Attorney & Counselor at Law
ROBERT M PHILLIPS
ESTATE PLANNING
Frequently Asked Questions
(click any topic below for more information)
Frequently Asked Questions
(click any topic below for more information)
Estate planning is a process involving the counsel of professional advisors who are familiar with your goals and concerns, your assets and how they are owned, and your family structure. It can involve the services of a variety of professionals, including your lawyer, accountant, financial planner, life insurance advisor, banker and broker. Estate planning covers the transfer of property at death as well as a variety of other personal and lifetime matters and may or may not involve tax planning. The core document most often associated with this process is your Will.
What is Estate Planning?
If you die intestate (without a Will), Colorado law will determine who receives your property. Typically the distribution would be to your spouse and children, or if none, to other family members. Colorado’s plan reflects the state legislature's determination as to how most people would dispose of their estate and builds in protections for certain beneficiaries. That plan may or may not reflect your actual wishes, and some of the built-in protections may not be necessary in a harmonious family setting. A Will allows you to alter the state's default plan to suit your personal preferences.
What Happens if You Die Without A Will?
A Will provides for the distribution of property owned by you at the time of your death in any manner you choose (subject to certain restrictions that prevent disinheriting a spouse). Your Will cannot, however, govern the disposition of property that passes outside your probate estate (such as certain joint property, life insurance, retirement plans and employee death benefits) unless they are payable to your estate.
Wills can be of various degrees of complexity and can be utilized to achieve a wide range of family and tax objectives. If a Will provides for the outright distribution of assets, it is sometimes characterized as a Simple Will. If the Will establishes one or more trusts, it is often called a Complex or Testamentary Trust Will. Or, the Will may leave probate assets to a trust that was created during your lifetime. In either case, the purpose of the trust arrangement (as opposed to outright distribution) is to minimize taxes, ensure continued property management and creditor protection for your surviving family members.
Aside from providing for the intended disposition of your property to spouse, children etc., there are a number of other important objectives that may be accomplished in your Will.
*You may designate a guardian for your minor child or children if you have survived the other parent, and, by judicious use of a trust and appointment of a trustee, eliminate the need for bonds and supervision by the court regarding the care of each minor child's estate
*You may designate an executor of your estate in your Will and eliminate the need for a bond; and you can avoid the need for court supervision of the settlement of your estate
*You may choose to acknowledge or otherwise provide for a child (e.g., stepchild, godchild, etc.) in whom you have an interest, an elderly parent, or other individuals
*If you are acting as custodian for the assets of a child or grandchild under the Uniform Transfers to Minors Act, you may designate your successor custodian and avoid the expense of a court appointment
Good planning can also enhance your support of religious, educational, and other charitable causes.
Wills can be of various degrees of complexity and can be utilized to achieve a wide range of family and tax objectives. If a Will provides for the outright distribution of assets, it is sometimes characterized as a Simple Will. If the Will establishes one or more trusts, it is often called a Complex or Testamentary Trust Will. Or, the Will may leave probate assets to a trust that was created during your lifetime. In either case, the purpose of the trust arrangement (as opposed to outright distribution) is to minimize taxes, ensure continued property management and creditor protection for your surviving family members.
Aside from providing for the intended disposition of your property to spouse, children etc., there are a number of other important objectives that may be accomplished in your Will.
*You may designate a guardian for your minor child or children if you have survived the other parent, and, by judicious use of a trust and appointment of a trustee, eliminate the need for bonds and supervision by the court regarding the care of each minor child's estate
*You may designate an executor of your estate in your Will and eliminate the need for a bond; and you can avoid the need for court supervision of the settlement of your estate
*You may choose to acknowledge or otherwise provide for a child (e.g., stepchild, godchild, etc.) in whom you have an interest, an elderly parent, or other individuals
*If you are acting as custodian for the assets of a child or grandchild under the Uniform Transfers to Minors Act, you may designate your successor custodian and avoid the expense of a court appointment
Good planning can also enhance your support of religious, educational, and other charitable causes.
What Does a Will Do?
What A Will Does Not Do
A will does not govern the transfer of certain types of assets, called non-probate property, which by operation of law or contract pass to someone else on your death. Generally speaking, it is advantageous in Colorado to minimize, or eliminate, the likelihood of some of your property passing by non-probate means so that your Will becomes a centralized “control center” for the coordination and distribution of all of your estate. It simplifies things.
Some Types of Non-probate Property:
Jointly Owned Property
If you own property with another person as joint tenants with right of survivorship or as just joint tenants or JTWROS, (including your residence) although the property will be a part of your taxable estate, its distribution will not be according to your Will. Instead, it will pass directly to the remaining joint tenant upon your death. While this may sound desirable, depending upon the nature of your estate, there can be unwanted side effects to consider.
