Estate Planning Must Dos Before Summer Vacation
Get your estate planning done so that you can enjoy your vacation knowing your life legal plan is in place!
Summer is fast approaching and most of us have already made plans for our vacations, whether it be a trip home to see family, a trip to an exotic country, or camping in our own home state.
Understandably, most of us put more time into planning our adventures then we do in our estate planning. Its a lot more fun! I can’t tell you how many times clients have reached out just before they take off for a big trip with what I now call the “estate planning itch." Their bags are almost packed, house sitter on board, etc., then the phone call:
“We are leaving next week and are wondering about an estate plan – can you help us quickly get this done.”
Estate planning is a daunting topic to think about. What if something were to happen and one of your family members were to get seriously injured on the trip? What if catastrophe struck? It’s natural to shelve these thoughts and also natural to have them “itch” a little bit. Why not be proactive and address this now. Estate planning itself, is actually not that daunting and can be an important tool in not only getting your affairs in order but also in understanding where you are right now in terms of your life planning. In just a few conversations I can help you sort out and complete your estate planning and almost always clients inform me that it was much easier than they had imagined with great relief.
Here are seven estate planning tasks that you might want to take care of before you go anywhere this summer. That way wherever you go you won’t have to worry about the inevitable estate planning itch.
1. Make a Will
Have you been putting off making a will? Perhaps you don’t think you need one-you do. Or perhaps you don’t think you have enough assets to require one-you still do. These are a few of the many common excuses that could cause turmoil and uncertainty for your family and loved ones were something unforeseen happen to you or a loved one.
Another misunderstanding is that a will is not necessary because the state makes a will for you. True, (these “wills” are actually called intestacy statutes), leaving your final wishes up to the state is fool hardy. The state decides based on order of relation and not on individual and personal circumstances.
I’m not even going to try to touch the tip of the iceberg with reasons for why you need a will. The point is, making a will before you go on your summer holiday will let you rest easier while you’re on vacation knowing your life plan is in place.
2. Check Beneficiary Designations
Almost always, a will is not enough to distribute your assets. Some of your largest assets, such as your IRAs, 401(k) plans or life insurance will be distributed outside of your estate to your named contractual beneficiaries.
Each major financial account lets you designate a beneficiary. Usually you’ll designate the beneficiary on the spot and in a rush while setting up your account. Sometimes your snap decision will be the right one but other times, you might be making your assets more available to certain people than you’d like. For example, do you want your 18-year-old child to have access to your entire retirement savings? Are you certain s/he will spend that large sum of money in the way you’d like him/her to?
It’s worth revisiting who your beneficiaries are in case something happens to you before you travel. This can be achieved via a simple phone call to your agent or representative.
3. If You Have Children, Please Name a Guardian or Guardians
Regardless of whether or not you make a will, you should always name a guardian (or guardians) for your children.
It’s devastating to think about something happening to you before your children grow up, but it’s important to name the friends or relatives who can take care of your children according to your values and beliefs. In Colorado, you can name a guardian to take care of the children and a guardian to take care of the finances if that is appropriate. If you do not name a guardian it will be up to the Court and relatives to decide who will care for your children.
You can also create a Pet Trust to care for any animals that you have, providing funds for their care.
4. Complete your Medical Power of Attorney/Living Will
Sometimes, catastrophe doesn’t mean death. Sometimes, a person is left incapacitated and unable to make decisions about his/her healthcare (being in a coma or otherwise unable to communicate). Who would make the decisions for you if you were incapacitated? If you don't name an agent your loved ones will have to resort to the Court in order to speak to medical personnel on your behalf.
Signing a medical power of attorney and living will also allows you to specify what type of medical treatment you want and don’t want if you are unable to communicate your wishes.
Why is this necessary? Because without this, your family will have to resort to the the court, who will then appoint a guardian to make those decisions for you. That’s costly both in terms of finances and emotional trauma to your loved ones; and you risk that your wishes won’t be adhered to.
5. Make a General Power of Attorney
Your health care power of attorney allows other people to help make medical decisions for you if you’re incapacitated, in conjunction with the wishes you can specify in a living will. A durable general power of attorney is equally important. This person makes decisions about what happens with your assets and other interests when you are unable to manage them yourself. Again, if you don't name an agent your loved one's will have to petition the court to appoint a conservator for you.
6. If your estate plan is complete
Review your fiduciary and beneficiary designations and update them if needed. Are your choices still appropriate? If not make the changes now.
7. If you have children over 18
Once your minor child turns 18, you need to be named as their agent in powers of attorney in order to speak to medical personnel and/or banking and financial institutions, etc. Whether your child is going off to college or you are just simply trying to schedule a vaccine for travel, it’s important to have these documents in place so that you can be there for them if needed.
Your Summer Vacation Awaits You….
Think about how good it would feel to have these legal documents completed. Although chances are good that nothing will happen to you or your loved ones, you don’t want to take the risk that your life plan will be decided by someone other than yourself.
Hoping that your family makes many happy memories this summer!
