While most people intend to create an estate plan, or to update one they’ve already created, in reality, some people die without an ideal estate plan in place. Post-mortem is Latin for “after death,” and post-mortem planning is simply that: planning after death to maximize tax-saving opportunities, and minimize complications, for both the deceased person’s (decedent’s) estate and for the beneficiaries of the estate. Post-mortem planning needs of a Colorado estate will depend on a number of factors, including the size of the estate and any pre-existing estate plan created by the decedent.
Common Post-Mortem Planning Tools in Colorado
As of this writing, Colorado does not collect an estate or inheritance tax. However, there a variety of tax concerns that post-mortem planning can address, including federal estate taxes. One commonly used post-mortem planning tool is a Qualified Terminable Interest Property (QTIP) election. This is used in situations involving a decedent who was married at the time of death with a trust created for the surviving spouse’s benefit. Unless a QTIP election is made, the assets that are transferred to the trust may be subject to tax. A QTIP election may only be made on an estate tax return that is properly completed and filed.
Less well-known than the QTIP election is the “reverse QTIP.” This device allows the estate to make use of a tax exemption belonging to the decedent. With a reverse QTIP, this exemption (the “generation skipping tax,” or GST, exemption) can be used to protect assets in trust for a surviving spouse from being subject to generation skipping tax in the future. Without using the reverse QTIP, the exemption is lost and the assets may be subject to tax years after the decedent’s death, creating a heavy burden for beneficiaries.
Post-mortem planning can also be helpful in situations where the estate has significant assets, but not enough liquidity to pay estate taxes; this is sometimes the case with family businesses. Proper post-mortem planning can extend the available time in which to pay estate taxes attributable to a closely-held or family business for ten to fourteen years.
Other Advantages of Post-Mortem Planning
Even if a decedent’s estate will not owe federal estate tax, post-mortem planning can have tax advantages for a surviving spouse or other beneficiaries. For example, if the decedent does not use up all of the estate tax exemption to which he or she is entitled, post-mortem planning can allow the remainder to be “ported” to the surviving spouse and added to his or her own exemption, to protect more assets from tax at death than would otherwise be possible. This portability election must, however, be made within nine months of the first spouse’s death or it is lost forever.
Post-mortem planning also allows a beneficiary of an estate to elect to disclaim or bypass assets so that they will go directly to a successor beneficiary under the estate plan or Colorado law. This avoids tax consequences to the original beneficiary from receiving the assets and making a gift of them. Again, such an election must be made within nine months of the decedent’s death.
To learn more about how post-mortem planning can benefit your family and ease the tax burden on your estate and beneficiaries, contact the experienced estate planning and probate attorneys at Davis Schilken. Call us at 303-670-9855 to arrange a consultation at one of our two locations in The Denver Tech Center and Golden, Colorado. We look forward to working with you.