This sections explains the following Colorado Laws relevant to Estate Planning [click link below to jump down to section]:
- Types of Property Ownership
- Beneficiary Deeds
- POD Beneficiaries
- Revocable Trust
- Will Formalities
- Tangible Personal Property
- Specific Devisees, Bequests, and Legacies
- Survival Requirements
- Testamentary Trusts
- Personal Representative
- Designated Beneficiary Agreements
- Financial Power of Attorney
Types of Property Ownership
After you have identified the specific assets you own, it is important to understand and confirm how your property is owned and titled.
In Colorado, there are types of property ownership:
- Individually Owned Property—titled and owned solely and exclusively in your name.
- Jointly Owned Property: titled owned with other persons (Joint Tenancy or Tenancy in Common)
- Beneficiary Designated Property: titled in your individual name, but having a “payable on death” beneficiary designation.
Joint Tenancy Property
Joint Tenancy property is property held by two or more persons with equal rights to share in its use, benefits, and enjoyments. Thus, both parties have rights of control over the property, but cannot transfer alienate, encumber the interests of the other joint tenants without their consent. Until a Joint Tenancy is severed, each joint tenant holds an undivided interest in the whole property. In Colorado joint tenants are presumed to hold equal shares, but that presumption is rebuttable, for example, if it can be shown that the joint tenants contributed unequally to the acquisition of the asset, or have other intentions regarding unequal share ownership.
In Colorado, a transfer in “joint tenancy,” as “joint tenants,” as “JTWROS,” or “joint tenants with rights of survivorship” creates a joint tenancy. The most significant right of a joint tenant is that upon the death of a joint tenant the interest of the deceased joint tenant passes automatically to the other surviving joint tenants by operation of law. In other words, a will does not affect or transfer property owned in joint tenancy.
The advantages of joint tenancy include the following:
- The concept is easily understood by the parties.
- The property is not subject to probate disclosure thereby offering privacy.
- The property is not subject to probate control, or supervision.
- The property is not subject to the claims of the decedent’s creditors.
- The property is easily transferred by presenting a death certificate.
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The disadvantages of joint tenancy include:
- The estate may be deprived of liquid assets potentially needed by the estate.
- There may be discord between joint tenants, unequal contributions resulting in unresolved issues, or feelings of unfairness to other heirs.
- During the lifetime of a joint tenant, creditors could attach the joint tenant’s interest in the property.
- There could be gift tax and estate tax implications, and liabilities associated with the property.
Tenants in Common
Property owned as tenants in common, that is conveyed with words such as “jointly and severally,” or as “tenants in common” does not automatically pass to the surviving owners or tenants upon death of a co-owner. The interest of a tenant in common can be the subject of a will, and when there is no will governed by the intestacy statues of Colorado. The interest of a tenant in common is an undivided interest in the whole estate in accordance with the undivided percentage interest owned by the tenant in common.
Beneficiary Deeds for Real Property
A Beneficiary Deed is a deed, subject to revocation by the owner, which conveys an interest in real property and which contains language that the conveyance is to be effective upon the death of the owner.
CRS 15-15-404 provides that an owner may transfer an interest in real property effective on the death of the owner by executing a beneficiary deed that contains the words “conveys on death” or “transfers on death” or otherwise indicates the transfer is to be effective on the death of the owner and recording the beneficiary deed prior to the death of the owner in the office of the clerk and recorder in the county where the real property is located.
During the lifetime of the owner, the grantee-beneficiary has no right, title, or interest in or to the property, and the owner retains the full power and authority with respect to the property without the joinder, signature, consent, or agreement of, or notice to, the grantee-beneficiary for any purpose.
CRS 15-15-403 provides that no person who is an applicant for or recipient of medical assistance for which it would be permissible for the department of health care policy and financing to assert a claim (i.e., Medicaid) shall be entitled to such medical assistance if that person has in effect a beneficiary deed. The statute provides that the value of the real estate is a countable resource for eligibility determination purposes.
CRS 15-15 405 specifies that an owner may revoke a beneficiary deed by executing an instrument that describes the real property affected, that revokes the deed, and that is recorded prior to the death of the owner in the office of the clerk and recorder in the county where the real property is located. The joinder, signature, consent, agreement of, or notice to, the grantee-beneficiary is not required for the revocation to be effective.
POD/Beneficiary Designated Property
Life insurance policies, retirement accounts, investment accounts, and other depository like accounts allow the owner to designate a beneficiary who will become owner of the asset at the death of the named owner. This will be evidenced by a beneficiary designation or a designation on the account information such as “payable on death” to ____.
Since a pay at death beneficiary has no right to the use and enjoyment of the asset during the lifetime of the owner of the account, this type of property is not technically joint property, however, because of the rights that occur upon death of the named owner of the account, it is commonly understood by lay persons as a form of joint property.
Due to the popularity of certain media advertising by estate planning professionals, many lay people come to an attorney with questions about the usefulness or appropriateness of a revocable, inter vivos trust, as an alternative to a traditional will.
These types of trusts gained popularity in states where the probate process was burdensome and expensive. In Colorado, the probate process allows for simplified, unsupervised probate, and does not involve the heavy and excessive burdens of probate as exist in other states. The use of such trusts in Colorado is considered to be an acceptable practice, but not an absolute necessity. For the most part, utilization of revocable trusts generally depends upon the legal advisor’s personal philosophy, and a client’s perceived need and desire.
A trust is a legal entity created during a person’s life (i.e., living or inter vivos) or at a person’s death (i.e., a testamentary trust). A trust is a legal entity intended to hold legal title, possess, control, manage, and distribute property transferred into the trust, all in accordance with written instructions set forth in the trust document.
A trust is administered by a Trustee who is a person(s) who administers and manages in accordance with the trust terms, for an on behalf of one or more named beneficiaries.
