Failing to plan is your plan to fail. Procrastination is a bad choice. You have the opportunity today to make a difference in how your family is affected by your potential mental incapacity and eventual passing. You can avoid a crisis by planning now!

Q. What Is “Funding” of a Trust?

Imagine a jig-saw puzzle.  You see the completed picture on the box, but when you open it, there are loose pieces that you need to put together to create the picture.  Your pieces all of your different types of assets and property.

A revocable trust is the keystone of a robust, comprehensive estate plan. Funding is the key to making that keystone work as intended. A good estate planning attorney will make sure that the client has a coordinated and comprehensive estate plan in place to accomplish their goals and that it is funded.

A coordinated and comprehensive estate plan includes all the documents necessary to handle financial affairs of the person if he or she became mentally incapacitated or died. “Funding” of a revocable living trust must be done.

Even simple estate plans include important ancillary documents: (1) General Durable Power of Attorney to possibly address incapacity; (2) beneficiary designations: (3) transfer on death (“TOD”) designations; and (4) joint tenancy, in some cases, to handle some financial accounts and other assets.

However, simple plans are not appropriate for the majority of people and circumstances. Such a plan would not provide:

  • Remarriage protection for a surviving spouse
  • Divorce protection for beneficiaries
  • Continuing asset management for beneficiaries
  • Asset protection for beneficiaries

Further, such a simple plan could expose the assets to the creditors or predators (divorcing spouses or money-hungry spouses) of the other joint tenants. Capital gains taxes on the sale of such assets also can be a problem.

With a revocable living trust, you can accomplish all of the above, without having assets subject to the creditors or predators of others. You should consider transferring titled assets to your trust and making your trust the beneficiary of certain assets, such as life insurance.  You need to get advice from a qualified estate-planning attorney.

Importantly, a trust can avoid the public nature and expense of the probate court process. But, avoiding probate can only occur if the trust is funded before death. If the trust is not funded before death, then the assets that are in the “estate” will have to go through the probate court process prior to being poured-over into the trust through the will.

Q. How do I find a good will and trust attorney?

Q. Do I need a will or a revocable living trust?

The answer depends entirely upon your circumstances. State law dictates how your property will pass in the event that you do not have a will. If you have a will or trust, then you can implement your more specific desires, and you can do it more comprehensively. There is a current trend toward revocable living trusts (even on smaller estates) in order to avoid the effort and expense of probate, to avoid conservatorship court action, to maintain privacy, to provide more flexibility, to manage finances in the event of incapacity, and to get your assets at death to whom you want, when you want, and how you want.

 

Q. Is there a difference between a will and a living will?

Yes. A will is a formally signed document that indicates who is to get your property at your death and who will be in charge of paying your final bills and things like that. It also appoints a new guardian for your minor children if both you and your spouse die. It has no effect whatsoever while you are alive. A living will is also called a Natural Death Declaration. It is a formally signed document stating your intentions if you have a terminal condition or illness and whether or not you want extraordinary life-sustaining measures employed.

 

Q. I have drawn my own will and signed it. Is it valid?

Maybe. Colorado recognizes the validity of a Holographic Will. This is a will, whether or not witnessed, that does not comply with the state statute, but is valid because it is signed and the material provisions are in the handwriting of the testator. C.R.S. 15-11-501(2).

 

Q. The deed to my house has my name and my husband’s name on it. If something happens to one of us, will it automatically go to the survivor?

Maybe. If the deed contains the magic words “joint tenants with right of survivorship”, then the property would go to the survivor. If the deed does not contain the magic words of joint tenant, then the property may not automatically pass to the survivor. The same holds true for titles to other property like checking accounts, certificates of deposit, stocks, savings accounts, etc.

 

Q. What is Federal Estate Tax?

The federal government may tax your estate when you die. They base the tax on all assets owned by you at your death (including life insurance). In 2015, the first $5,430,000 per decedent passes to heirs tax-free. There are ways for a couple to pass up to twice the exemption amount or more tax-free to their children with a little proper planning.

 

Q.What are the differences between a General Durable Power of Attorney, a Healthcare Power of Attorney, and Living Will?

General Durable Power of Attorney generally applies to business and financial matters only. Without this document a court-ordered conservatorship may become necessary in the event of incompetency. A Healthcare Power of Attorney, as the name implies, refers to healthcare matters, such as consenting to medical procedures, making living arrangements and things like that. Without this document, a court-ordered guardianship and/or conservatorship may become necessary in the event of incompetency. A Living Will is your statement of intent to your doctors about when to “pull the plug” under conditions where you won’t live much longer according to two the opinions of two doctors. A coordinated estate plan must include these important ancillary documents because they do different things.

