Estate
Planning Frequently Asked Questions
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1.
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WHAT
IS ESTATE PLANNING?
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Estate
planning is a process. It involves people
— your family, other individuals and in many cases
charitable organizations of your choice. It also
involves your assets and all the various
forms of ownership and title that those assets
may take.
As
you plan your estate, you will consider:
- How your assets will be managed
for your benefit if you are unable to do so
- When certain assets will be
transferred to others, either during your lifetime,
at your death, or sometime after your death
- To whom those assets will
pass
Estate
planning also addresses your welfare and needs,
planning for your own personal and health care
if you are no longer able to care for yourself.
Like many people, you may at first think that
estate planning is simply the writing of a will.
But it encompasses much more. As you will see,
estate planning may involve financial, tax, medical
and business planning. A will is one part of that
planning process, but other documents are needed
to fully address your estate planning needs. The
purpose of this section is to summarize the estate
planning process and how it can address and meet
your goals and objectives.
As
you consider it further, you will realize that
estate planning is a dynamic process. Just as
people and assets and laws change, it may well
be necessary to adjust your estate plan every
so often to reflect those changes.
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2.
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WHAT
IS INVOLVED IN ESTATE PLANNING?
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In
starting to consider your estate plan, you should
ask yourself the following questions:
- What are my assets and what
is their approximate value?
- Whom do I want to receive
those assets — and when?
- Who should manage those assets
if I cannot, either during my lifetime or after
my death?
- Who should have the responsibility
for the care of my minor children if I become
incapacitated or die?
- If I cannot take care of myself,
who should make decisions on my behalf concerning
my care and welfare?
With
tentative answers to these questions, you are
ready to seek the advice and services of a qualified
lawyer who will discuss with you the various documents
which can comprise your estate plan and will provide
advice concerning such issues as title to assets,
taxes, and the prudent management of your estate.
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3.
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WHO
NEEDS ESTATE PLANNING?
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Whatever
the size of your estate, you should designate
the person who, in the event of your incapacity,
will have the responsibility for the management
of your assets and your care, including the authority
to make health care decisions on your behalf.
How that is accomplished is discussed below in
this pamphlet.
If
your estate is small in value, you may focus simply
upon who is to receive your assets after your
death and who should be in charge of its management
and distribution. If your estate is larger, your
lawyer will discuss with you not only who is to
receive your assets and when, but also various
ways to preserve your assets for your beneficiaries
and to reduce or postpone the amount of estate
tax which otherwise might be payable on your death.
If
one does no planning, then Colorado law provides
for the court appointment of persons to take responsibility
for your personal care and assets. Colorado
also provides for the distribution of assets in
your name to your heirs pursuant to a set of rules
to be followed if you die without a will; this
is known as "intestate succession."
Contrary to popular myth, if you die without a
will, everything does not automatically go to
the state. If you have any relatives (whether
through your own family or that of your spouse),
regardless of how remote, they will be your heirs
ahead of the state. Nonetheless, they may not
be the people you would want to inherit from you;
therefore, a will is the preferable approach.
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4.
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WHAT
IS INCLUDED IN MY ESTATE?
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Your
estate consists of all property or interests in
property which you own. The simplest examples
are those assets which are in your name alone,
such as a bank account, real estate, stocks and
bonds, and furniture, furnishings and jewelry.
You
may also hold property in many forms of title
other than in your name alone. Joint tenancy is
a common form of ownership which takes assets
away from control by will or living trust. Beneficiary
designations on securities accounts and bank accounts
are alternatives which must be carefully considered
as well. Finally, assets which have beneficiary
designations, such as life insurance, IRAs, qualified
retirement plans and some annuities are very important
parts of your estate which require careful coordination
with your other assets in developing your estate
plan.
The
value of your estate is equal to the "fair
market value" of each asset that you own,
minus your debts including a mortgage on your
home or a loan on your car.
The
value of your estate is important in determining
whether, and to what extent, your estate will
be subject to estate taxes upon your death. Planning
for the resources needed to meet that obligation
at your death is another important part of the
estate planning process.
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5.
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WHAT
IS A WILL?