A beneficiary is a person named in a trust document who is entitled to the benefits described in the trust.
A revocable inter vivos trust can be terminated at any time by the maker of the trust (Settlor) prior to the maker’s death, at which time the trust becomes irrevocable.
It is thought that a revocable inter vivos trust has advantages over a traditional will in the following ways:
- Upon the death of the maker of the trust, the expenses, inconvenience, and public nature of the probate process can be avoided since at death the Trustee simply transfers the property to those designated in the trust (beneficiaries) without need for court supervision or authority to act.
- During the lifetime of the maker of the trust, the assets transferred to the trust remain within the control of the maker who names his/herself as trustee, and beneficiary.
- Upon disability of the maker, a successor trustee named in the trust takes over as trustee, thereby allowing continuity of asset management for the maker during the maker’s disability without family members or others having to initiate legal proceeding known as a Conservatorship.
The creation and operation of a revocable trust requires numerous formalities, transfers and re-titling of property to appropriately transfer assets into the trust. Often, after the creation of a revocable trust, new property is acquired by the maker which must be titled into the name of the trust at acquisition. It is not uncommon for this formality to be overlooked. If this occurs, upon death of the maker of the trust, the newly acquired property will not be subject to the trust, but its disposition will governed by the intestate laws of succession, unless a Pour Over Will has been executed by the maker. Hence, a will is still highly recommended and desired to guard against this possible occurrence.
If you are comfortable with the additional costs, and formalities, such as retitling of assets, a Revocable Inter vivos Trust can be an ideal option for you.
Will and Trust Formalities
Any person over the age of eighteen and who is otherwise legally competent (i.e., who knows and understands the nature and extent of his/her assets, and who is free from coercion, undue influence, physical force or threats) can make a will.
A will must be: in writing; signed by the maker (or in the maker’s presence by some other individual in the maker’s conscious presence and at the maker’s direction to do so), and either signed by at least two other individuals who witnessed the maker’s signing of the will, acknowledgement of his/her signature, or acknowledgement of the will; or acknowledged by the maker in the presence of a notary of other person authorized by law to take acknowledgments.
Holographic wills are valid in Colorado. A holographic will is a writing made by the maker in his/her own handwriting, and signed by him/her. A witness to the maker’s signature is preferred but is not required.
Tangible Personal Property
Will and trusts are intended to deal with the disposition of certain property upon the occurrence of certain events. A will or trust should address a maker’s desires concerning tangible personal property.
This type of property refers to assets that have a tangible, physical presence, other than real estate, and excludes intangible items such as deposits, rights, business interests, and the like. Generally, tangible personal property includes things like jewelry, furniture, cars, physical heirlooms that the maker of the will desires to pass to certain persons who are named in the will.
A popular alternative for many people is to leave all of their tangible property in accordance with a written memorandum they intend to leave at their death. In this way, changes over time as desired can be made without having to visit a lawyer to amend a will.
The other alternative is set forth a description of the property and the name of the intended recipient at death.
Specific Devisees, Bequests, and Legacies
A devise refers to a gift of real estate, a bequest refers to other property gifts, and a legacy generally refers to a gift of money.
You may designate gifts of these types to people in your will as you desire. But unlike tangible personal property, you cannot direct the disposition of these types of gifts by a written memorandum you intend to leave at your death. These types of gifts must be identified in your will.
Requirement of Survival
You should determine and specify in your will whether your gift at death should be contingent upon survival of the intended beneficiary. If so, this requirement needs to be outlined in the will, and most important you should define what happens to the asset if the desired beneficiary fails to survive you.
The types of gifts mentioned above (tangible personal property, devises, bequests, and legacies) are normally intended to be outright present interest gifts, generally free of any restrictions, contingencies, or deferrals in the current enjoyment and use of the gifts by the intended recipients. The granting of outright present gifts is not the only way to make a gift at death. It is possible to make gifts into an existing inter vivos trust or a testamentary trust established by your will at the time of your death.
Gifts into a trust are common for the protection and care of minor children where the maker of a will or revocable wants to make assets available at death for the support, education, and maintenance of minor children, a spouse, or other special needs people, but delay the total and outright distribution of all of the assets to a time when the beneficiaries are mature enough to handle the responsibilities of the management, use and enjoyment of such wealth transfer.
Typical provisions in a trust provide that a trustee can in the trustee discretion, use the income, and/or principal for the care of the beneficiaries, and upon the attainment of a certain specified age by the youngest child, the trust is equally distributed to the then surviving children. There are many other alternative distributive schemes, limited only by a maker’s imagination and desires.
The person responsible for settling your worldly affairs is called a Personal Representative or Executor of your estate. You can nominate one or more persons to serve as your personal representative. As described in the foregoing chapter, the duties of a personal representative are clearly set forth in the Colorado Probate Code.
Most people nominate a surviving spouse, or child as their personal representative. Some people choose to name co-personal representatives who must agree on the handling of the estate.
It is advisable to name a trusted person as personal representative, as well as, an alternative or successor in the event your first choice is unable or unwilling to serve.
Some folks name a bank trust department or a team of trusted professionals or business colleagues to act as Personal Representative.
The person responsible for managing any trust you might create is called a Trustee. You can name one or more persons to serve as trustee. The duties of a trustee are highly regulated by several Colorado Statutes. The trust instrument contains detailed instructions that a trustee is required to follow.
Most people nominate a surviving spouse, a trusted family friend, or responsible adult child as trustee. Some people choose to name co-trustees who must agree on the handling of the trust estate.
It is advisable to name a trusted person as trustee, as well as, an alternative or successor in the event your first choice is unable or unwilling to serve.
Many banks offer trust department services and act as trustees for many trusts both revocable and testamentary.