Revocable Living Trusts In Your Estate Plan
Estate Planning: The Use of a Last Will versus a Revocable Living Trust
Many clients come in asking about setting up a Trust rather then a Will for their estate planning. Trusts are very trendy right now, especially in states like California where the probate process is expensive and complicated.
Each of these estate-planning tools has pros and cons. The following information is meant to make sure you understand the differences and enable you to make an informed decision about which estate-planning method is right for you.
When a Last Will is used, it does not become an effective document until death. A Last Will requires the property of the decedent to go through the probate process prior to being distributed. Probate is the process by which a Last Will is presented to the court, the court authorizes the representative of the estate to take possession of the decedent’s assets, the creditors of the decedent are notified, and, approximately four months later, the representative pays the creditors and then distributes the assets to the intended beneficiaries.
When a Revocable Living Trust is used, the assets titled in the name of the trust are not part of the decedent’s estate, and do not need to go through the probate process. As soon as the individual who set up the trust dies, the alternate trustee named in the trust is entitled to take control of the assets without any court involvement. Importantly, this process also happens when the person who set up the trust becomes incapacitated.
Colorado has an informal probate process. The probate court is minimally involved with the process, and thus most probates here are both inexpensive and efficient. However, as noted above it does take about four months to complete the process. In a Revocable Living Trust based plan, the immediate ability of the alternate trustee to access the assets in the trust upon the incapacity or death of the settlor of the trust is definitely an advantage if time is a consideration.
If you choose to use a revocable-living trust based estate plan, your personal residence, vacation home, and investment accounts and other types of property are usually transferred into the name of the trust, requiring retitling of these assets, but tax advantaged retirement accounts are usually not. This process of retitling the assets is one of the two disadvantages of using a Revocable Living Trust when compared to a Last Will-based estate plan. The second disadvantage to the Revocable Living Trust is that it is typically more expensive than a Last Will based plan.
I generally recommend a Last Will based estate plan here in Colorado because of our informal probate process. I recommend a Revocable Living Trust based plan to my clients who meet any of the following criteria:
➢ complex asset management needs or diverse types of investment assets since Revocable Living Trusts provide a very strong asset management tool;
➢ property outside the state of Colorado (since such property can be placed in the Trust, no additional probate proceeding will need to be opened in the other states);
➢ the need for privacy (Wills are filed at death and become pseudo-public documents) or the wish that their at-death disposition not be public; and
➢ impending disability (at the disability of the individual, the alternate trustee will be able to take control of the assets in the trust).
Feel free to call or email me if you have further questions regarding the differences between these two types of plans.
Demystifying Trusts
Planning our estate with Wills and Trusts.
I can’t tell you how many times I get calls from people who want to create a trust of some kind as a part of their estate plan. There are many types of trusts and they all serve different purposes. I have created a summary of the most common types of trusts and what they are used for as a basic guideline to help dispel some of the myths around “trusts” and how they are used. There are many different asset protection tools available, including LLCs and family partnerships and so trusts are an important vehicle but not the only way to protect assets. As an estate planning tool, trusts are an important planning technique but not always either necessary or advisable. If you are curious about trusts and how they are used, I hope the summary below gives you some helpful information.
First, there are revocable trusts and irrevocable trust. Revocable living trusts are generally used as part of an overall estate plan and are important planning tools in Colorado when a client has assets in multiple states or a very complex asset structure, has an imminent disability that would require a successor trustee to be able to step in seamlessly, or has a need for privacy. While probate avoidance is important in some jurisdictions, Colorado has an informal and relatively simple probate process that can make the expense of trust set up contraindicative for simple estates. Revocable living trusts do not shelter assets from the creditors of the settlor and become irrevocable upon the death of the settlor.
An irrevocable trust cannot be modified or revoked after it is created. Examples of these are Irrevocable Life Insurance Trusts (ILIT) or Asset Protection Trusts, which can be set up in jurisdictions such as Nevada or the Cook Islands that have trust protection laws. ILITs are generally used as an estate planning technique for those who find themselves in the position of having taxable estates ($5.43 million in 2015) and Asset Protection Trusts are used to make sure that future creditors can never access the Trust to satisfy a judgment against the settlor.
Charitable Remainder Trusts are set up to benefit a nonprofit organization. These are used as an estate planning technique and can help avoid the estate being taxed and gift tax implications. The settlor receives benefits during his or her life and also receives the intangible benefit of being recognized by the charity beneficiary during his or her life.
Special Needs Trusts are set up for people who are disabled and receiving government benefits. The disabled beneficiary cannot control the amount or frequency of the trust distributions and cannot revoke the trust. Parents of a disabled child can establish a special needs trust as part of their estate plan and not worry that their child will be prevented form receiving necessary benefits when they are not their to care for their child.
There are many other types of trusts, including Spend Thrift Trusts which are created to protect a beneficiaries’ interests from creditors, Tax By-Pass Trusts, Totten Trusts, etc. If you are curious about whether a trust might be an important tool to manage your assets, I would be happy to discuss the various types and how they might or might not be applicable to your situation.