For example, some people (particularly in older age) will add the name of one or more children or trusted friends to a bank account, or securities, or other property, as joint tenants merely for convenience so as to give the joint tenant continuing access to these accounts to pay bills, etc.. This can, however, lead to serious complications in the administration of their estate and as a result I rarely advise clients to hold property this way. Disputes, including litigation, are common between the estate of the original owner and the surviving joint tenant as to whether the survivor's name was added as a matter of convenience and/or management or whether a gift was intended. Furthermore, the planning built into a well-drawn Will may be partially or completely thwarted by an inadvertently created joint tenancy that passes property to a beneficiary by operation of law, rather than under the terms of the Will. There are other ways to accomplish the same lifetime goals without complicating the estate administration after death.
Many of these problems are also applicable to "pay on death" (POD) or “transfer on death” (TOD) forms of ownership of bank, broker, and mutual fund accounts and savings bonds. Effective planning requires knowledge of the consequences of each property interest and technique.
Community Property
Colorado is not a community property state. However, if you have ever lived in a community property state, some of your property may still be community property. Under community property laws, generally, property acquired during a marriage by either spouse (other than through inheritance, devise, or gift) is held equally by husband and wife as community property. Determining what is “your” property for estate planning purposes in these situations is not always easy, but it must be done for proper planning.
Trusts
The term trust describes the holding of property by a trustee (which may be one or more persons or a corporate trust company or bank) in accordance with the provisions of a written trust instrument for the benefit of one or more persons called beneficiaries. A person may be both a trustee and a beneficiary of the same trust.
A trust created on your death by language in your Will is called a testamentary trust and all of the trust provisions are contained in your Will. If you create a trust during your lifetime, the trust is called an inter vivos trust, and all of the trust provisions are contained in the trust agreement. The provisions of the trust document (rather than your Will or state law defaults) will determine what happens to the property in the trust upon your death.
Annuities and Retirement Benefits
You may be entitled to receive some type of retirement benefit under an employee benefit plan offered by your employer or have an Individual Retirement Account (IRA). Typically, a deferred compensation or retirement benefit plan will provide for the payment of certain benefits to beneficiaries designated by the employee in the event of the employee's death before retirement age. After retirement, the employee may elect a benefit option that will continue payments after his or her death to one or more of the designated beneficiaries. Certain spousal annuities are now mandated by law and may be waived only with the spouse's properly witnessed signed consent. The various payment options will be treated differently for tax purposes. Any person entitled to retirement benefits should seek competent advice as to the payment options available under his or her retirement plan and the tax consequences of each.
Life Insurance
If you own life insurance on your own life, you may either (a) designate one or more beneficiaries to receive the insurance proceeds upon your death, or (b) make the proceeds payable to your probate estate or to a trust created by you during your lifetime or by your Will.
If the insurance proceeds are payable to your estate, they will be distributed as part of your general estate in accordance with the terms of your Will. Under these circumstances, or even if you own the policy and name others as the beneficiaries (including your spouse and children), the proceeds will be included in your taxable estate. If the proceeds are payable to a trust, they will be held and distributed in the same manner as other trust assets and may also be free of creditors’ claims. In addition to these benefits, if the trust is the owner of the policy, complete avoidance of all estate taxes can be achieved.
Insurance plays an important role in estate planning and should be coordinated with all other aspects of your estate plan. The laws pertaining to the taxability of insurance proceeds are complex, however, so it is important that all matters pertaining to life insurance be carefully reviewed.
Some Types of Non-probate Property:
Jointly Owned Property
If you own property with another person as joint tenants with right of survivorship or as just joint tenants or JTWROS, (including your residence) although the property will be a part of your taxable estate, its distribution will not be according to your Will. Instead, it will pass directly to the remaining joint tenant upon your death. While this may sound desirable, depending upon the nature of your estate, there can be unwanted side effects to consider.
For example, some people (particularly in older age) will add the name of one or more children or trusted friends to a bank account, or securities, or other property, as joint tenants merely for convenience so as to give the joint tenant continuing access to these accounts to pay bills, etc.. This can, however, lead to serious complications in the administration of their estate and as a result I rarely advise clients to hold property this way. Disputes, including litigation, are common between the estate of the original owner and the surviving joint tenant as to whether the survivor's name was added as a matter of convenience and/or management or whether a gift was intended. Furthermore, the planning built into a well-drawn Will may be partially or completely thwarted by an inadvertently created joint tenancy that passes property to a beneficiary by operation of law, rather than under the terms of the Will. There are other ways to accomplish the same lifetime goals without complicating the estate administration after death.
Many of these problems are also applicable to "pay on death" (POD) or “transfer on death” (TOD) forms of ownership of bank, broker, and mutual fund accounts and savings bonds. Effective planning requires knowledge of the consequences of each property interest and technique.
Community Property
Colorado is not a community property state. However, if you have ever lived in a community property state, some of your property may still be community property. Under community property laws, generally, property acquired during a marriage by either spouse (other than through inheritance, devise, or gift) is held equally by husband and wife as community property. Determining what is “your” property for estate planning purposes in these situations is not always easy, but it must be done for proper planning.
Trusts
The term trust describes the holding of property by a trustee (which may be one or more persons or a corporate trust company or bank) in accordance with the provisions of a written trust instrument for the benefit of one or more persons called beneficiaries. A person may be both a trustee and a beneficiary of the same trust.
