Do I need a will?
It depends on your specific situation. Not everyone needs a will. However, most people can benefit from having a will. The usual situations in which you need a will are discussed below.
1. You Have Minor Children. If you have minor children (under age 18), you will want to choose a guardian for your children. A guardian is the person with whom your minor children will live if both parents die. In addition, a trust should be established to manage their assets and you will want to name a trustee for the trust. If you do not choose a guardian and trustee, the court will appoint them. Also, in the absence of a trust, the child will receive all assets outright at age 21 (a frightening thought to many parents). When you establish a trust in your will, you may choose an age older than 21 for your child to receive his or her assets and stipulate other terms that may be important to you.
2. Children (or Other Beneficiaries) Are To Be Treated Unequally. If you want to treat children (or other beneficiaries) unequally, you need to have a will. For example, if you have given one child a down payment for a home you may want to equalize gifts to your other children at your death. In addition, a disabled child may need more assets than other children.
3. You Do Not Prefer Intestate Succession (the statutes that governs if you pass without a will). If you do not prefer the intestate succession laws, you need to have a will. For example, if you are single and your parents have adequate assets, you may want to leave your property to brothers and sisters. Under intestate succession, however, your assets would be given to your parents.
4. You Are In A Second Marriage with Children from a First Marriage. If you are married for the second time and have children from a prior marriage, you almost always will want a will. Under intestate succession, a portion of your assets and your half of joint assets pass outright to your second spouse who may then give the assets to his or her children (or even to a subsequent spouse). You should consider a trust with assets available to your spouse for his or her life and the remainder then passing to your children at your spouse’s death. Your estate planning may need to be coordinated with any prenuptial planning you may have done for your second marriage.
5. Tax Considerations. For couples with estates over $2,000,000 to $4,000,000 (as discussed below), tax savings can be achieved through wills.
6. You Have Other Special Circumstances. If you own a business or a family farm, out-of-state property or oil and gas interests, have large retirement plans or a large estate, have diseases such as Alzheimer’s in your family history, or have a disabled child, you will need special estate planning considerations. Generally, if you own property, have minor children, or wish to distribute your property in a certain way, you should have a will. Otherwise, the court will distribute your property according to state law and will appoint a guardian and conservator for your minor children.
Why not just use one of those “do it yourself” Wills or Trusts?
Rarely will a generic form will or trust take into account Colorado’s legal requirements. No matter how hard you try, you cannot force a form into taking into account your individual wishes. They rarely accomplish what the drafter intended. In the long run, unraveling the problems created by a “do-it-yourself” will or trust can be far more expensive than initially consulting a lawyer who would have drafted the will or trust to your specifications.
What happens if I die without a will?
If you do not have a will, your “probate property” (the assets in your own name) will be distributed according to intestate succession, which is the pattern of distribution found in the Colorado statutes.
What if I change my mind about something or what if my circumstances change after I sign my will?
A will or revocable trust can be changed up until you lose mental capacity or die. Simple changes can be accomplished with a codicil (an amendment to your will) and more extensive changes can be made by executing a new will.
You always want to review your estate plan every 3 years or so or when your life circumstances change (death of a loved one, significant change in assets (increase or decrease), move out of state, birth of new family members, etc.)
Do all assets pass by my will?
No. Property that passes by a will is called “probate property.” Probate property generally includes assets that are titled in your own name and do not have a beneficiary designation. Property that does not pass by a will is called “non-probate property.” The four major kinds of “non-probate property” are life insurance, retirement plans, trusts, and property owned in joint tenancy.
1. Life Insurance. Life insurance proceeds are paid to a named beneficiary and do not pass by the terms of a will. For this reason, you must verify that your beneficiary designations are up to date. Do not guess. Call your insurance company.
2. Retirement Plan. Retirement plan benefits also are paid to a named beneficiary. Retirement plans may include IRAs, Keoghs, profit-sharing plans, pension plans, SEP plans, and 401(k) plans. IRA’s and some other plans require that you name your spouse unless he or she waives this right. Again, you must verify that your beneficiary designations are up to date.
