Don’t let difficult decisions keep you from creating an effective plan.
- Estate Planning
- Probate and Trust or Estate Administration
- Wills and Trusts
- The Mechanics of a Revocable Trust
- Advantages to Creating a Revocable trust
- Powers of Attorney, and Health Directives or Living Will
- Tax Planning and Advice
- Retirement Assets, Joint Assets and Life Insurance
- Asset Protection and Wealth Preservation
- Small Business Law and Succession Planning
- Elder Law
- Special Needs Planning and Advising for Disabilities
Kristin will conduct a comprehensive analysis of your assets and liabilities, including the exposure to transfer and income taxes in states other than Colorado, to customize a personal estate plan for you and your family. She will discuss the different options available to you based on your desire for asset protection, requirement to reduce your taxable estate, ease of administration or management, and desired flexibly in your plan.
Probate and Trust or Estate Administration
After a person’s death, probate is the process of winding up the decedent’s affairs, handling any outstanding creditor obligations, and transferring ownership of property. The executor of the estate, known as the personal representative in Colorado, can be held personally liable for mistakes or mismanagement while administering the estate. Seeking a qualified attorney to advise on the law and assist in compliance with the law allows most probates to be concluded relatively quickly and inexpensively. Probates can be informal if there is no contention about the will or estate. A formal probate will be required if a beneficiary raises an objection before or during the informal probate process, there are insufficient assets in the estate to pay creditors, there are problems with the personal representative’s administration / behavior, or the validity of the will is brought into question. A formal probate generally requires a longer period to conclude, is more expensive and the personal representative’s actions are brought under the supervision of a judge.
Wills and Trusts
Both of these documents provide for a distribution of your assets upon your death. A Will allows you to name a guardian for any children under the age of eighteen (18) and provide for testamentary trusts (created after your death) to hold assets for children or any other beneficiaries. Probate in Colorado is relatively straightforward and inexpensive, therefore creating a revocable trust (also referred to as a living trust), may not be necessary as it is in some other states with higher probate costs. A revocable trust offers several advantages to a Will and will be better estate planning tool for you if you own real property in another state, have children under eighteen (18) years old, want your designations to remain private or wish for a seamless transition in managing your assets if there is concern about illness, frequent travel, diminishing capacity, or any other reason you wish for a co-trustee to take over the management of your assets.
The Mechanics of a Revocable Trust
Creating a revocable trust provides a separate entity to hold, manage, and distribute your assets. The trust creator, also known as the grantor or settlor, may act as sole trustee, or may elect to name a spouse, child or other fiduciary as co-trustee. Having a co-trustee or successor trustee, one who would only step in the shoes of the trustee if the serving trustee could not act, allows for a seamless transition in the management and administration of the trust upon absence, temporary illness, or incapacity and eventually death of the serving trustee. Property can be transferred to trust directly by the grantor during life, by a power of attorney during the grantor’s incapacity, or by a “pour over” Will upon the grantor’s death. The Will used with a Revocable trust is referred to as “pour over” Will because it simply pours any assets owned by the decedent into his or her trust. There are no income or estate tax advantages or disadvantages to having a revocable trust, however, probate can be avoided if most of the grantor’s probate assets are transferred to the trust during with the exception that one may personally retain some small accounts, a vehicle and personal property the total value of which may not exceed $64,000 (this is the current “small estate” value for 2016 in Colorado). Upon the grantor’s death, the trust becomes irrevocable and cannot be changed.
Advantages to Creating a Revocable Trust
- You Own Real Property In More than One State. If you own real property in a state other than Colorado (this includes timeshare ownership and oil and gas interests, but excludes stocks or interests in an LLC or family partnership), you will need to probate your Will in each state where you own real property. Probating a Will in more than one state is problematic because you must find a good attorney in a state where you may have few contacts to assist you, that state may have an expensive or difficult probate process, it can add to the expense of administering your estate for your personal representative or executor. These problems can be avoided by transferring any out of state real property to your revocable trust or an LLC during your lifetime.
- Avoiding the Delays of Probate. Property placed in trust can be transferred quickly to beneficiaries following death without going through the probate process. Unlike New York, California and Florida, which have the most challenging and expensive probate proceedings in the county, Colorado has one of the most efficient probate processes in the county, so avoiding probate is not as big a concern in Colorado.
- You Have Children Under Eighteen (18). By avoiding the delays probate can cause on the transfer of assets, your trustee will have immediate access to pay for any expenses required for the care of your children. Additionally, if you are injured and alive, but do not have the capacity to handle your affairs, a Trustee can follow the guidelines of your Trust to administer your assets and care for your dependents with clear legal guidance and fiduciary duties. Compare this to having a Will and Power of Attorney, where there is minimal fiduciary guidance on how to care for your dependents until your death (because the trust set up for your children in your Will is not effective until your death), and an agent under a power of attorney is given very broad powers that do not have the same fiduciary obligations as a Trustee. A fiduciary is someone who has the legal obligation to care for another and hold that person’s best interest above the fiduciary’s own interests. Fiduciary obligations include the duty of care, duty of loyally and avoidance of self-dealing.