If you have minor children, you can designate in your will, or in a separate writing, a person(s) to be appointed as guardian for your children. A guardian becomes responsible for the physical care of a child and is has the right to act as a parent making life decisions, such a medical treatment, residence, religious upbringing, schooling, etc.
There are times when a child is left money directly and there is a need to manage that money for the child. A Conservator fulfills this purpose. You can nominate a person to be appointed as a Conservator for a child beneficiary in your will.
People bring a variety of human issues with them when they consult with estate planning professionals. Sometimes the issue involves a difficult relationship with a child, spouse, or other family member who is disfavored in some way, and the parties wanting to do a will, ask if they can specifically exclude a family member and “disinherit” that person.
The answer, likes many issues in the law, is yes, and no. Here is what that means.
First, you can exclude children from being an heir by specifically mentioning them in your will, and providing that you intentionally make no provision for them. This will be binding upon them, absent a will contest by the excluded child that alleges you were mentally incompetent, or under undue influence, or duress at the time you made your will. If the court finds in the child’s favor, the will could be declared invalid, and your property would pass under a prior will, or under the intestate statutes of Colorado which could result in a disfavored child receiving a portion of your estate.
Second, you can exclude a spouse from being an heir in your will, but, disinheritance of a surviving spouse is not favored in most states. Colorado is one of those states that protect surviving spouses from being disinherited. There is a specific Colorado statute that allows a surviving spouse to take a forced share from the augmented estate of a deceased spouse.
CRS 15-11-201 outlines a schedule providing for specific a share that a surviving spouse can elect to receive, even though the will may provide for a distribution, or have no distribution for a surviving spouse. If the spouse elects the statutory share, the spouse does not receive anything under the will.
The share made available to a surviving spouse depends on length of marriage to the deceased spouse, ranging from a small supplement amount for less than one year of marriage, up to 50% of the augmented estate of a deceased spouse if married for 10 years or more.
The “augmented” estate of a deceased spouse is a concept defined in another statute that is designed to pull back into the estate values of non-probate transfers that may have been made prior to death as a means of disinheriting a spouse.
Two other factors must be mentioned. As outlined in the previous chapter pertaining to the probate process, a surviving spouse is also entitled to receive a distribution of “exempt property,” and a spouse and family members are entitled to receive payment of a family allowance.
So, from this perspective, disinheritance of a child, is doable, subject to their participation in the family allowance payment, but total disinheritance of as spouse is problematic due to the forced share, exempt property, and family allowance.
Pets are considered personal property and can be passed along to others in a will.
Colorado has a statutory provision, CRS 15-11-901, allowing a person to establish a trust for the financial care of a pet.
Designated Beneficiary Agreements
Colorado has enacted legislation that addresses certain legal issues pertaining to same gender relationships.
Title 15, Article 22 of the Colorado Revised Statutes sets forth a statutory scheme that is intended to:
- Make existing laws relating to health care, medical emergencies, incapacity, death, and administration of decedent’s estates available to more persons (e.g., persons who are in same gender relationships) through a process of documenting designated beneficiary agreements; and
- Allow individuals to elect to have certain default provisions in state statutes provide rights, benefits, and protections to a designated beneficiary in situations in which no valid and enforceable estate planning documents exist.
These statutes validate “Designated Beneficiary Agreements” entered into by two people for the purpose of designating each person as the beneficiary of the other person and for the purpose of ensuring that each person has certain rights and financial protection based upon the designation.
CRS 15-22-104 outlines the requirements for a valid designated beneficiary agreement as follows:
A designated beneficiary agreement shall be legally recognized if:
(a) The parties to the designated beneficiary agreement satisfy all of the following criteria:
- Both are at least eighteen years of age;
- Both are competent to enter into a contract;
- Neither party is married to another person;
- Neither party is a party to another designated beneficiary agreement; and
- Both parties enter into the designated beneficiary agreement without force, fraud, or duress; and
A designated beneficiary agreement is legally sufficient if:
(b) The agreement is in substantial compliance with the requirements set forth in this article. For purposes of this article, “substantial compliance” shall mean that the agreement includes the disclaimer contained in section 15-22-106, the instructions and headings about how to grant or withhold a right or protection, the statements about the effective date of the agreement and how to record the agreement, the signatures for the two parties, and the acknowledgments for the notary public.
(a) The wording of the designated beneficiary agreement complies substantially with the standard form set forth in section 15-22-106
(1) and the form is in compliance with the requirements of section 30-10-406 (3), C.R.S.;
(b) The designated beneficiary agreement is properly completed and signed;
(c) The designated beneficiary agreement is acknowledged; and
(d) The designated beneficiary agreement is recorded with a county clerk and recorder.
CRS 15-22-105 provides that:
(1) A person named as a designated beneficiary in a designated beneficiary agreement shall be entitled to exercise the rights and protections specified in the agreement by virtue of having been so named.
(2) A designated beneficiary agreement that is properly executed and recorded as provided in section 15-22-104 (2) shall be valid and legally enforceable in the absence of a superseding legal document that conflicts with the provisions specified in the designated beneficiary agreement.
(3) A designated beneficiary agreement shall entitle the parties to exercise the following rights and enjoy the following protections, unless specifically excluded from the designated beneficiary agreement:
(a) The right to acquire, hold title to, own jointly, or transfer inter vivos or at death real or personal property as joint tenants with right of survivorship or as tenants in common;
(b) The right to be designated as a beneficiary, payee, or owner as a trustee named in an inter vivos or testamentary trust for the purposes of a nonprobate transfer on death;
(c) For purposes of the following benefits, the right to be designated as a beneficiary and recognized as a dependent so long as notice is given in accordance with any applicable statute, rule, contract, policy, procedure, or other government document of the following benefits:
(I) Public employees’ retirement systems;
(II) Local government firefighter and police pensions;
(III) Insurance policies for life insurance coverage; and
(IV) Health insurance policies or health coverage if the employer of the designated beneficiary elects to provide coverage for designated beneficiaries as dependents;
(d) The right to petition for and have priority for appointment as a conservator, guardian, or personal representative for the other designated beneficiary;
(e) The right to visitation by the other designated beneficiary in a hospital, nursing home, hospice, or similar health care facility in which a party to a designated beneficiary resides or is receiving care, including the right to initiate a formal complaint alleging a violation of the rights of nursing home patients.
