+ What is Estate Planning?

Estate planning is the way in which an individual or a couple makes financial management and medical decisions that take effect in the event of incapacity, and ultimate disposition of assets in the event of death. This can range from powers of attorney and simple wills to advance directives and revocable trusts.

Some may avoid estate planning for a variety of reasons: cost, belief that their estate is too small, it is a sensitive or painful topic, etc. However, it is important to understand the gift that this is to your family and those you will leave behind by providing clarity and instruction. It is a form of wealth preservation, asset protection, and an aid for life transitions.

+ What are some reasons for needing an Estate Plan?

There are both personal and practical reasons for needing an Estate Plan. Personal, non-tax reasons for estate planning may include appointing guardians to care for minor children, providing care for individuals with special needs, preventing family disputes, making care plans for yourself in the event of incapacity, and ultimately managing your assets.

Without an estate plan, your estate will pass intestate (meaning without a will) pursuant to the current Colorado statute in effect. Failure to execute an estate plan will likely increase the cost and complexity of your probate due to the administration requirements, in the event of your incapacity or death. There is no better time to do an estate plan than now and it’s important to understand that circumstances may change and require you to update your documents over time.

Without an up-to-date and effective estate plan, your surviving loved ones may encounter (and now will require costly assistance to fix) common problems such as:

• Costly litigation through displeased heirs, disinherited heirs, or even creditors;
• The need for a conservatorship for managing gifts to minor children;
• The need for expensive and invasive guardianship/conservatorship proceedings, to obtain the proper authorizations to assist you in the event of incapacity, for failing to execute proper medical and financial powers of attorney;
• Court intervention to resolve disagreements regarding whom should be the guardian for minor children or appointed guardian/conservator;
• Incorrect allocations of your estate through failure to keep your beneficiaries or “POD” designations up to date;
• Estranged spouses or going through a divorce/legal separation; and
• Using incorrect or overly standard forms that can have unintended consequences such as the use the “joint tenancy” form of ownership as a will substitute, but not realizing that taxable gifts result from titling Colorado real property in joint tenancy or that joint accounts created for convenience may result in assets passing to a joint account owner to the exclusion of other intended beneficiaries.

+ What do I need to start thinking about for an Estate Plan?

We find it helpful for you to think about addressing financial assets and quality of care issues for yourself and your loved ones, including:

• Designating a guardian for minor children and what happens if you are divorced/legally separated from the other parent;
• Selecting the individuals (or entities in some cases) you wish to administer your estate or trust;
• Selecting the individuals you wish to act as your agents for medical or financial matters in the event you become incapacitated;
• Is there someone you wish to provide for, but who is presently too young or unable to manage their own finances? What options do you have to preserve assets for them?
• Minimizing applicable taxes;
• Ensuring your will is not contested or challenged by displeased heirs or disinherited heirs; and
• Business succession planning.

+ Can’t I just use estate planning forms I find online?

In short- no! In our experience, a majority of online services claim to be free or low-cost, quick, and state approved. However, these are often misleading and presented without properly following Colorado statutory requirements and formalities, resulting in your estate planning documents failing to operate as you intended or worse, invalid! They are often sterile with a one-size fits all approach that is overly ambiguous and vague, fail to address specific issues and guide your survivors, and can have irreparable tax consequences.

The biggest problem is that by the time you realize there’s an issue- you are likely in a situation where you lack capacity to amend or correct the invalid documents or are deceased. This can leave an expensive, painful, and difficult situation for your loved ones to try and resolve.

+ Why the Conscious Family approach?

At Conscious Family, we are committed to supporting our clients through difficult transitions. Our estate documents go beyond the one-size fits all approach. We want your documents to contain a piece of yourself- to clearly communicate your desires and vision for both your asset distribution and end of life/incapacity care. One of the most considerate gifts you can give your loved ones, is the piece of mind that they are executing your final wishes and there is guidance for their grief. Through our process, we are able to provide our clients with the legal advice and tailored estate instruments to maximize asset protection, preserve and manage wealth, and instructions for individual care.