3. Joint Tenancy Property. Property owned in joint tenancy passes automatically by operation of law to the surviving joint tenant. Both real property and personal property (such as a bank account) can be placed in joint tenancy. For example, if you own a cabin in joint tenancy with your friend Amy and your will states that you leave the cabin to Courtney, the cabin will pass to Amy, not Courtney. Joint tenancy is different than tenants in common. Property owned as tenants in common passes by a will. In this example, if the cabin is owned as tenants in common with Amy, and your will states you give the cabin to Courtney, your one-half interest will pass to Courtney.
4. Trusts. A trust is an entity in which a trustee holds title to certain assets and manages them for the benefit of another. When a trust is created, it states who will receive the property and when the trust will end.
Should all assets pass by my will?
It depends on what types of assets you own, how they are currently titled, and the overall size of your estate. If you have accurately explained your wishes in a will, it is important to have your property be “probate property” so that it passes under the terms of your will. For example, if your will states your child’s money is to be held in trust until age 35, it is important that the beneficiary of your life insurance proceeds be that trust (and not your child), so the proceeds pass by the will terms. If the proceeds are payable to the child outright, he or she will receive the life insurance proceeds at age 21.
What does a Personal Representative actually do?
A personal representative administers the decedent’s (the person who passed away) estate. The personal representative identifies the estate’s assets, pays off its debts, and files government forms including taxes. The personal representative also distributes assets to the rightful heirs and beneficiaries according to the specifications in your will and other estate documents. The following is a detailed, but not exhaustive, list of responsibilities of a personal representative:
• Locate the will
• Retrieve the death certificate
• Hire a lawyer and tax consultant if necessary
• Apply to appear before the probate court
• Notify beneficiaries named in the will
• Send death notices to the post office, utilities, banks and credit card companies
• Complete a Change of Address form at the post office so that future mail addressed to the deceased is forwarded to the personal representative
• Arrange for publication of notice to creditors and mail a notice to each known creditor
• Pay valid claims against the estate
• Check with the deceased’s employer for unpaid wages, insurance, and other employee benefits
• List contents of safe deposit boxes
• Check insurance coverage of the deceased and file the appropriate claims
• Inventory all assets and have them appraised, stored and insured as necessary
• Determine a preliminary estimate of the estate’s value
• Collect data on all property owned by the estate that will pass outside of probate
• File income and estate tax returns
• Distribute assets and obtain receipts from beneficiaries
• File all required paperwork to close the estate, including an accounting of all transactions involving estate assets
Whom do I choose as my Personal Representative?
This is different for every individual and every family. You must choose a person who is honest and who you can trust to carry out your wishes. Some people choose a spouse, grown child, sibling, or other relative while others select friends or business associates. It is not highly recommended, but you may have co-personal representatives. Financial institutions can also be named as a co-personal representative to act jointly with family members. You need to talk to the person you choose to serve as personal representative and ask whether he or she would be willing to accept the position.
Can I disinherit my spouse?
Not completely. If you do not give your surviving spouse adequate assets in your will, he or she has the right to “elect against the will.” This means your surviving spouse may take up to one-half of your “augmented estate,” depending on the length of your marriage. You can change these rights with a marital agreement.
Can I disinherit a child?
Yes. If you have a will, a child can be disinherited. In rare cases, a child may have a right to “elect against the will” (for example, if it appears that you did not know about a child or if the child was born after the will was signed). If you decide to disinherit a child, it is best to include a short explanation to prevent a will contest.
2. Probate and Taxes
What is probate?
Probate is the process by which your assets are collected, debts and taxes are paid, and your assets distributed according to your will (or intestate succession if you did not have a will) by a Personal Representative. “Probate property” will be subject to probate, which lasts six months to one year, but can be longer for more complicated estates or if there is substantial disagreement among heirs.
If I have a will, I will avoid probate, right?