(f) The right to act as a proxy decision-maker or surrogate decision-maker to make medical treatment decisions for the other designated beneficiary as if selected pursuant to section 15-18.5-103 or 15-18.5-104;
(g) The right to receive notice of the withholding or withdrawal of life-sustaining procedures for the other designated beneficiary pursuant to section 15-18-107 and the right to challenge the validity of a declaration as to medical or surgical treatment of the other designated beneficiary pursuant to section 15-18-107;
(h) The right, with respect to the other designated beneficiary, to act as an agent and to make, revoke, or object to anatomical gifts pursuant to the “Revised Uniform Anatomical Gift Act”, part 1 of article 34 of title 12, C.R.S.;
(i) The right to inherit real or personal property from the other designated beneficiary through intestate succession;
(j) The right to have standing to receive benefits pursuant to the “Workers’ Compensation Act of Colorado,” articles 40 to 47 of title 8, C.R.S., made on behalf of the other designated beneficiary;
(k) The right to have standing to sue for wrongful death on behalf of the other designated beneficiary; and
(l) The right to direct the disposition of the other designated beneficiary’s last remains pursuant to article 19 of this title.
(4) This article shall not be construed to create any rights, protections, or responsibilities for designated beneficiaries that are not specifically enumerated in the designated beneficiary agreement as authorized in this article.
(5) Nothing in this article shall be construed to create evidence of a party’s intent to form a common law marriage.
(6) Execution of a designated beneficiary agreement shall in no way impede the ability of individuals to make specific determinations as to any or all of the matters specified in this article by acting through superseding legal documents or other contracts or instruments.
(7) In the event that a superseding legal document is found to be invalid or unenforceable, the designated beneficiary agreement shall control despite the attempt to supersede its provisions.
CRS 15-22-111 outlines when and how a designated beneficiary agreement can be revoked.
(1) A designated beneficiary agreement that has been recorded with a county clerk and recorder may be unilaterally revoked by either party to the agreement by recording a revocation with the clerk and recorder of the county in which the agreement was recorded. A revocation shall be dated, signed, and acknowledged. The revocation shall be effective on the date and time the revocation is received for recording by the county clerk and recorder. The clerk and recorder shall issue a certified copy to the party recording the revocation and shall mail a certified copy of the revocation to the last-known address of the other party to the designated beneficiary agreement.
(2) The county clerk and recorder shall assess fees, as provided in section 30-1-103, C.R.S., for recording a revocation agreement and issuing two certified copies of the revocation agreement, plus an additional amount to cover the cost of first class postage for mailing a certified copy of the revoked designated beneficiary agreement to the other party. The fees collected by the clerk and recorder shall be deposited in the county clerk’s fee fund maintained as required in section 30-1-119, C.R.S.
(3) A designated beneficiary agreement shall be deemed revoked upon the marriage of either party. In the case of a common law marriage, a designated beneficiary agreement shall be deemed revoked as of the date the court determines that a valid common law marriage exists.
CRS 15-22-112 identifies the effect of death upon a designated beneficiary agreement.
(1) A designated beneficiary agreement is terminated upon the death of either of the parties to the designated beneficiary agreement; however, a right or power which a designated beneficiary agreement conferred upon a designated beneficiary survives the death of the other designated beneficiary.
(2) A party to a designated beneficiary agreement who survives a designated beneficiary may enter into a designated beneficiary agreement with a different person so long as it meets the requirements of the Colorado Statutes.
Dealing With Incapacity
Special Needs and Incapacity
As the average life expectancy in the United States increases, as the baby booming population matures, and as it begins to encounter the effects of aging, the problems and issues associated with mental and physical incapacity become more prevalent.
When a person loses the capacity (physical or mental) to care for oneself, special problems arise with respect to financial management and protection of assets, as well as, decisions concerning consent to medical care, and other life decisions.
There are two special legal proceedings that can be initiated to protect incapacitated individuals: Guardianships; and Conservatorships.
A Guardianship is a proceeding in which an interested person petitions the court for a finding that another person lacks the capacity to care for themselves and made life decisions. The Court is asked to appoint a Guardian and vest the Guardian with power and authority to make life decisions for an incapacitated person—decisions such as place of residence, medical care, etc.
A Conservatorship is a proceeding in which an interested person petitions the court for a finding that another person lacks the capacity to make financial decisions and manage assets. The Court is asked to appoint a Conservator and vest the Conservator with the power and authority to make handle the financial affairs of an incapacitated person.
Guardianships and Conservatorships are dual in nature. From one perspective they are protective of an person, but from another standpoint they are restrictive and deprive a person of individual liberties and rights. Hence, both proceedings follow strict due process procedures such as, scheduling and conduct of hearings, after notice and advisement of rights, appointments of independent parties to represent the alleged incapacitated person, and to conduct studies and advise the court.
These proceedings are costly, time consuming, emotionally draining, and often highly contested.
For the most part, Guardianships and Conservatorships serve and protect those who are no longer able to do so for themselves.
However, both proceedings can generally be avoided by the preparation and execution of powers of attorneys and other written instructions prior to the onset of incapacity.
There are four legal devices that you should consider if you are interested in avoiding Guardianships and Conservatorships.
- Financial Powers of Attorney
- Medical Powers of Attorney
- Living Wills/Advanced Directives/DNR Orders
- Appointment of Guardians/Conservatorships for Minor Children
Durable Financial Power of Attorney
A durable financial power of attorney is a legal document executed by a person (principal) who appoints a third party (agent) as legal representative vested with the power and authority to handle financial affairs for the principal during the principal’s lifetime, and particularly, after the onset of disability or incapacity.