+ What is probate?

Probate is the Court administrative process of distributing your estate/executing your will. Your estate planning instruments tell the Court how you wish your estate to be executed. If you pass without a will, that is called “intestate” and your estate will be distributed by the Court according to the intestate succession laws currently in effect.

In Colorado, this process takes a minimum of six months, even with a will. This can be extended if there is a challenge, contest, mishandling, etc. of the estate.

+ What is a Revocable vs Irrevocable Trust?

A “revocable trust” is a trust created during your lifetime that you still have control over. You, as the settlor, can amended or fully revoke the trust at your discretion. If a revocable trust is fully funded when you pass, your estate will avoid probate. Any assets transferred to the trust during your lifetime will pass outside of probate. An “irrevocable trust” is typically used by largest estates to reduce potential tax burden for the beneficiaries. Once transferred into an irrevocable trust, the assets will be controlled by the appointed trustee.

Any of the above dispositive plans may be incorporated into a revocable trust. A revocable or irrevocable trust should be used in conjunction with a pourover will directing that any assets outside of the trust on the settlor’s death “pourover” to the trust for administration and distribution. If there is no Pourover will, assets in the trust will be distributed pursuant to your wishes, but assets inadvertently or intentionally left outside of the trust will pass by intestate succession laws.

+ What is a “Simple” Will?

You may have heard the term simple will when speaking with an estate attorney or researching estate planning. A “simple” or “non-trust” will may be appropriate for individuals or married spouses whose assets or combined assets are substantially less than the current estate tax exemption. This may also be a good fit for those who do not need a trust for a special needs individuals, minor children, or children with specific inheritance requirements.

+ What is a “Pourover” Will?

A “pourover will” is most commonly prepared in conjunction with a revocable or irrevocable trust. This testamentary instrument is created to ensure that any of your remaining assets (assets that are not already funded or part of your trust) will automatically transfer to that trust upon your death. Without a Pourover will, any assets not already included in your trust will now be subject to the intestate succession laws.

+ What is a “Disclaimer” Will?

You may have heard the term disclaimed will when speaking with an estate attorney or researching estate planning. “Disclaimer wills” may be appropriate for married couple whose combined assets have a value closer to the amount of the current estate tax exemption. For a couple, the most common goal is to leave everything to the surviving spouse, either outright or through a trust instrument. The surviving spouse, in this situation, can disclaim assets into a credit shelter trust, taking advantage of the deceased spouse’s estate tax credit. A surviving spouse can be both a beneficiary and the trustee of the credit shelter trust. If administered properly, the assets in the credit shelter trust will now, not be included in the surviving spouse’s estate on their subsequent death.

+ What is the current transfer tax exemption?

The federal estate, gift, and generation-skipping transfer tax exemption is now $12,060,000 per person for 2022. The increased exemption amount will sunset on January 1, 2026. The new law does not change the marital deduction, portability election, or step-up in cost basis of assets to the value on the owner’s date of death.

+ What is the current annual gift tax exclusion?

It is now $15,000 (up from $14,000).

+ What if my assets approach or exceed more than twice the estate tax exemption?

You may need a “Marital Deduction Will” to fund a credit shelter trust and a marital trust. Make sure to discuss this possibility with your estate attorney. There are two types of funding formulas that exist: pecuniary and fractional share. The pecuniary formula is based on a defined dollar amount, which is often easier to draft and administer compared to the fractional share formula as the fractional share formula can be affected by changes in valuation during the administration period.

+ Does it matter if my spouse is a non-US citizen?

Yes, it can have extremely impactful impacts within estate planning. Make sure to bring this up to your attorney at the very beginning so that they can discuss with you the ways that estate tax exemptions, gift tax exclusions, qualified domestic trusts, etc.