as The Privacy Rule. Most of us believe that our medical and other health information is private and should be protected, and we want to know who has this information. The Privacy Rule, a Federal law, gives you rights over your personal health information (PHI) and sets rules and limits on who can look at and receive your PHI.
HIPAA imposes financial penalties upon healthcare providers regarding unauthorized disclosure of PHI. Even family members may have difficulty receiving information about a loved one in an emergency or urgent situation without a HIPAA authorization allowing disclosure. For this reason it is important to have a HIPAA authorization in your Health Care Power of Attorney (HCPOA) or have a separate Standalone HIPAA Authorization. In the authorization, you authorize your Agent under your HCPOA to receive information to make your healthcare decisions when you cannot, and you can authorize others to receive information as well.
A HIPAA authorization is important because it informs your healthcare providers of specific individuals you have authorized to receive health information about you.
What is a Living Will?
A Living Will is an instrument authorized by Colorado law allowing you to express your desires about life support (including ventilators and feeding tubes) if you have a terminal condition and cannot communicate. A Living Will should be part of any estate plan.
What is a Durable Power of Attorney and why do I need one?
A Durable Power of Attorney is an instrument authorized by Colorado law allowing you to appoint another person to act for you with regard to personal, business and financial matters. In a Durable Power of Attorney, you authorize someone to be able to do a myriad of duties if you are unable to do them yourself and need or want assistance.
Who is a good choice for Personal Representative?
A good choice would be a family member or someone you trust who would have the time and capacity to handle estate settlement duties. Settlement duties include the duty of notifying heirs of estate proceedings, taking an inventory of the estate assets, giving notice to creditors, evaluating and paying claims against the decedent, filing income and estate tax returns as needed, managing the properties of the estate within the limitations established by the decedent's will and the probate laws, and eventually distributing the estate that remains after payment of attorneys' fees, personal representative's fees, estate and income taxes, and other costs of administration.
Who is a good choice for Trustee?
A trustee must be trustworthy, reasonable, well-organized, responsible, and must possess good listening skills. A trustee should also have either experience with investments, tax laws, legal issues and accounting, or access to those professionals who provide such expertise. Last but not least, the candidate must be able to get along with the beneficiaries of the trust and work with them effectively. In choosing a trustee, keep in mind that trustee duties may last over a long period of time. You may have an individual trustee or a corporate trustee.
How often should I review my estate plan?
Because there are ever changing circumstances in our lives, the process is continuous. Just as you maintain your car or have regular physical checkups, it is important to maintain your estate plan to make sure it meets your objectives because objectives may change over time. The following are circumstances that would necessitate a plan review:
- A birth or death in the family;
- A divorce;
- A change in your desire for the distribution of assets;
- A change in your financial circumstances;
- A desire to change one of your fiduciaries, such as your personal representative, trustee, or agent under a Durable Power of Attorney; or
- A change in the tax laws.
A review should be initiated under any of the above circumstances. It is advisable to review your plan with your estate planning attorney and other advisors at least annually.
Can I set up a Will or Living Trust using an internet or software form?
Internet and office supply store forms are generic and rarely work well for anyone. The legal requirements associated with estate planning are very state specific and precise. In addition, with wills and Trusts, the legal requirements can be inflexible and a mistake in their form or in their execution can make them either problematic or even unenforceable. The risk of making a costly mistake with generic documents outweighs the cost of having them prepared properly by an experienced estate planning attorney. We always advise to avoid generic forms and internet software, because sadly those using software programs often "don't know enough to know what they don't know."