Typically, the agent who is appointed is a trusted family member (spouse, child, sibling, parent, etc) or close business associate or colleague.
A durable financial power of attorney is revocable prior to disability or incapacity at which time it cannot be revoked or terminated other than by a court proceeding.
A financial power of attorney can outline broad or very narrow powers and is highly customizable.
Medical Power of Attorney
A medical power of attorney is a legal document executed by a person (principal) who appoints a third party (agent) as legal representative vested with the power and authority to make medical decisions for an on behalf of the principal during the principal’s lifetime when the principal is disabled and unable to communicate his /her desires.
Typically, the person appointed as agent is a trusted family member (spouse, child, sibling, parent, etc.) or close friend, business associate or colleague.
A medical power of attorney is revocable prior to disability or incapacity at which time it cannot be revoked or terminated other than by a court proceeding.
A medical power of attorney can outline broad or very narrow powers and is highly customizable.
Living Will or Advanced Medical Directives
Advances in medicine have resulted in situations where life can be prolonged by extraordinary medical procedures when a person is facing a terminable condition, or be in a persistent negative state.
The law recognized the rights of individuals to determine when such extraordinary medical procedures can be withdrawn or maintained.
When a person is conscious and able to communicate his/her desires, it would seem that those desires should be honored by medical providers and family members. However, there are times when medical providers and family members object to the desires of a person, and when this occurs, the disagreement can be an obstacle to implementation of a person’s conscious desires.
When a person is not able to communicate his/her desires, figuring out the desires of such a person becomes even more problematic.
An often desired solution is the preparation and execution of what is known in the law as a “Living Will” or Advanced Medical Directive.
These documents are detailed written instructions that outline the conditions under which the person signing the documents desires to have life-sustaining, life prolonging medical procedures, including the provision of food and water withdrawn, or continued.
Do Not Resuscitate Orders are written medical orders that must be completed by a physician and prominently displayed in order to be given recognition and followed when circumstances occur.
Guardians/Conservatorships for Minor Children
A parent can nominate a guardian or conservator of their minor children to be effective upon death of a parent.
The nomination can be included in the Last Will of the Parent, or be set forth in a separate writing signed by the parent.
A parent may also temporarily execute a “delegation of parental rights” to a third party to allow that third party to act for a parent during the parent’s absence.
Tax Issues and Burdens
When a person dies, there are several tax liabilities that need to be identified and handled. These tax obligations include:
- Federal and State death, inheritance, gift, and estate taxes imposed upon the transfer of wealth at a person’s death by the federal and state government.
- Federal and State taxes imposed on a person’s income during a tax year.
- Property taxes, business taxes, and other special tax assessments that may exist and impose a tax obligation on a decedent’s estate.
Overview of Federal Estate and Gift Taxation
Federal Estate and Gift Taxes are extremely complicated and cannot be explained in a comprehensive manner in a work of this broad nature intended for lay readers, not trained in the law or taxation.
But, a few significant principles can be offered that will guide thinking and planning with respect to how to approach federal and state estate taxation issues.
Here are a few basic aspects a person needs to know:
- There are three types of federal estate and gift taxes:
- Federal Estate Tax based on the value of a person’s estate at death.
- Federal Gift Tax on transfers made during a person’s lifetime.
- Generation Transfer Skipping Tax on transfers that skip a generation.
- The federal tax is based upon a graduated percentage of the value of the gross federal estate that can have at its top rate 55%.
- The value of the gross estate includes the fair market value (net of debt) of the assets owned and controlled by the decedent at death, together with certain life time gifts, transfers, and conveyances to third parties made without consideration. Proceeds of life insurance on the life of the decedent may be included in the value of the gross estate if not owned in a properly drafted Irrevocable Life Insurance Trust.
- The gross estate is adjusted by subtracting from the value of the gross estate certain permitted deductions, such as; the value of assets passing to a surviving spouse, the value of assets passing to charitable organizations, the amount debt owed by the estate, and the costs and expenses of estate administration, etc.
- Whether or not your estate will be subject to federal estate tax liability will be one of the first topics to be addressed. But, generally, for most couples having combined estate values under $11.3 million this will not be a concern.
Basic Estate Planning Tax Minimization Techniques
Basic Estate Tax Minimization Techniques include the following:
- Making large lifetime gifts to your intended heirs to utilize the lifetime gift tax exclusion amount of $5,000,000.00, ($10,000,000.00 for a married couple) and thereby reduce the value of a taxable estate.
- Making annual gifts to your intended heirs, to utilize the annual gift tax exclusion for gifts thereby reducing the size of an estate over time and passing it along to the intended and natural heirs of an individual.
- Leaving a portion of an estate to a credit shelter trust upon the first to die of a married couple; thereby keeping the amount in trust from being taxed at the death of the second spouse and preventing depletion of the estate of the second to die spouse.
- Placing the ownership of life insurance policies into an Irrevocable Life Insurance Trust, thereby keeping the proceeds payable to a beneficiary from being taxed in the estate of the decedent.
- Making lifetime and testamentary gifts to charitable institutions. Charitable gifts are not subject to estate and gift taxation. fits can be made tax free
- Creating a Family Limited Partnership whereby property is transferred to a limited partnership or limited liability company with the transferor retaining control over the partnership as general partner, or as manager of the limited liability company, and gifting minority discounted interests in the partnership or limited liability company t heirs over time.
- Funding the anticipated estate tax liability through the purchase and use of various life insurance products.
- Spending your estate while you have it and can enjoy it prior to death. (Not generally recommended by most prudent financial and legal advisors, but certainly a default estate plan used by some individuals).