 

Q. If I have a General Durable Power of Attorney, do I also need a will?

A general durable power of attorney allows someone you appoint to do business for you while you are alive. Legally, the authorization contained in a power of attorney ceases at your death. A will is one of the several ways to pass property to your beneficiaries at your death. A will has nothing to do with your property while you are alive. The answer to your question is that you probably need both a general power of attorney and a will, at a minimum. These documents are normally part of a coordinated estate plan that all persons should have in place.

 

Q. Is there a difference between a General Durable Power of Attorney and a Healthcare Power of Attorney?

A General Durable Power of Attorney generally applies to business and financial matters only. Without this document a court-ordered conservatorship may become necessary in the event of incompetency. A Healthcare Power of Attorney, as the name implies, refers to healthcare matters, such as consenting to medical procedures, making living arrangements and things like that. Without this document, a court-ordered guardianship and/or conservatorship may become necessary in the event of incompetency. A coordinated estate plan will normally include both of these powers of attorney because they do different things.

 

Q. What is joint tenancy?

Joint tenancy is a form of property ownership where two or more persons share ownership of personal property or real estate. It has the special attribute of “survivorship”, so that when one owner dies, his or her interest passes automatically to the survivors. Joint tenancy is sometimes used with other tools, like wills and trusts, to achieve a person’s estate planning goals. It is very appropriate in some situations and not at all appropriate in other situations.

 

Q. I have just moved to Colorado from California. Do I need to change my will or trust?

It depends. A will that was valid where signed should be valid in all 50 states. The laws of each state differ, however, and you may begin to acquire Colorado property that is not properly treated in your California will. It is always a good practice to have a lawyer in your new state of residence look at your estate planning documents so you know they still carry out your plan or, better yet, to have a new Colorado will or trust plan designed and implemented.

 

Q. How do we determine how our children are raised if something happens to both of us?

Colorado law allows you to appoint guardians and conservators for your children in the event of your death in a will or trust. At your death the court will appoint whomever you chose unless they are unfit. By exercising this right you can avoid family fights over who gets the kids, and you can know that your chosen person will raise your kids.

 

Q. I want somebody to be able to help me pay my bills. Shouldn’t I just add my son’s name on all my accounts at the bank?

Probably not. By adding his name to your account as a joint tenant you have given him an ownership interest in the account. His creditors may be able to reach the account, or it may become entangled in his divorce action or bankruptcy. At your death, the account would just belong to your son to the exclusion of your other children. A current general durable power of attorney that appoints your son is a much better way to get help paying bills.

 

Q. My mother just died and left me some property. Do I owe income tax on this?

Usually no. Property you inherit and receive (after applicable federal income taxes are paid by your Personal Representative or Trustee) comes income tax-free unless you are the beneficiary of an IRA account or a pension plan of some sort. These items carry with them income tax consequences, but other items come income tax-free. Proper planning can reduce or eliminate tax in many situations.

Q. I am a widow, and for reasons that are best known to me, I would like to leave all of my property to my church rather than to my children at my death. Can my children challenge this?

As long as you are mentally competent, Colorado law allows you to leave your property to anybody you wish. Children have no right to inherit in Colorado if you wish otherwise. The only people who have some rights to inherit are spouses. This is an area that requires close attention to details if you wish to avoid problems.

 

Q. I don’t want them hooking me up to all those machines when I’m at the end of my life. Is there some way I can stop it?

A Natural Death Declaration, or Living Will, is a legal document that expresses your wishes in this regard. When two doctors agree that you have a terminal condition and that procedures would only artificially prolong the dying process, then this document directs that such procedures be withheld or withdrawn and that you be permitted to die naturally. This document is usually part of a well-coordinated estate plan.

 

Q. What is a Beneficiary Deed?

The Colorado legislature has authorized some property to be held in a form of ownership that automatically passes the property to your named beneficiaries at your death. This avoids probate, but not taxes and some creditor’s claims. Beneficiary designations have previously been allowed for bank accounts, credit union accounts, savings and loan association accounts, stock brokerage accounts, federal savings bonds and securities. Real estate has now been added to the authorized list. A Beneficiary Deed is required to be signed and recorded to affect this kind of ownership.

The Beneficiary Deed (BD) allows for a non-probate administered transfer of real property at death in a manner similar to the transfer of an insurance policy or IRA account. (See § 15-15-401-415, C.R.S. 8/4/2004). Using a beneficiary deed can help avoid probate for an estate where the only asset of significant value is a parcel of real estate, such as a home. (The other assets of the estate would consist of personal property with a value not exceeding $64,000 in 2014.)