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A
will is a traditional legal document which is
effective only at your death to:
Name
individuals (or charitable organizations) to receive
your assets upon your death (either by outright
gift or in trust)
Nominate
an executor, appointed and supervised by the probate
court, to manage your estate, pay debts and expenses,
pay taxes, and distribute your estate in an accountable
manner and in accordance with your will
Nominate
the guardians of the person and estate of your
minor children, to care and provide for your minor
children
Assets
or interests in property in your name alone at
your death will be subject to your will and subject
to the administration of the probate court, generally
in the county where you reside at your death.
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6.
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WHAT
IS A REVOCABLE LIVING TRUST?
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A
revocable living trust is also commonly referred
to as a revocable inter vivos trust, a grantor
trust or, simply, a living trust. A living trust
may be amended or revoked by the person creating
it (commonly known as a "trustor," "grantor,"
or "settlor") at any time during the
trustor's lifetime, as long as the trustor is
competent.
A
trust is a written agreement between the individual
creating the trust and the person or institution
named to manage the assets held in the trust (the
"trustee.") In many cases, it is appropriate
for you to be the initial trustee of your living
trust, until management assistance is anticipated
or required, at which point your trust should
designate an individual or bank or trust company
to act in your place. The terms of the trust become
irrevocable upon the trustor's death. Because
the trust contains provisions which provide for
the distribution of your assets on and after your
death, the trust acts as a substitute for your
will, and eliminates the need for the probate
of your will with respect to those assets which
were held in your living trust at your death.
You
should execute a will even if you have a living
trust. That will is usually a "pour over"
will which provides for the transfer of any assets
held in your name at your death to the trustee
of your living trust, so that those assets may
be distributed in accordance with your wishes
as set forth in your living trust.
You
should consult with a qualified estate planning
lawyer to assist you in the preparation of a living
trust, will and other estate planning documents.
Further, inasmuch as living trusts are not automatically
subject to probate court jurisdiction, the choice
of a trustee to manage and control your property
is an extremely important decision.
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7.
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WHAT
IS PROBATE?
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Probate
is the court-supervised process developed under
Colorado law which has as its goal the transfer
of your assets at your death to the beneficiaries
set forth in your will, and in the manner prescribed
by your will. It also provides for the relatively
quick determination of valid claims of any creditors
who have claims against your assets at your death.
At the beginning of a probate administration,
a petition is filed with the court, usually by
the person or institution named in your will as
executor. After notice is given, and a hearing
is held, your will is admitted to probate and
an executor is appointed. If you die "intestate"
(that is, without a will), your estate is still
subject to probate court administration and the
person appointed by the court to handle your estate
is known as the "administrator."
Colorado
has an "informal" probate procedure.
If "formal", court assisted probate
is not required by your will and no beneficiary
objects, the personal representative of your estate
can perform most acts without court intervention.
A
probate has advantages and disadvantages. The
probate court is accustomed to resolving disputes
about the distribution of your assets in a relatively
expeditious fashion and in accordance with defined
rules. In addition, you are assured that the actions
and accountings of your executor will be reviewed
and approved by the probate court.
Disadvantages
of a probate include its public nature; your estate
plan and the value of your assets become a public
record. Also, because of lawyer's fees and personal
representative fees, the expenses may be greater
than the expenses incurred by a comparable estate
managed and distributed under a living trust.
Time can also be a factor; often distributions
can be made pursuant to a living trust more quickly
than in a probate proceeding.
The
advantages and disadvantages of a probate proceeding
should be discussed thoroughly with your estate
planning lawyer.
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8.
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TO
WHOM SHOULD I LEAVE MY ASSETS?
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Once
you have determined who should receive your assets
at your death, your estate planning lawyer can
help you clarify and appropriately identify your
beneficiaries. For instance, it is most important
to clearly identify by correct name any charitable
organizations you wish to provide for; many have
similar names and in some families, individuals
have similar or even identical names.
It
is also important for you to consider alternative
distributions of assets in the event that your
primary beneficiary does not survive you.
As
for beneficiaries who by reason of age or other
infirmity may not be able to handle assets distributed
to them outright, trusts for their benefit may
be created under your will or living trust. You
cannot disinherit a spouse under Colorado law
without a written agreement with the spouse. The
choice of any other beneficiary is in your discretion.
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9.
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WHOM
SHOULD I NAME AS MY PERSONAL REPRESENTATIVE?