Other Advanced Estate Planning Tax Minimization Techniques
There are numerous advanced estate planning tax minimization techniques.
Here are a few of the more notable ones.
- Dynasty Trusts
- Generation Transfer Skipping Trusts
- Grantor Retained Income Trusts
- Crummey Trusts
- QTIP Trust
- QPRT Trusts
- Charitable Lead Income Trusts
- Charitable Lead Annuity Trusts
- Charitable Remainder Income Trusts
- Charitable Remainder Annuity Trusts
- Conservation Easements
- Asset Protection Trusts
Each of these advanced estate planning techniques come with their respective advantages and drawbacks. Each technique is sophisticated, risky, and subject to intense IRS review and scrutiny. Each device requires careful consideration and expert legal and tax advice which is highly expensive.
Basic Trust Overview
A trust is a legal entity created by a person (Settlor) who transfers property to the trust (Corpus or Principal) with the intention and desire that the trust corpus and its income be managed, controlled, and paid out to certain identified parties (Beneficiaries) in accordance with the desires of the Settlor as set forth in the trust instrument.
A Settlor names or appoints a trustee in the trust instrument who is obligated to follow the instructions set forth in the trust, and who is also responsible for complying with state laws governing trust management, exercise of fiduciary powers, and investment standards and limitations.
Trust can be simple or complex. The two most common simple trusts are living trusts and testamentary trusts.
The living trust, which is also sometimes known as a revocable trust, allows the grantor to transfer property and assets into the trust throughout their lifetimes, while preserving the right of the grantor to make changes to the trust as desired while still alive. This trust allows the Settlor who establishes the trust to have control over the trust assets and receive income that is created from the trust. The living or revocable trust is a simple trust that does not have to go through the probate process, which makes it a simple, cheap, and fast method for heirs to receive their inheritance.
The testamentary trust is a simple trust that is often established when minor children or a disabled child are the intended beneficiaries. The testamentary trust is created upon the death of a person, pursuant to the terms of person’s will. This type of simple trust is recommended when there are very substantial amounts of money that a minor may not be suited to manage, or where the decedent wants to delay the ultimate distribution of the trust corpus to a child at a later age of maturity and responsibility. The testamentary is also used when a married couple wishes to provide for other third parties who may have special needs such a parents, siblings, etc, or when the couple wants to place assets into a credit shelter trust to utilize the estate tax spousal exemption, and avoid taxation of those assets upon the death of the surviving spouse.
Advantages of Trusts
Establishing a trust allows a Settlor to obtain a variety of advantages:
- Protect self and other beneficiaries from mismanagement, self-indulgent, or other forms of irresponsible depletion of trust assets by placing management into the hands of an independent third party.
- Provide for delay of distribution of assets to times when the intended beneficiaries may be more responsible, thus providing them with professional management of trust assets, and protection from the influence or wrong doing of third parties.
- Retain control and management of certain assets after transfer by setting forth specific instructions to the trustee.
- Benefit from professional management, expertise, knowledge of a trustee while under the protection of certain statutory laws pertaining to fiduciary, investment, and trust management.
- Maintain privacy and confidentiality without having to make public filings.
- Avoid or minimize the need for probate.
- Avoid or minimize estate taxation.
Disadvantages of Trusts
The disadvantages of a trust include:
- They are costly to create and maintain, requiring attorney, trustee, accounting and other professional fees to operate properly.
- They are difficult for laypersons to understand.
- Loss of total control of assets once they are transferred to an irrevocable trust.
After Death Issues
Post Death Events
When a person dies, a sequence of legal events begins that ends months, or often, many years after a person’s death.
As outlined above, estate planning can ease the burden of settling a person’s final affairs, and streamline the sequence of post death events.
The following section sets forth aspects of the law pertaining to after death matters that you might find unsettling. For example, the laws pertaining to: the definition of death, duty to report a death, involvement of the coroner, custody and disposition of last remains, autopsies, organ donations, funeral arrangements, standards of practice regarding mortuary science, embalming, cremation, etc. are outlined, as well as, other important, but less sensitive topics.
It was thought that the educational benefits out weighted the possible unsettling reactions some might have to the “sensitive” nature of the information.
Please read or disregard the information with this in mind.
Definition of Death
CRS 12-36-136 states that death occurs when:
(a) There is an irreversible cessation of circulatory and respiratory functions; or
(b) There is an irreversible cessation of all functions of the entire brain, including the brain stem.
The statute goes on to provide that a determination of death is to be made in accordance with accepted medical standards, but offers little else to guide the recognition of when death occurs.
Duty to Report a Death
When a person dies under any of the following circumstances, CRS 30-10-606 requires the person who discovers the death to report it immediately to law enforcement officials or the coroner:
(a) From external violence, unexplained cause, or under suspicious circumstances;
(b) Where no physician is in attendance or where, though in attendance, the physician is unable to certify the cause of death;
(c) From thermal, chemical, or radiation injury;
(d) From criminal abortion, including any situation where such abortion may have been self-induced;
(e) From a disease which may be hazardous or contagious or which may constitute a threat to the health of the general public;
(f) While in the custody of law enforcement officials or while incarcerated in a public institution;
(g) When the death was sudden and happened to a person who was in good health;
(h) From an industrial accident, or
(i) A person is found dead and the cause of death is unknown.
When any of the foregoing circumstances occurs, the coroner is required to immediately notify the district attorney, proceed to view the body, make all proper inquiry respecting the cause and manner of death, andtake legal custody of the body.
In the these circumstances, the body may not be removed from the place of death except upon the authority of the coroner in consultation with the district attorney or local law enforcement agency, nor shall any article on or immediately surrounding such body be disturbed until authorized by the coroner.