- You are Concerned About the Effective Management of Your Assets. One of the best reasons to create a revocable trust is to provide for an easy transition in the management of assets from one trustee to another. This is similar to #3 above. Initially, the trust creator may act as sole trustee, or may elect to name a spouse, child or other fiduciary as co-trustee. Having a co-trustee or successor trustee, one who would only step in the shoes of the trustee if the serving trustee could not act, allows for a seamless transition in the management and administration of the trust upon absence, temporary illness, or incapacity and eventually death of the serving trustee. A co-trustee’s role can be limited to only making certain decisions, only acting if there is unanimous or majority agreement among all co-trustees, or may be unfettered so that the co-trustee may act with the same authority as the grantor.
- You Want to Keep Your Designations Private. If a Will is lodged with the probate court, it becomes part of the public court record and can be seen by anyone who requests to see it. All estate plans should have a Will, however, if you wish for your designations to remain private by creating a revocable trust, the Will simply states that all assets are transferred to trust and the trust provides for the specific designations to each beneficiary. This can be important if you are disinheriting a relative or are concerned about a Will contest due to conflict within the family, which may arise if your family has a conflict with your partner or lifestyle.
Powers of Attorney, and Health Directives or Living Will
General (Statutory) Durable Power of Attorney. Much more important then a Will while you are alive if you are ever unable to handle your affairs for any reason. A general durable power of attorney allows your attorney-in-fact to handle your affairs. Without a current signed power of attorney in place, a conservator would have to be appointed by the court to manage your assets or those assets outside of your trust if you have created one. Under Colorado law, a principal must specifically grant certain “hot” powers to be exercisable by the agent, rather than as a broad general grant of power. This document should generally be updated at least every five (5) years.
Limited or Special Power of Appointment. A general power of appointment grants very broad powers, however, if you only need your agent to perform a specific task or want to limit the amount of time the agent can exercise authority over your assets, a limited power of appointment will provide for a temporary or restricted grant of power over your assets. For example, a limited power of attorney could be used if you needed to be hospitalized for a short time and needed someone to look after your affairs for a few only a few weeks, or if you wanted your investment advisor to make decisions on investing a certain amount of cash held by your revocable trust but did not want his authority to extend beyond those decisions.
Medical Power of Attorney. The Powers of Attorney described above only allow the person designated to conduct your financial affairs and limited personal matters. The Medical Powers of Attorney allow the person designated to make medical decisions for you, including the withholding or removal of life support, in the event you are unable to.
Advanced Directive for Medical or Surgical Treatment (Living Will). The Living Will instructs a physician how you wish to be treated if you require life support and you have a terminal condition or are in a persistent vegetative state. This is different from the Medical Power of Attorney which names someone to make all medical decisions for you if you are unable to do so. Under Colorado law, a Living Will controls over a Medical Power of Attorney unless you indicate otherwise.
HIPAA Authorization. This form authorizes your agents to obtain your medical information in order to determine if you are incapacitated or what treatment you need. It is also a good idea to have your agents sign such a release so it can be determined if his or her capacity can be evaluated if there is a problem.
Declaration of Last Wishes. This document allows you to provide for any ceremonial or burial instructions and wishes regarding organ donation.
Tax Planning and Advice
American Taxpayer Relief Act. The American Taxpayer Relief Act (“ATRA”), enacted on January 2, 2013, made permanent a $5,000,000 exemption amount for transfer taxes affecting estate, gift and generation skipping transfer (“GST”) taxes for each individual. This exemption is indexed for inflation,and is currently, $5,430,000 in 2015, and $5,450,000 for 2016 per individual. With a population of more than 300 million people in the United States, it is estimated that less than 3,500 taxpayers will be subject to a transfer tax in 2015. Facing a loss in revenue from transfer taxes, the IRS has shifted more tax revenue generation to income taxes. This does not make tax planning obsolete for estate planning, but rather shifts the focus to managing the adjusted tax basis of your assets to avoid capital gains tax and other income taxes as much as possible. An estate plan that considers how to manage the tax basis of your assets will result in substantial income tax savings to your family that would otherwise be lost.
Updating Older Estate Plans. Many estate plans created before 2010 contain tax planning designed to save estate taxes when there was a lower estate tax exemption in existence. Due to the dramatic changes created by ATRA, existing estate plans should be reviewed to determine if your current plan continues to minimize tax liabilities (such as capital gains taxes and the 3.8% tax on net investment income), maximizes asset protection, and effectively accomplishes your goals under the new tax rules. Many older plans include tax planning trusts for the surviving spouse that are no longer needed or wanted.