NO!!! In order to give a will effect, it needs to be probated. Probate in Colorado is a much more simple and streamlined process than it used to be and therefore, probate is no longer something to be avoided at all costs. By going through probate, the person you nominate in your will to handle your estate will receive authorization from the court to act for your estate.
What are death taxes?
Death taxes are simply federal and state taxes that apply to the transfer of your property upon your death. Currently, each person can transfer $5 million of his or her assets tax-free upon death. So unless you have a significantly sized estate, over $5 million, you probably will not owe death taxes.
1. Federal Estate Tax. A federal estate tax is imposed upon the fair market value of the total of your assets less certain deductions. The easiest way to compute the value of your assets is to add your net worth to the face amount of life insurance.
You will pay a federal estate tax only if these assets are over the IRS exclusion amount, $5.45 million in 2016 ($9.5 million for a married couple). The federal estate tax can be as high as 40%.
Both probate and non-probate property assets are subject to tax. This includes joint tenancy assets, living trust assets, life insurance, and retirement plan proceeds. A common misconception is that life insurance proceeds are not taxed. As discussed above, life insurance proceeds are “non-probate” property and therefore not subject to court proceedings, but are part of the taxable estate.
2. Exclusion Amount. You may pass a certain amount to others free from estate tax at death. These amounts change over time as follows: $2,000,000 in 2006 through 2008, $3,500,000 in 2009, unlimited in 2010 as the estate tax is repealed for one year, $1,000,000 in 2011 and $5,000,000 in the following years.
3. Marital Deduction. Estate tax law provides that your spouse may receive any amount estate tax free. This is called the “unlimited marital deduction.”
4. Colorado Estate or Inheritance Tax. As of 2005, Colorado does not have a separate estate or inheritance tax. The Colorado legislature may pass estate tax legislation in the future.
Will my beneficiary pay income taxes or estate taxes?
Assets received by a beneficiary from an estate or from an insurance contract are not considered income and therefore are not subject to income tax. However, because income taxes on qualified retirement benefits have been deferred, these proceeds will be subject to income tax. There are, however, favorable rollover rules for spouses and other individuals. Estate taxes are paid by the estate prior to distribution and may or may not be allocated to a beneficiary, depending on the terms of your will.
3. Living Wills and Powers of Attorney
What is a living will?
A living will is not really a will at all, but a declaration as to medical or surgical treatment. A living will covers only those situations where you are unable to respond for a certain amount of time (that you determine) and when 2 doctors determine that your condition is terminal. It does not cover emergency treatment or daily health-care decisions in the event you are unable to make these decisions yourself.
What is a Financial Power of Attorney?
A financial power of attorney is a document in which you allow someone else (your agent) to act for you in handling your financial matters. By appointing an agent, you can avoid a court procedure to appoint a conservator.
What is a Medical Power of Attorney?
A medical power of attorney names another person to act on your behalf for medical decisions. A medical power of attorney is used only if you are unable to make decisions for yourself. It can be a simple appointment of an agent to make all decisions, or it can be more limited, itemizing the specific procedures to be provided or withheld.
For my healthcare decisions, do I need both a living will and a medical power of attorney?
Ideally, you should have both a living will and a durable power of attorney for medical decisions. These reinforce each other in very positive ways. A living will serves as a written guide to loved ones and doctors, is an important vehicle for communicating your wishes to your agent, and expresses your wishes to other family members and loved ones who may be unaware of your personal preferences.
Powers of attorney strengthen the living will because some medical providers, nursing homes, hospitals and even your loved ones might ignore the living will if they disagree with your wishes.
What happens if I don’t have a living will and durable power of attorney for healthcare or financial decisions?
If you do not have a living will or a durable power of attorney for medical or financial decisions, should a time come when you cannot make and communicate medical and financial decisions for yourself, a judge will choose someone to make them for you in a costly, public, lengthy process of proving your incompetence and determining who your agent should be.
In an emergency, if you have not designated an agent, hopefully the doctor would speak with your immediate family, but there is no guarantee of any discussion or that the doctor or hospital would honor your family’s wishes.
Should I leave funeral and anatomical gift instructions in my will?