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After
your death, the executor of your will and the
trustee of your living trust serve almost identical
functions. Both are responsible for ensuring that
your wishes, as set forth in your will or living
trust, are implemented. Although your personal
representative is generally subject to direct
court supervision, both the personal representative
and the trustee have similar fiduciary responsibilities.
The trustee of your living trust may assume responsibilities
under that document while you are living. While
you may act as the initial trustee of your living
trust, if you become incapable of functioning
as a trustee, the designated successor trustee
will then step in to manage your assets for your
benefit. A personal representative or trustee
may be a spouse, adult children, other relatives,
family friends, business associates or a professional
fiduciary such as a bank. You should discuss your
choice with your estate planning lawyer. There
are a number of issues to consider. For example,
will the appointment of one of your adult children
cause undue stress in his or her relations with
siblings? What conflicts of interest are created
if a business associate or partner is named as
your executor or trustee? Will the person named
as personal representative or successor trustee
have the time, organizational ability, and experience
to do the job effectively?
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10.
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HOW
SHOULD I PROVIDE FOR MY MINOR CHILDREN?
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A
minor child is a child under 18 years of age.
If both parents are deceased, a minor child is
not legally qualified under Colorado law to
care for himself or herself. In your will, therefore,
you should nominate a guardian of the person of
your minor children to supervise that child and
be responsible for his or her care until the child
is 18 years old.
Such
a nomination can avoid a "tug of war"
between well-meaning family members and others
if a guardian is required.
A
minor is also not legally qualified to manage
his or her own property. Assets transferred outright
to a minor must be held for the minor's benefit
by a guardian of the child's estate, until the
child attains 18 years of age. In providing for
minor children in your estate plan, you should
consider the use of a trust for the child's benefit,
to be held, administered and distributed for the
child's benefit until the child is at least 18
years old or of some other age as you may decide.
You may also consider a custodian account under
the Colorado Uniform Transfers to Minors Act as
an alternative in making specific gifts to minors.
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11.
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WHEN
DOES ESTATE PLANNING INVOLVE TAX PLANNING?
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Estate
taxes are imposed upon an estate which has a net
value -- in 2003 -- of $1,000,000 or more. Under
current law, that amount will increase, in uneven
increments, to $3,500,000 in 2009. For estates
which approach or exceed this value, significant
estate taxes can be saved by proper estate planning,
usually before death and, in the case of married
couples, before the death of the first spouse.
Estate planning for taxation purposes must take
into account not only estate taxes, but also income,
gift, property and generation-skipping taxes as
well. Qualified legal advice about taxes should
be obtained during the estate planning process.
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12.
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HOW
DOES THE WAY IN WHICH I HOLD TITLE MAKE A DIFFERENCE?
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The
nature of your assets and how you hold title to
those assets is a critical factor in the estate
planning process. Before you change title to an
asset, you should understand the tax and other
consequences of any proposed changed. Your estate
planning lawyer will be able to advise you.
Joint
Tenancy Property
Regardless
of its source, if a property is held in joint
tenancy, it will pass to the surviving joint tenant
by operation of law upon the death of the first
joint tenant. On the other hand, property held
as tenants in common, will be subject to the will
of a deceased owner.
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13.
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WHAT
ARE OTHER METHODS OF LEAVING PROPERTY?
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A
number of assets are transferred at death by beneficiary
designation, such as
- Life insurance proceeds
- Qualified or non-qualified
retirement plans, including 401 (k) plans and
IRAs
- Certain "trustee"
bank accounts
- "Transfer on death"
(or "TOD") securities accounts
- "Pay on death" (or
"POD, assets, a common title on U.S. savings
bonds
These
beneficiary designations must be carefully coordinated
with your overall estate plan. Your will does
not govern the distribution of these assets.
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14.
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WHAT
IF I BECOME UNABLE TO CARE FOR MYSELF?
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If
you do not make any arrangements in advance, a
court-supervised conservatorship proceeding may
be required if you become incapacitated.
Conservatorships
are proceedings which allow the court to appoint
the person responsible for your care and for the
management of your estate if you are unable to
do so yourself.
You
should, therefore, select the person or persons
you wish to care for you and your estate in the
event that you become incapable of managing your
assets or providing for your own care.
