Personal, financial or business circumstances change for each of us over time, as do estate tax laws. I recommend to everyone with an existing estate plan to periodically review it to determine if it still meets your needs.
Jump to Area:
People put off estate planning for many understandable reasons. While thinking about how you want things handled when you pass away or become disabled is never easy, the legal steps involved do not have to be intimidating. Many people (as much as half of the population) will experience a period of either physical or mental disability before their death. Lack of planning makes caring for a disabled individual very expensive and cumbersome for the care giver. Proper planning preserves a person’s dignity, as well as their assets to be used for their care.
Estate planning is the process in which a person (testator) plans for their future care and eventual demise. One of the most common misunderstandings about estate planning is the belief that estate planning is only for the wealthy. Most people have an estate, even though the estate is not large enough to be subject to federal estate taxes, and everyone needs to do basic estate planning. Estate planning includes more than just a will. It includes planning for disability during your lifetime, disposition of your assets and liabilities at the time of death, and designation of a guardian for minor children.
The documents most often found in an estate plan are as follows:
Last Will and Testament
The will is the basic starting block for any estate plan. It is the means by which a person (the testator) documents their wishes and desires for the disposition of their assets in a methodical and orderly manner. Anyone with more than a few thousand dollars in assets, in any form, should have a will. When someone dies without one, everything is left up to the state courts to decide — and the potential for painful family disputes increases dramatically.
The will should be drafted to ensure that all issues of importance are addressed and resolved. Issues such as what property exists, where the property should go, who should be appointed to disburse the property, and the delegation of guardianship if children are involved. Additionally, the will determines the person or persons who will be appointed to handle the estate (the personal representative).
Conversely, there are certain matters the execution of a will won’t resolve. For example, the testator cannot change beneficiary designations for insurance policies, IRA’s, retirement plans, etc. These accounts are POD (pay on death) accounts and are contractual obligations and thus can only be altered by requesting and executing change in beneficiary forms. Also, the testator cannot limit specific behaviors of the beneficiaries if the limitations are against public policy. Though this is not as common as in previous eras, it is still a reality.
General Durable Power of Attorney
The General Durable Power of Attorney is the document in which an individual (the principal) may designate a person or persons (the agent) to manage their financial affairs should the principal become mentally or physically incapable. This document has no relevance beyond addressing the financial affairs of the principal and the agent’s authority expires upon the principal’s death.
Medical or Health Care Power of Attorney
This document is the means by which the principal may designate a person or persons to make informed medical care decisions on behalf of the principal should the principal become mentally or physically disabled. The principal can designate when the agent’s authority is to begin, either upon the signing of the document (“standing”) or upon some pre-determined event occurring (“springing”). The Medical Power of Attorney grants the agent the authority to consent, refuse to consent or withdraw consent to medical treatment and may grant the agent the authority to make decisions about withdrawing or withholding life-sustaining treatment.
Advance Directive for Medical/Surgical Treatment
An Advance Directive is the instrument in which the principal expresses their wishes to be followed in the event they suffer from a terminal condition and can no longer make their own medical decisions or if they are in a persistent vegetative state. This document is particularly valuable as it provides a guide to family members should either situation arise.
Disposition of Last Remains
This document allows the principal to designate what they wish to have done with their body upon death. You may designate what, if any funeral or memorial services are to be held and identify the individual responsible for carrying out those wishes. This document is often important in same-sex and non-traditional family situations where the principal’s family may take steps to exclude the principal’s life partner from the planning of and attendance at the funeral services.
Elder Law encompasses a wide variety of issues important to senior citizens, their families and their unique needs. These issues include wills, trusts, powers of attorney, estate planning, medical assistance planning, conservatorship and guardianship.
Elder Law requires a broad understanding of aging and the law, and the legal interaction between all varied issues which may affect the elderly. For example, an elder law attorney will inquire as to how the client’s estate plan compliments his or her long-term care plan.
Elder Law is the integration of the legal system with social and medical concerns for the benefit of the client. An elder law attorney should be familiar with Federal laws and Colorado laws which may affect an individual’s well-being and personal wishes.
Quite often, individuals initially consult with an elder law attorney to discuss the preparation of a will, later to discover additional matters to consider.
These events raise legal challenges that require thorough information; otherwise, your family is at risk of the unknown. When discussing a specific situation with an elder law attorney, the attorney should listen carefully to the facts. The problems you face may appear to be difficult and frustrating, often overwhelming. During consultation, the attorney will identify the legal issues which need to be addressed. The attorney can then prioritize the issues and discuss possible solutions and recommendations.
Elder Law encompasses all aspects of planning, counseling, education, and advocating for clients. Clients often ask family members to be included in follow-up discussions with the attorney of in the integration of necessary services.
Should the need arise, the attorney may associate with other experts in elder advocacy, such as nursing home injury, abuse or neglect, complex tax situations and family law matters. Above all, an elder lawyer’s focus and responsibility is always to the “elder” client and finding appropriate ways to enhance and protect his or her quality of life through proper planning.
Probate is the legal process in which a court appoints a person (administrator) to gather assets, pay debts, and distribute the remainder of the estate of a person who has passed away (the decedent). Additionally, the personal representative must determine the proper heirs of the decedent, execute the wishes as determined in a Last Will and Testament or work with the court to determine the proper heirs for distribution of assets. Should a will be filed with the probate court, the appointed individual will be named as Personal Representative but if no will was provided to the court the appointed person will be an Administrator.
Administration of an estate can be either formal or informal. A formal administration requires the Personal Representative or Administrator to gain approval from the court to perform various transfers of ownership from the estate. The formal administration may require hearings and becomes a more costly and slower process than the informal administration.
An informal administration is less cumbersome. The supervision exercised by the court is far more limited and the process allows fora more timely and economical administration. Both types of administration require filing of documents to obtain Letters Testamentary, inventorying assets, giving notice to creditors, and performing accountings of income and expenditures and filing of tax returns. At the conclusion of both types of administration, additional filings are made with the court to close out the probate process.
Generally speaking, trusts are about exerting greater control over your assets and how they are distributed. They may be irrevocable or revocable (permanent or subject to change), and there are an array of types of trusts. There are living trusts, revocable trusts, irrevocable trusts, etc. Each trust has a specific purpose but they are most often tools used in estate planning. Trusts are beneficial since they allow the original owner to transfer title out of their name. The asset, upon death, then passes outside of probate. Most importantly, trusts can allow assets to pass outside of public view and notice since the assets are not part of probate.
There are many reasons that establishing a living trust may be appropriate and beneficial for you. Not everyone needs a trust, but failing to learn and understand what a trust can accomplish is often a missed opportunity. Depending on your specific circumstances, a trust may be the best solution for bypassing the probate process, avoiding excessive taxation, providing security for a disabled loved one or accomplishing other goals.
However, trusts do not go totally unnoticed. While most estates do not reach the size where federal estate taxes are owed, some estates will be large enough for federal estate taxes to be an issue and trusts are included in the calculation of the full value of an estate. Other tax consequences that rise from trusts depend on determinations made at the time of their creation. If a trust is revocable, a taxable event does not happen until the trust is made irrevocable. The rationale is that ownership does not change hands until the estate becomes irrevocable since at any time a revocable may be revoked. The irrevocable trust is taxed in the year in which the assets are placed in the trust. Ownership has changed hands and so a taxable gift may have occurred. No matter the tax issues, trusts are one of the more efficient means to transfer title of assets and an extremely beneficial tool in estate and business planning.