To be effective, the BD must be recorded before the death of the owner. The BD passes marketable title to a “grantee-beneficiary” at a property owner’s death without the need for probate proceedings. During the lifetime of the property owner who grants the beneficiary deed, the grantee-beneficiary has no legal right or interest in the property whatsoever.

During the lifetime of the property owner who grants the beneficiary deed, the owner retains full power and authority over the property without the need to notify or obtain the consent of the grantee-beneficiary for any purpose. The BD can be revoked or a new BD can be recorded. The most recently executed and record BD controls. The grantee-beneficiary receives no interest in the property until the owner passes away. No gift tax is triggered.

After 4 months from the owner’s death, the grantee-beneficiary can pass marketable title to a purchaser of the property, free of the unrecorded claims of the owner’s estate or other parties. If the probate assets of the owner’s estate are insufficient to cover the claims of creditors, the grantee-beneficiary remains accountable for the proceeds from the sale of the property for up to 3 years to any person interested in the owner’s probate estate (such as creditors, Medicaid recovery, etc.).

There may be a significant issue as to whether the grantor of a beneficiary deed will qualify for the gain exclusion on the sale of residential property under §121 of the Internal Revenue Code. The potential issue raised by use of a beneficiary deed with respect to gain exclusion on the sale of residential property has not yet been resolved by any ruling or case law.

Because the property will be included in the grantor’s gross estate for federal estate tax purposes, under §1014(a) of the Internal Revenue Code, the beneficiary probably will receive a stepped-up basis equal to the value of the property on the death of the grantor, at least under existing law except for grantor’s dying in 2010.

 

Q. You have previously mentioned POD accounts and TOD deeds. How about cars and trucks?

Colorado does not allow transfer-on-death registration of vehicles. You must change your car title to the name(s) of ownership you want and then a new title issued. However, Colorado’s legislature has authorized certain types of property to be titled in a special way to pass automatically to your beneficiaries at your death. The list includes bank accounts, credit union accounts, savings association accounts, securities, brokerage accounts, savings bonds, and real estate titles. This avoids probate, but not taxes and some creditor’s claims.

Q. I recently put my assets in a revocable trust and now want to change some of the provisions. Is this possible?

Usually yes. One of the attributes of a revocable living trust is that you can amend it or revoke it at any time. It is usually a better practice to “restate” your trust with your changes rather than string along a whole series of amendments. This keeps things as clear as possible as your intent changes over the years and avoids hurt feelings as beneficiaries don’t have to read that they were included and then reduced or excluded from your plan. It also tends to lessen chances for litigation in the interpretation of the trust.

 

Q. I lost my husband several years ago and wish to remarry. Should I consider some sort of agreement so my assets will go to my kids at my death?

They are called Premarital Agreements, and they make good sense in your situation. If you do not have an agreement like this, your assets may all wind up going to his kids after you are gone. It is entirely possible that your kids would get nothing.

 

Q. My health is failing and I am considering a nursing home. Is there any reason I should not give all of my assets to my kids?

Yes. Medicaid will pay for your nursing home care if you run out of your own assets. Medicaid rules disqualify you if you have made gifts within 60 months of applying. This is a very complicated area of the law with ever-changing rules. I would highly recommend that you speak to a qualified elder law attorney prior to making any gifts. (This is complex specialty planning.)

 

Q. I’m getting older. Should I add my children’s names to the deed for my house or farm?

There are several issues involved and potential problems with this arrangement, including possible gift and estate tax implications and Medicaid eligibility issues. You will need the signatures of the child and his or her spouse if you wish to sell or mortgage the property. Also, if the child becomes involved with creditors, tax problems, litigation or a divorce, additional problems may arise which cause you troubles and expense. In some circumstances it is possible to lose the property.

Q. I am thinking of making gifts to my children, but I have heard there is a tax on gifts. When does the tax apply?

In 2015, a person can give up to $14,000 per year per person to an unlimited number of recipients without gift tax. Gifts over $14,000 in a year to a single donee are taxable gifts, for which a gift tax return must be filed.

 

Q. My aunt’s health is failing and she needs someone to help her with her business. Can this be accomplished fairly easily?

Usually, yes. Assuming your aunt is still competent, a general durable power of attorney may be executed, giving you the authority to transact business for her—provided the power of attorney is accepted by the relevant third party. If she’s not competent, you may have to consider going through the courts to establish a conservatorship for her. There are also healthcare powers of attorney that would enable you to help her with making healthcare decisions if she is unable. A trust also may be appropriate. These documents can be done individually or in connection with a more comprehensive estate plan. In any event, there are mechanisms that allow you to help her with her needs.