No. By the time your loved ones find your will, your funeral may be over and your remains disposed of. Instead, you may want to consider making an anatomical gift by signing the organ donor instructions on the back of your driver’s license or by a separate written instruction. You may also wish to leave separate written instructions regarding your burial or funeral wishes.
What is a trust?
Contained in the will itself or written as a separate document, a trust sets up a relationship in which one person manages property for the benefit of another person who actually owns the rights to it, the beneficiary.
If I have a trust, do I still need a will?
Absolutely. The will is the only place you can name a guardian. Also, certain assets, such as furniture and other personal possessions, do not lend themselves to being placed in a trust.
What is a living trust?
A living trust is an alternative to a will. Also called a “revocable trust” or an “inter vivos” trust, people can use a living trust to continue to control and use their assets while still alive and to keep trust assets out of probate when they pass. A living trust is not appropriate for all people and should therefore be discussed with your attorney.
Can a living trust avoid death taxes and creditors?
No. Currently there are no tax advantages to having a living trust versus a will. Either can be written to take the maximum advantage of current tax laws. You also may not use a living trust to avoid creditors.
What are the roles and responsibilities of a trustee?
These will vary depending on the type of trust, but the following list includes several duties and obligations of a trustee:
• Manage assets and make investment decisions
• Maintain records and report to beneficiaries
• Prepare and file taxes
• Follow the directives you wrote in the trust
• Act as a gatekeeper for who receives money and when
• Interpret your intentions
• Refrain from using trust funds for personal gain, monetary or otherwise. For example, a trustee cannot invest in his son’s new company with money in your trust.
• Make value choices that protect family harmony, not just the assets
Who can serve as a trustee?
Any person can be designated as a trustee. Many people choose a spouse, adult child or relative while others prefer a friend, business associate, or outside professional advisor. Two or more individuals can also serve as co-trustees. An institution, generally a bank or private trust company, can be appointed instead of individuals or in addition to them as co-trustee.
Can I name myself as trustee?
Generally you would not be your own trustee except with a living trust. In most living trusts, people start off by naming themselves as trustee and maintain control over the assets until their death or until they are otherwise unable to serve. You must name a trustee to take over when you can no longer serve, someone to distribute assets in the manner established in your trust agreement.
What is a fiduciary?
Together, personal representatives, guardians, trustees and conservators are called fiduciaries. They have many powers but are subject to certain duties as set forth in the Colorado statutes.
1. Personal Representative. A personal representative handles your affairs for the six to twelve months after your death. A personal representative used to be called an “executor” or “executrix.”
2. Guardian. A guardian is the person with whom your minor children live. The guardian is responsible for the education, health, moral and religious upbringing of your children or a disabled person.
3. Trustee. A trustee manages the assets in a trust. For example, if your will establishes a trust for your children, the trustee would invest and distribute these assets. A trustee may be the same person as the guardian or may be a different person.
4. Conservator. A conservator is a person appointed by the court to manage assets for a minor child or disabled person if you have not named a trustee.
How much does a will cost?
The following is a rough estimate of what you can expect to pay for estate planning in the Northern Colorado area. I will assess your individual situation though before determining the fee. Some cases require more time, involvement and research, others less, and therefore the fee may be more or less than quoted here.
Package of 4 documents: $750 per person
2. Durable power of attorney for financial matters
3. Durable power of attorney for health matters
4. Living Will (Medical Directive)
Testamentary Trust: $500
Revocable Living Trust: $2,500
Hourly Rate for Probate matters: $175
Do you charge for an initial consultation?
I do not currently charge for an initial consultation. I will meet with you for up to an hour and give you basic advice. If you decide to retain, then we will meet again for a longer period of time.
Once we determine the basic form of your estate plan, I will quote you a fee. I collect ½ of the fee at the initial meeting and the other ½ upon the signing of your documents.
If you retain me to probate an estate, I charge by the hour ($175/hour) and require a retainer up front to begin working. The complexity or simplicity of the estate will determine the retainer, but an average size retainer is $2,000-$3,000.