In these limited circumstances, the coroner shall perform a forensic autopsy or have a forensic autopsy performed when the death is apparently non-natural and occurs in a facility, or during services regulated by the department of human services, or upon the request of the district attorney, when the death is the result of an automobile accident, and when a hospital physician has not documented the extent of injuries.
If a death occurs at home, the Coroner’s Office for the county where death occurred must be notified.
If death occurs elsewhere and does not fall within the above described circumstances, e.g., where a physician is in attendance at death, or at a hospice where medical personnel are present and providing care, the coroner need not be involved.
Custody of a Body
When a coroner’s involvement is required, as identified above, the coroner shall determine the cause of death, and has the duty to complete and sign a medical certification within forty-eight hours after taking charge of the case.
In cases where a coroner’s involvement is not required, certain legally specified persons may claim the body of a decedent and make arrangements for disposition.
CRS 15-19-106 provides that the right to control disposition of the last remains or ceremonial arrangements of a decedent vests in and devolves upon the following persons, at the time of the decedent’s death, in the following order:
- The decedent’s appointee under a written declaration pursuant to CRS 15-19-104;
(b) (I) Either the appointed personal representative or special administrator of the decedent’s estate if such person has been appointed; or (II) The nominee for appointment as personal representative under the decedent’s will if a personal representative or special administrator has not been appointed;
(c) The surviving spouse of the decedent, if not legally separated from the decedent;
(c.5) (sic) A person with the right to direct the disposition of the decedent’s last remains in a designated beneficiary agreement;
(d) A majority of the surviving adult children of the decedent;
(e) A majority of the surviving parents or legal guardians of the decedent, who shall act in writing;
- (f) A majority of the surviving adult siblings of the decedent;
(h) (sic) Any person who is willing to assume legal and financial responsibility for the final disposition of the decedent’s last remains.
Written Instructions Concerning Disposition of Last Remains
Colorado law allows a person to leave written instructions concerning disposition his/her body.
CRS 15-19-104 provides that a person may specify in a declaration, any one or more of the following:
(a) The disposition to be made of the declarant’s last remains;
(b) The person appointed to direct the disposition of the declarant’s last remains;
(c) The ceremonial arrangements to be performed after the declarant’s death;
(d) The person appointed to direct the ceremonial arrangements after the declarant’s death;
(e) The rights, limitations, immunities, and other terms of third parties dealing with the declaration.
If the declarant is a member of the United States armed forces or the United States reserve forces or a member of a state National Guard called into federal service, and the declarant has executed a federal record of emergency data that is valid and enforceable at the time of the declarant’s death, then the federal record of emergency data shall control over any other declaration concerning the person authorized to direct the disposition of the declarant’s last remains, even if the federal record of emergency data was executed prior to the execution of the most recent declaration pursuant to Colorado law.
To be valid, written instructions concerning the disposition of last must be signed and dated and may be notarized or witnessed in writing by at least one adult who confirms that he or she was present when the declarant signed the declaration.
Often medical personnel or family members will request a private post mortem examination of a body to determine or confirm cause of death. Except when a coroner is required to make an inquiry as described above, a Colorado medical licensee may perform a post mortem examination after obtaining consent to do so.
CRS 12-36-133 provides that consent can be obtained from whichever one of the following persons assumes custody of the body for purposes of burial: father, mother, husband, wife, child, guardian, next of kin, or in the absence of any of the foregoing, a friend or a person charged by law with the responsibility for burial.
CRS 25-2-110(1) requires that a certificate of death must be filed with the state registrar, or as otherwise designated by the state registrar within five days after death, and prior to final disposition of the body.
CRS 25-2-110(3 )provides that the funeral director or person acting as such who first assumes custody of a dead body is responsible for the filing of the death certificate. He or she is required to obtain the personal data from the next of kin or the best qualified person or source available, and obtain the medical certification necessary to complete the portion of the certificate pertaining to the cause of death from the best qualified person or source available.
The physician in charge of the patient’s care for the illness of condition that resulted in death is required to complete, sign, and return to the funeral director or the person acting as such the necessary medical certification within forty-eight hours after death
Copies of Death Certificates
Death certificates are needed for many purposes, such to accompany the filing with a will, sending to life insurance companies, banks, and other depository institutions to document a person’s death as a condition to transferring assets to the heirs.
The most common and quickest way to obtain death certificates is through the funeral director. The cost is usually higher for the first death certificate. Additional certificates can be obtained at a lower price. It is best to estimate the number of different assets held by the deceased or institutions that will require a death certificate. You can also get death certificates through the Vital Statistics Department in the county where the death occurred, or through the Colorado State Department of Public Health and Environment, Vital Records Office.
Arrangements for Disposition
After death arrangements must be made for the body to be picked up and prepared for burial, cremation, or organ or body donation in accordance with the written instructions of the decedent, or the person who is legally responsible as outlined above.
Colorado law requires funeral establishments and crematories to be registered with the State, and to comply with specifically outlined standards of practice, and rules and regulations.
Individuals who practice mortuary science must meet established qualifications standards, such as age, education, on-the job experience, and pass national examinations.
Pursuant to the Colorado Mortuary Code only the following persons or businesses may prepare and dispose of human bodies in Colorado.
- Funeral Homes
- Funeral Directors
- Religious Sects
Search for Will and Other Documents
It is natural for surviving family members to look through the deceased’s files, papers, personal effects, and safe deposit box (see below) to locate relevant information pertaining to the financial affairs of the deceased.
If you locate the will, it may contain instructions concerning disposition of last remains. There is a legal requirement imposed upon the custodian of a deceased’s will to file the will with the District Court in which the decedent was domiciled within ten days of the decedent’s passing, even if no probate administration is expected. It is permissible to read the will, but under no circumstances should it be destroyed, or filed away and ignored. A will embodies the stated wishes of the deceased, and it should be honored, or declared invalid only after proper notice to interested parties, and a full court hearing.
