Estate Planning Basics Melissa Dalla, Esq. Dufford & Brown, P.C Broadway, Suite 2100 Denver, CO (303)

WHAT IS A WILL? A will is a legal document which allows you to leave your property to persons or charities in the amounts you wish. It may also name guardians for your minor children, trustees for any trusts you create in your will and your personal representative (executor) to administer your probate estate. A will only takes effect upon death.

WHAT IS A TRUST? A trust is a legal entity that can hold property and is created based on a written agreement between the person creating the trust and the person administering the property on the creator’s behalf. A trust may take effect during life or after death.

WHAT IS PROBATE? Probate is the court process in which probate property is collected, debts and taxes are paid, and the assets are distributed according to your will (or according to intestate succession if there is no will). Probate typically lasts 6 months to a year (small estates). During the probate process, the personal representative will go through many routine tasks, such as: – Identifying and inventorying estate property; – Filing reports with the Court; – Paying estate debts and taxes; and – Distributing property as directed by the will or state law if there is no will.

WHO SHOULD HAVE A WILL? Everyone over age 18! A valid will requires a written document signed by the testator who is at least 18 and of sound mind and by two witnesses.

WHAT HAPPENS TO YOUR PROPERTY IF YOU DO NOT HAVE A WILL? Certain assets in your name that are not otherwise distributed after your death (e.g. through joint tenancy) are known as your “probate property” If you do not have a will, your probate property will be distributed according to “intestate succession” which is a pattern of distribution found in the Colorado statutes.

INTESTATE SUCCESSION – ORDER OF DISTRIBUTION If you do not have a will, your property will be distributed in the following order: (1) Surviving spouse; (2) If no surviving spouse, then to your descendants (i.e. your children and grandchildren); (3) If no surviving descendants, then to your parents; (4) If no parents, then to surviving descendants of your parents (i.e. your brother and sisters, nieces and nephews, etc.); (5) If no surviving descendants of your parents, then to your grandparents; (6) If no surviving grandparents, then to surviving descendants of your grandparents (i.e. your aunts and uncles, etc.).

WHAT HAPPENS TO YOUR CHILDREN IF YOU DO NOT HAVE A WILL? A person becomes a guardian of a minor by appointment by a parent in a will or written instrument. If no guardian is appointed by a will or other written instrument, the guardian will be appointed by the court. The person appointed by the court, however, may not be the first person you would choose to care for your children.

WHAT HAPPENS TO ANY MONEY DISTRIBUTED TO YOUR MINOR CHILDREN IF YOU DO NOT HAVE A WILL? If you have a will, you can include trust provisions, which create a trust for your minor children. Within these trust provisions, you can name the person or institution that you want to manage the money you leave your children. If you do not have a will, the court may appoint a conservator to manage your minor children’s financial affairs. The appointed conservator may or may not be the same person serving as guardian, and may not be the person you would choose to manage the money left for your children.

ADVANTAGES OF HAVING A WILL You choose who you want to receive your property, which may be different than stated in the Colorado intestate succession statutes. You choose who you want to be your children’s guardian. You can create a trust in the will and choose who you want to serve as trustee for your children’s financial needs and make preferences known.

PERSONAL REPRESENATIVE The personal representative is the person who administers your estate through the probate process. In your will, you are able to name the individual that you want to serve as the personal representative of your estate. If you do not have a will (or do not name a personal representative in your will) the Colorado statutes govern the appointment of your personal representative. The order of priority under the statutes is: (1) Surviving spouse who is a beneficiary in your will; (2) Other beneficiaries in your will; (3) Surviving spouse; (4) Other heirs; (5) 45 days after your death, any creditor.

PERSONAL PROPERTY MEMORANDUM The personal property memorandum is a document that is separate from the will and is used to dispose of personal property. You can list who you wish to receive certain items of personal property. You can make changes throughout your life. You must sign and date the memorandum, but it does not need to be witnessed like a will. You can only list “personal property” on the memorandum. It cannot be used to dispose of money, real estate, or securities.

JOINT TENANCY Property owned in joint tenancy passes automatically by operation of law to the surviving joint tenant. Property that can be held in joint tenancy: – Real property – Personal property, such as a bank account or investment account

OTHER NON-PROBATE PROPERTY In addition to joint tenancy property, there is other property that will not pass through the probate estate, such as life insurance or your retirement account. On all life insurance policies, you must list a primary and contingent beneficiary. The proceeds will be paid out to whomever you listed as the beneficiary, regardless of what your will may say. Designate beneficiaries with care!

TRUSTS Trusts have many different uses. Two main types: revocable and irrevocable. Revocable or “living” trust is the most common form of trust.

WHO SHOULD HAVE A TRUST? It depends. Properly organized living trusts will avoid probate. This may be important depending on issues such as cost of probate, privacy etc. Trusts can also be used to address issues like tax planning, asset protection and problematic heirs.

PLANNING FOR INCAPACITY Typically this is the most overlooked issue for families. Plan ahead by designating someone to act on your behalf as to your person (including medical) and your property. If not, your family will need to go to court for a guardianship and/or conservatorship order to do so.

POWER OF ATTORNEY FOR PROPERTY A property power of attorney is a document in which you name another person to act on your behalf for legal and financial matters. The power of attorney may allow your agent to do all acts or the acts may be limited to certain acts. By appointing an agent, you can avoid a court procedure to appoint a conservator in the event you become disabled or unable to make your own decisions.

MEDICAL DURABLE POWER OF ATTORNEY A medical power of attorney names another person to act on your behalf for medical decisions. A medical power of attorney becomes effective only if you are unable to make the decisions for yourself. The power of attorney may allow your agent to do all acts or the acts may be limited.

LIVING WILL A living will states your wishes regarding the use of artificial life support systems if you are terminally ill, comatose, and beyond hope of recovery. The Colorado statute regarding living wills addresses both life support systems (respirator, heart machine, etc.) and whether food and water should be withheld.

DELEGATION OF POWERS Parents can sign a Delegation of Powers, which authorizes a specific person to care for your children, including the power to make medical decisions. The Delegation of Powers is effective only for a specific period of time. This document is important when both parents are out of town and you leave the children with grandparents or another caretaker.

ESTATE TAX CONSEQUENCES You will pay estate tax only if the value of your assets is over the applicable exclusion amount. Applicable Exclusion Amount: – $5 million (or opt out) – $5 million – $5 million Step-up in basis (fair market value)

ESTATE TAX con’t As long as the fair market value of your assets are below the exclusion amount, there will be no estate tax consequences upon your death. Estate tax rates 35%