Although no one wants to think about their own death, it couldn’t hurt to be prepared for the inevitable. You may think that what happens after you’re gone doesn’t matter. However, you could save your loved ones much trouble by thinking ahead and stating your wishes clearly.
Estate planning contains both financial and emotional considerations in regard to your assets and your family. When you don’t plan your estate, you forgo the right to make choices about the distribution of your assets or other important factors.
Wouldn’t you want to have a saying about what happens to your property or your children after you’re gone?
What Is Estate Planning?
Estate planning is deciding how to distribute your estate and settle any responsibilities you have. An estate is the sum of your belongings. This may include physical property, like a house or furniture; or intangible financial interests, like retirement benefits or stocks.
There are lots of options when it comes to disposing of your assets after you pass away or protecting them during your lifetime. An expert estate planning attorney will help you determine what action works best for you based on your needs and desires.
The first thing you need to do is examine your circumstances. Think about the assets you own, the children you have, or any other responsibilities you must arrange. You can make arrangements for any underage children or dependable adults you leave behind. This includes deciding who will be their legal guardian or what share of the estate will they obtain and when.
Estate planning is an ongoing process where you can make alternations during your lifetime to adjust to the given circumstances. In Colorado, you can have either a will or a trust as the foundation of your estate plan. The latter is comprised of a living will, based on the health care directive, and power of attorney which should all be clearly defined in essential estate planning documents.
Last Will and Testament
A will is a legal document which states a person’s wishes about their financial and family affairs.
A valid will in Colorado must satisfy the following requirements:
- It must be drafted by a testator of at least 18 years old; and
- signed by two witnesses, either before or after the testator’s death.
- The document can be either hand-written or typed.
- The law does not recognize oral or ‘non-cupative’ wills.
A will is only given effect by probate. This means that your estate will go through probate no matter how clear and unambiguous it is. A valid will acts as a guide in court to pass assets to your beneficiaries. A will is only enforced after death. When there is no will at death, the probate court will distribute your assets which we discuss below.
Trusts & Power of Attorney
A trust requires more planning during your lifetime, but has some significant benefits. You may believe that there is no need to make a plan while you’re still alive and able. Unfortunately, life is unpredictable and we should consider the worst-case scenarios, especially when we are responsible for children. A revocable living trust is enforced in case of incapacity and death.
Anyone can benefit from a trust. The most common step is to set up a revocable trust for minor children to cover their needs. This may involve their guardianship if you become incapable, or the conditional receiving of their share of your estate, in trust.
You remain the trustee of your trust while you’re alive and capable. In the event of your death, you can appoint someone to manage the beneficiaries’ share of the estate under the conditions you will set forth. For example, you can pass a share of the estate to your children when they reach certain ages, to avoid passing all your assets to a child right when they turn 18 or 21. You can amend the provisions of the trust at any time during your life and make changes to beneficiaries or their trust as they get older.
Concerning beneficiaries with special needs, it might be costly for them to directly inherit a share of your estate. For example, they may lose any government benefits they are receiving due to a disability when they inherit your estate. You can protect them by appointing someone to manage the estate on their behalf and still allow them to receive their share.
The trust-based method is more expensive than a will-based estate plan, but could save money later in the process and also make things easier for your loved ones.
This is another important factor to consider during your estate planning. At least half of the American population needs care assistance when they are elder. You can plan ahead and provide for yourself by including care provisions in your trust.
Long-term care or nursing home fees can be high in Colorado. Although Medicaid covers nursing home costs, you may qualify for it only if you meet their strict criteria.
To qualify for a nursing home under Medicaid you need to have:
- A monthly income of less than $2,349, or $4,698 for married couples
- Assets of less than $2,000, or $3,000 for married couples, with limited exceptions for equity in a home.
The income includes any money earned, from salary, rental income, social security benefits, etc. Medicaid also reviews your past financial activities for a period of five years to check for any prohibited transfers. In case such transactions exist, your eligibility may be delayed.
Probate is the legal process during which the probate courts administer and divide an estate of a deceased. When the deceased has no valid will, the court applies the intestate succession principles. Heirs at law are those who inherit your estate when you have no will at the time of death. This usually refers to the spouse and children, but can extend to parents, siblings, nieces and nephews and cousins depending on what family members survive you.
A will certainly makes probate easier and as long as the will is valid, the probate court will follow the testator’s will provisions. If not determined in the will, the court will appoint a personal representative, also called administrator or executor. This can either be a person or an entity and their role is to inventory your estate and publish a Notice to Creditors.
Creditors are people who may have a claim against your estate. They must be notified so they can make a claim and receive payment before the distribution of the estate.
The executor must also file a federal estate tax return form only if the estate comes close to or exceeds the exemption amount. This step is necessary even if the deceased owes no taxes. The exemption amount changes every year.
After the creditors’ notice period expires, and the claims and estate tax are paid, the estate distribution can occur and the estate can be closed.
Probate can be a costly, time-consuming, and complicated procedure. It may take from 6 months up to more than a year (for more complex cases). One way to avoid this process is by doing estate planning. Here are a few steps you can take to that effect:
- Give Away Your Entire Estate
- Joint Tenancy With Right of Survivorship
- List Pay-On-Death Beneficiaries
- Contractual Beneficiaries
- Living Trust
Estate Tax Planning
Estate tax is a tax on your right to transfer property at your death, and is collected by the Internal Revenue Service. At this time, the estate tax exemption is high, so for many of us there is no tax at our deaths, though this could change. If estate tax applies, the IRS calculate the value of your estate (Gross Estate) to determine whether an estate tax should be applied. An estate may contain cash and securities, real estate, insurance trusts, annuities, business interests, and more.
Some deductions and reductions may be applied to the overall value of your estate, before determining the taxable part. The reductions are subject to any mortgages, debts, estate administration expenses, the property passed to surviving spouse or qualified charities, and operating business interests or farms.
Contact Nicole McGann, Longmont and Boulder, Colorado Estate Planning Attorney for an Initial Consultation
Attorney Nicole McGann of McGann Law Group has extensive experience helping Longmont and Boulder, Colorado residents with their family estate needs. Contact us if you have any requirements or require support with your estate plan.