 

Q. My mother is failing noticeably. Is it too late to do a will or trust?

Probably not. Generally speaking, as long as she knows the general nature of her property and who she wants to receive it, she is likely still competent to execute estate planning documents. The test is not whether she is still able to do her own business. It is important that various formalities be followed in executing these documents, and it is particularly important with your mother’s current health circumstances.

 

Q. What is a “Small Estate Affidavit”?

In 2014, if the fair market value of probate assets in an estate is $64,000 or less, and no real estate is involved, a successor to the decedent can fill out a “Small Estate Affidavit” and present it to the holders of the assets. The persons or institutions holding the assets will then release them to the successor without further action. This works for all assets except real estate – regardless of how little its value. Colorado has a procedure that allows inheritors to skip probate altogether when the value of all the assets left behind is less than a certain amount. All an inheritor has to do is prepare a short document, stating that he or she is entitled to a certain asset. This document, signed under oath, is called a “Small Estate Affidavit”. When the person or institution holding the property—for example, a bank where the deceased person had an account—gets the affidavit and a copy of the death certificate, it releases the asset. The out-of-court affidavit procedure is available in Colorado if the fair market value of property that is subject to disposition by will or state intestate succession law, less liens and encumbrances, is $64,000 or less (2014). (This excludes joint tenancy property, property in a living trust, payable-on-death bank accounts, and other kinds of property that don’t pass under a will.) There is a ten-day waiting period. Colo. Rev. Stat. Ann. § 15-12-1201.

 

Q. What is “Informal Probate”?

The vast majority of estates in Colorado are administered in­formally. Informal administration means the estate is not court supervised. An attorney would have a limited role in these proceedings. However, administration of an estate is commenced by filing special documents with the probate court. While the initial documents may appear uncomplicated, they contain many traps that may complicate an estate settlement later. Anyone attempting to settle a probate estate may find it beneficial to consult with an attorney before getting too deep into the process. Once the estate is “opened” the personal representative (formerly known as “executor”) is responsible for paying the bills and taxes and distributing the remaining probate assets to the beneficiaries. All creditors must be paid in accordance with statutory priority. Estate administration can take as little as 6 months for a simple estate, or as long as several years in complex cases. Most estates in Colorado are administered in 6 to 12 months. A “supervised administration”, or formal probate, is needed when there is a dispute among the parties who have an interest in the estate. In cases like these, the Probate Court Judge will resolve disputes and issue orders which all parties must follow.

 

Q. How do my heirs get into my safe deposit box after I am gone?

Getting into a safe deposit box is easy—if you talk to an experienced bank or credit union employee. You should visit the band or credit union armed with the safe deposit box key and the death certificate of the decedent owner. If you can’t find the key, you can still gain access, but the bank will charge you a substantial “drilling fee” (around $200). If you are searching for the decedent’s will and/or burial documents, the employee will open the box to find out if such document(s) are in the box. If a will is found, the employee will make a copy of it. The credit union or bank must, by law, take possession of the will and file it with the probate court. If the assets in the box appear to have a fair market value of greater than $64,000 (in 2014), then the employee will most likely refuse to deliver the assets to you until you provide a probate court document showing you have been appointed by the court as the “Personal Representative.” If the assets in the box appear to have a fair market value of $64,000 or less, the employee will deliver the contents to you upon your presentation of a document called a “Small Estate Affidavit.” See C.R.S. § 15-10-111, regarding Colorado’s statute on safe deposit boxes.

 

Q. What are some of the other BIG key questions you should ask yourself? Do you know the correct answers for you?

  • Mental Incapacity: If I become mentally incapacitated because of stroke, accident or dementia, who will take care of me and pay my bills?
  • Conservator: How do I avoid the expense, legal fees, hassle, delay and public nature of the court action known as a “conservatorship”?
  • Coma: If I am in a coma, who decides what happens?
  • Taxes to Uncle Sam: How do I minimize estate or income taxes?
  • Probate: How do I avoid the expense, legal fees, hassle, delay and public nature of the court action known as probate?
  • Joint Tenancy: Why can joint tenancy ownership of assets be so dangerous?
  • Asset Protection for Spouse: Can I protect assets that I leave to my spouse?
  • Protect Children: How do I make sure my assets go to my heirs and not their creditors or ex-spouses?
  • Protect Grandchildren: Can I leave money to grandchildren and have it managed for them until they become competent adults?
  • Special Needs Heirs: Who will take care of my “special needs” heirs?
  • Safeguard IRA Funds: Should I consider a standalone IRA Trust to provide “asset protection” for my heirs and the longest “stretch-out” of benefits while

 

Q. Should I Leave My Children an Outright Inheritance?

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