A trust created on your death by language in your Will is called a testamentary trust and all of the trust provisions are contained in your Will. If you create a trust during your lifetime, the trust is called an inter vivos trust, and all of the trust provisions are contained in the trust agreement. The provisions of the trust document (rather than your Will or state law defaults) will determine what happens to the property in the trust upon your death.
Annuities and Retirement Benefits
You may be entitled to receive some type of retirement benefit under an employee benefit plan offered by your employer or have an Individual Retirement Account (IRA). Typically, a deferred compensation or retirement benefit plan will provide for the payment of certain benefits to beneficiaries designated by the employee in the event of the employee's death before retirement age. After retirement, the employee may elect a benefit option that will continue payments after his or her death to one or more of the designated beneficiaries. Certain spousal annuities are now mandated by law and may be waived only with the spouse's properly witnessed signed consent. The various payment options will be treated differently for tax purposes. Any person entitled to retirement benefits should seek competent advice as to the payment options available under his or her retirement plan and the tax consequences of each.
Life Insurance
If you own life insurance on your own life, you may either (a) designate one or more beneficiaries to receive the insurance proceeds upon your death, or (b) make the proceeds payable to your probate estate or to a trust created by you during your lifetime or by your Will.
If the insurance proceeds are payable to your estate, they will be distributed as part of your general estate in accordance with the terms of your Will. Under these circumstances, or even if you own the policy and name others as the beneficiaries (including your spouse and children), the proceeds will be included in your taxable estate. If the proceeds are payable to a trust, they will be held and distributed in the same manner as other trust assets and may also be free of creditors’ claims. In addition to these benefits, if the trust is the owner of the policy, complete avoidance of all estate taxes can be achieved.
Insurance plays an important role in estate planning and should be coordinated with all other aspects of your estate plan. The laws pertaining to the taxability of insurance proceeds are complex, however, so it is important that all matters pertaining to life insurance be carefully reviewed.
What is a Revocable Living Trust?
Much has been written regarding the use of "living trusts" (also known as a "revocable trust" or "inter vivos trust") as a substitute for Wills. Some attorneys recommend the use of such “living trusts” to avoid a wide variety of perceived problems associated with Wills. It is my opinion and experience, however, that in Colorado there are less costly solutions, both in economic terms and in the personal effort required to maintain such trusts. I will certainly discuss this option with you in more detail if you desire.
What are Powers of Attorney?
Power of Attorney for Financial Matters
You should have someone (your spouse, a friend or a relative) who is authorized to act on your behalf in the event that you are unable to concerning your financial affairs. This is accomplished in Colorado using a Statutory Durable Power of Attorney for Property. This document is a broad grant of authority that will permit your designee to do almost anything that is in your best interest with respect to your financial affairs. Colorado law provides that a properly drafted power of attorney will be effective even after the disability or incapacity of the person who gave the power, and indeed that has become a primary reason to create such a power of attorney.
Power of Attorney for Health Care Matters
Colorado also provides for the delegation of health care decisions under a Health Care Power of Attorney covering a broad range of health care issues. This instrument can also include a so-called “Living Will” for the purpose of expressing your preferences regarding the use and duration of extraordinary medical measures if you are incapacitated and are in a terminal condition. Your anatomical gift preferences are also included in this document. Recent court cases that have drawn national attention, and requirements imposed by the federal HIPAA law, have made having a current, and recently drawn Health Care Power of Attorney all that more important. (See HIPAA Q&A).
You should have someone (your spouse, a friend or a relative) who is authorized to act on your behalf in the event that you are unable to concerning your financial affairs. This is accomplished in Colorado using a Statutory Durable Power of Attorney for Property. This document is a broad grant of authority that will permit your designee to do almost anything that is in your best interest with respect to your financial affairs. Colorado law provides that a properly drafted power of attorney will be effective even after the disability or incapacity of the person who gave the power, and indeed that has become a primary reason to create such a power of attorney.
Power of Attorney for Health Care Matters
Colorado also provides for the delegation of health care decisions under a Health Care Power of Attorney covering a broad range of health care issues. This instrument can also include a so-called “Living Will” for the purpose of expressing your preferences regarding the use and duration of extraordinary medical measures if you are incapacitated and are in a terminal condition. Your anatomical gift preferences are also included in this document. Recent court cases that have drawn national attention, and requirements imposed by the federal HIPAA law, have made having a current, and recently drawn Health Care Power of Attorney all that more important. (See HIPAA Q&A).
What is a Final Arrangements Representative?
You may designate someone to be your Final Arrangements Representative (FAR). This person will have the authority to dispose of your body and carry out andy other instructions contained in a writing related to your body, including funeral, burial, memorial or cremation arrangements. If no such writing is in existence or if the writing is ineffectice, your Personal Representative will have the authority to make these decisions. Your designated representaive must comply with your written instructinos and will have full and final authority to make decisions relted to your body and services.