Portability. Portability allows a surviving spouse to apply or “port” any unused excess estate tax exclusion from their deceased spouse’s estate to his or her own estate. For example, if a husband dies with $2 M in assets titled in his name, he uses up $2 M of the $5,450,000 he is entitled to own upon his death without owing taxes. As the surviving spouse, the wife receives a large inheritance of $10 M after husband’s death. Wife can apply her $5,450,000 estate tax exclusion, plus her late husband’s remaining $3,450,000 exclusion to avoid estate tax on $8,900,000 of the money. An Estate Tax Return must be filed in a timely manner to obtain this elected benefit.
Retirement Assets, Joint Assets and Life Insurance
Certain types of property are “non-probate” assets which pass according to the provisions of the contract instead of under your Will. Real property held as joint tenants or a joint bank account with rights of survivorship, accounts that transfer on death (TOD) or assets with a named beneficiary, retirement accounts (such as IRAs), and life insurance policies are the most common of these types of assets. The ownership and beneficiary designations for such property should be coordinated with your overall estate plan. If you have minor children, these beneficiary designations should never name your children outright, rather the separate trusts created for your minor children should be named to avoid having to establish a court conservatorship.
Asset Protection and Wealth Preservation
There are a number of strategies that can be employed for asset protection and wealth preservation within a family. These strategies must be specifically tailored to each client based on a person’s assets, future goals, and family dynamics. Additional content will be added to this section in the near future to expand on this topic.
Small Business Law and Succession Planning
Owning and operating, as well as establishing or dissolving, a small business has many responsibilities. Whether you are in the conceptual phase, winding down a company or wish to pass ownership to your family, employees or a unknown third party Kristin Dittus can help you through each of these milestones. Services for businesses include information and advice on the following:
- Entity formation, including the consideration of which type of business organization, an s-corporation, corporation, a limited liability company (LLC), family limited partnership, or other entity, suits your needs best
- Drafting the required formation documents, such as articles of incorporation, articles of organization, by-laws, operating agreements, etc.
- What the filing requirements are for Colorado and the IRS
- Which professionals, accountant, banker, insurance agent, financial planner, are needed to assist you with your business
- Required records, such as keeping company minutes, documents, and other records
- How to limit your liability as a business owner
- Important considerations when hiring employees or independent contractors
Elder law takes into consideration what to do if a person requires long term care and needs to qualify for Medicaid. Medicaid will offer assistance in paying for health care costs associated with long term care that is deemed medically necessary if the person qualifies under Medicare’s strict standards. The type of planning required will depend on the specific circumstances of each client, including marital status, monthly income, and the total assets a client and spouse hold. Please see the topic below for more information about how to plan for an elder with special needs.
Special Needs Planning and Advising for Disabilities
A special needs trust (“SNT”) can be created for a person who has special needs or is disabled and requires governmental assistance for his or her care. A SNT provides benefits to a beneficiary that are beyond the means of the governmental assistance and will also protect the beneficiary’s eligibility for programs such as for Supplemental Security Income (SSI) or Medicaid. This type of planning is also important for an anticipated disability, even if your loved one does not currently require any government assistance.
A SNT can be created by a third party or self-settled. If a child has a disability, a parent or grandparent will want to create a SNT to ensure the child receives continuous care after the benefactor’s death. This will also be true if a child has an aging parent and wants to ensure there are additional benefits for the parent should anything happen to the child. If a recipient of SSI or Medicaid has gone through the extensive process and expense to qualify for benefits and then receives even a small inheritance, the recipient will likely be disqualified from the government program and will need to endure trouble and expense to requalify for continued care. This can cause substantial detriment to a person requiring regular care as well as to the loved ones assisting them with his or her care. Assets held in a SNT are not considered property of the beneficiary, and therefore do not interfere with government assistance. The trustee for a SNT should seek guidance from a qualified attorney to comply with all SSI and Medicaid requirements because certain distributions from the trusts can affect government benefits which can be easily avoided with informed decisions.
Self settled trusts, sometimes referred to as D-4A trusts after the Federal Code Section 42 U.S.C. 1396 (d)(4)(A) which provides guidance and authority for the establishment of such trusts, are often funded with an inheritance or proceeds from legal settlements or lawsuits. The trust must be created by a parent, grandparent, legal guardian, or court. A self settled trust differs from a SNT created by a third party because the statute requires reimbursement to the state for medical assistance. If the medical assistance provided during the beneficiary’s life does extinguish the trust assets, then upon the death of the beneficiary, any remaining trust assets may pass to remainder beneficiaries. The distinguishing difference between a self-settled trust or a trust created by a third party is whether or not the beneficiary had the right to possess the assets before the trust was established.
Special needs trusts must be carefully drafted by someone familiar with the subject matter and tailored to the unique requirements of each beneficiary, and then administered by an informed trustee, otherwise there is a risk the beneficiary will lose government benefits necessary to his or her care.