With
respect to the management of your assets, the
trustee of your living trust will provide the
necessary management of those assets held in trust.
However, to deal with assets which may not have
been transferred to your living trust prior to
your incapacity or which you may receive after
incapacity, a durable power of attorney for property
management should be considered. In such a power,
you appoint another individual (the "attorney-in-fact")
to make property management decisions on your
behalf. The attorney-in-fact manages your assets
and functions much as a conservator of your estate
would function, but without court supervision.
The authority of the attorney-in-fact to manage
your assets ceases at your death.
A
durable power of attorney for health care allows
your attorney-in-fact to make health care decisions
for you when you can no longer make them yourself.
It may also contain statements of wishes concerning
such matters as life sustaining treatment and
other health care issues and instructions concerning
organ donation, disposition of remains, and your
funeral.
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15.
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WHO
SHOULD HELP ME WITH MY ESTATE PLANNING DOCUMENTS?
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Can
I Do It Myself?
It
is possible for a person to do his or her own
estate planning with forms or books obtained at
a stationery or book store or from the Internet.
At the least, a review of such forms can be helpful
in preparing you for doing estate planning. If
you do review such materials and have any unanswered
questions, however, you should seek professional
help. The signing of a will is very formal and
if not done properly, may invalidate the will.
Do
I Need a Professional To Help?
If
you do seek advice, wills and trusts are legal
documents which should be prepared only by a qualified
lawyer. However, many other professionals and
business representatives may become involved in
the estate planning process. For example, certified
public accountants, life insurance salespersons,
bank trust officers, financial planners, personnel
managers and pension consultants often participate
in the estate planning process. Within their areas
of expertise, these professionals can assist you
in planning your estate.
You
should seek advice only from professionals who
are qualified to give estate planning advice.
Many professionals must be licensed by the State
of Colorado. Before retaining any professional
to assist you with your estate plan, you should
inquire about that individual's qualifications.
In addition, you should determine whether the
professional advisor has any underlying financial
incentive to sell you a particular investment,
such as an annuity or life insurance policy, because
that financial incentive may color the advice
given to you. Unfortunately, some sellers of dubious
financial products gain the confidence and private
financial information of their victims by posing
as providers of estate or trust planning services.
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16.
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SHOULD
I BEWARE OF SOMEONE WHO IS A "PROMOTER"
OF FINANCIAL AND ESTATE PLANNING SERVICES?
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There
are many who call themselves "trust specialists,"
"certified planners" or other titles
which are intended to suggest that the person
has received advanced training in estate planning.
The nation as a whole is experiencing an explosion
of promotions by unqualified individuals and entities
which have only one real goal -- to gain access
to your finances in order to sell insurance-based
products such as annuities and other commission-based
products.
Here
are some helpful hints and suggestions:
- Before considering a living
trust or any other estate or financial planning
document or service, consult with a lawyer or
other financial advisor who is knowledgeable
in estate planning, and who is not trying to
sell a product which may be unnecessary.
- Always ask for time to consider
and reflect on your decision. Do not allow yourself
to be pressured into purchasing an estate or
financial planning product.
- Be wary of home solicitors
who insist on receiving confidential and detailed
information about your assets and finances.
- Find out if any complaints
have been filed against the company by calling
local and state consumer protection offices
or the Better Business Bureau.
- Know whom you are talking
to and insist on identification of the person
and a description of his or her qualifications,
education, training and expertise in the field
of estate planning.
- Always ask for a copy of any
document you sign at the time it is signed.
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17.
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WHAT
ARE THE COSTS INVOLVED IN ESTATE PLANNING?
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The
costs of estate planning depend on your individual
circumstances and the complexity of documentation
and planning required to achieve your goals and
objectives. Costs may vary from lawyer to lawyer.
The costs generally will include the lawyer's
charges for discussing your estate plan with you
and for preparing your will, trust agreement or
other legal documents which you may need.
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The
purpose of this FAQ is to provide general information
on the law, which is subject to change. If you
have a specific legal problem, you may wish to
consult a lawyer.
As
your attorney, David Salsbury can assist you in
accomplishing your business and personal goals
through expert, efficient, and timely advice.
If you have any questions about the services provided
or the fees and costs involved, please
telephone our offices at (720)
493-3911 or
send
us an e-mail message.
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