During the search for relevant information be on guard for the following:
- Papers that show that the deceased was a member of a funeral society, or had obtained pre-paid funeral plan, or burial plots. These will save money on funeral arrangements.
- Documents indicating that the deceased was on public assistance, burial assistance may be available. If so, contact the local County Department of Social Services as soon as possible and investigate this possibility before contracting for funeral arrangements.
- VA or other military benefit records that might reflect possible burial rights or benefits. If the deceased was in the military or is the spouse or dependent child of a person in the military, contact the VA cemetery or VA office.
- Social Security, Veteran Affairs, pension, retirement, etc. documents reflecting monthly payments that will have to be investigated and potentially stopped to avoid future liability.
- Bank statements, financial statements, certificates of deposit, and other depository accounts statements evidencing ownership by the deceased.
- Real estate deeds, leases, etc. reflecting ownership or rights in real estate.
- Car titles, registration certificates, and car insurance policies.
- Life Insurance policies and other life insurance products.
- Safe deposit rental agreement and keys
- Trust agreements
- Nuptial agreements
- Income tax returns for several years
- Gift tax returns
- Marriage, birth and death certificates
- Checkbook and savings deposit registers
- Notes receivable and payables
- Deeds, deeds of trust, mortgages and title policies
- Stock and bond certificates and account statements
- Partnership or corporate agreements
- Unpaid bills
- Health insurance papers
Entry Into a Safe Deposit Box
CRS 15-10-111 defines the conditions under which entry into safe deposit box of decedent is allowed.
(1) (a) Whenever a decedent at the time of his or her death was a sole or joint lessee of a safe deposit box, the custodian shall, prior to notice that a personal representative or special administrator has been appointed, allow access to the box by:
(I) A successor of the decedent, if such decedent was the sole lessee of the box, upon presentation of an affidavit made pursuant to section 15-12-1201 for the purpose of delivering the contents of the box in accordance with said section; or
(II) A person who is reasonably believed to be an heir at law or devisee of the decedent, a person nominated as a personal representative pursuant to the provisions of section 15-12-203 (1) (a), or the agent or attorney of such person for the purpose of determining whether the box contains an instrument that appears to be a will of the decedent, deed to a burial plot, or burial instructions.
(b) If a person described in subparagraph (I) or (II) of paragraph (a) of this subsection (1) desires access to a safe deposit box but does not possess a key to the box, the custodian shall drill the safe deposit box at the person’s expense. In the case of a person described in subparagraph (I) of paragraph (a) of this subsection (1), the custodian shall deliver the contents of the box, other than a purported will, deed to a burial plot, and burial instructions, to the person in accordance with section 15-12-1201. In the case of a person described in subparagraph (II) of paragraph (a) of this subsection (1), the custodian shall retain, in a secure location at the person’s expense, the contents of the box other than a purported will, deed to a burial plot, and burial instructions. A custodian shall deliver a purported will as described in paragraph (c) of subsection (2) of this section. A deed to a burial plot and burial instructions that are not part of a purported will may be removed by a person described in subparagraph (I) of paragraph (a) of this subsection (1) pursuant to paragraph (d) of subsection (2) of this section, and the custodian shall not prevent the removal. Expenses incurred by a custodian pursuant to this section shall be considered an estate administration expense.
(c) A representative of the custodian shall be present during the entry of a safe deposit box pursuant to this section.
If an instrument purporting to be a will is found in a safe deposit box as the result of an entry, the purported will shall be removed by the representative of the custodian.
At the request of the person or persons authorized to have access to the safe deposit box the representative of the custodian shall copy each purported will of the decedent, at the expense of the requesting person, and shall deliver the copy of each purported will to the person, or if directed by the person, to the person’s agent or attorney. In copying any purported will, the representative of the custodian shall not remove any staples or other fastening devices or disassemble the purported will in any way.
The custodian is required to mail the purported will by registered or certified mail or deliver the purported will in person to the clerk of the district or probate court of the county in which the decedent was a resident. If the custodian is unable to determine the county of residence of the decedent, the custodian shall mail the purported will by registered or certified mail or deliver the purported will in person to the office of the clerk of the proper court of the county in which the safe deposit box is located.
If the safe deposit box contains a deed to a burial plot or burial instructions that are not a part of a purported will, the person or persons authorized to have access to the safe deposit box may remove these instruments.
After the appointment of a personal representative or special administrator for the decedent, the personal representative or special administrator shall be permitted to enter the safe deposit box upon the same terms and conditions as the decedent was permitted to enter during his or her lifetime.
If at the time of the decedent’s death one or more other persons were legally permitted to enter the safe deposit box, their permission to enter shall continue, notwithstanding the death of the decedent.
Veterans and Social Security Benefits
If the deceased was a veteran, and receiving veteran benefits, call the nearest VA listing for Benefits Information and Assistance. Your call will stop the monthly payments. Usually the VA will automatically withdraw any payments made via direct deposit after the date of death. If this does not happen, you must return the check for the month of death.
Veteran’s benefits may be available to the surviving spouse of a decedent. Benefits may include a lump sum death benefit; if death was service connected, a continuing monthly payment to the surviving spouse, and financial assistance with funeral expenses and cemetery plot, or burial in a national cemetery. Ask for the “Federal Benefits for Veterans and Dependents” publication.
Social Security monthly benefits are available to a surviving spouse and to children under 18 and certain disabled children. Benefits include a lump sum death benefit. Family members should call the Social Security Administration immediately. Be prepared to identify the deceased’s:
- relationship to you
- Social Security or VA claim number
- date of birth
- date of death
- place of death
- surviving spouse or next of kin
- medical history that bears on whether the death is service related or not
If you do not know the VA number, then provide:
- service number
- dates of active service
During the call or visit ask for the “Social Security Survivors” brochure.
Call to schedule an initial, no cost, no obligation consultation.