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In this video, Colorado Springs estate planning attorney, Louie V. Larimer, MBA, JD, explains the estate planning and who can benefit from estate planning services:
What is Estate Planning?
Estate Planning is a process that involves: thinking about your wealth; reflecting upon your life circumstances and desires; looking at options and alternatives with respect to how to accomplish your desires; taking into account legal, tax, financial, and personal family matters; making decisions; and creating and executing the proper instruments of conveyance to bring about your desires.
The end result of estate planning is an integrated set of legal documents that embodies your decisions, and contains specific instructions with respect to how to accomplish your intentions at your death.
These documents can include items such as:
Assures your wealth is transferred in accordance with your desires and identifies who will manage your estate.
Financial Power of Attorney
Appoints a trusted person to handle your financial affairs when you Are Disabled or Incapacitated.
Medical Power of Attorney
Identifies who you want to make medical decisions for you when you Are Disabled or Incapacitated.
Living Will Advance Directive
Assures your desires regarding extraordinary medical procedures and life support are honored.
Allows your wealth to be managed for you and your beneficiaries who may need protection.
Minimizes probate and provides privacy and confidentiality.
Why Do Estate Planning?
Here are the common reasons why people decide to engage in estate planning:
- Avoid family disputes, disagreements, controversies, and bad feelings regarding inheritance.
- Assure that surviving spouses and dependent children, are financially protected.
- Avoid or minimize the burden of federal, state, inheritance, gift and estate taxes.
- Express philanthropic desires by providing charitable gifts, legacies, and bequests.
- Assure continuity, perpetuation, and family control of a business enterprise.
- Protect heirs from third parties seeking to take financial advantage of them.
- Protect heirs from their own foolishness, mistakes, and financial irresponsibility.
- Disinherit certain natural heirs from receiving portions or all of an estate.
- Provide an incentive for certain family members to behave in certain ways.
- Assure that as medical and mental infirmities occur, trusted family members or other trusted and highly regarded people are appointed to handle affairs.
- Specify personal desires regarding medical treatment, and the withdrawal or maintenance of extraordinary life support.
- Achieve peace of mind, knowing that the necessary and proper decisions pertaining to settling of one’s worldly affairs has been completed.
What happens if you die without a will?
If a person dies without leaving a will, this is known in the law as intestacy. Lawyers, judges, and other knowledgeable legal persons refer to a person who died without a will as having died “intestate.”
When a person dies intestate, the estate of a decedent passes to the decedent’s heirs as prescribed by Colorado Revised Statues, contained in Title 15, Article 11.
A decedent’s heirs include the following classes of people who survive the decedent by 120 hours: spouse, descendents such as children, grandchildren, etc.; parents, siblings, descendents of siblings, and potentially other remotely related persons.
The distribution scheme is complicated and depends upon a variety of factors. There is an order of priority favoring spouses, descendants, parents, siblings, and descendants of siblings, in that order. The distributions scheme does not necessarily result in equal distributions to all named in the statute. An heir partakes only if and when there is no heir having a higher priority, and only in the amounts described in the statue.
When a person dies without a will, a question arises as to who is entitled or responsible for settling the final affairs of the decedent. Colorado statutes provide that certain people have priority to act as Personal Representative. One of the advantages of having a will is that a person can nominate another person to serve as Personal Representative and this nominee will have a presumptive priority over others who might seek appointment for unscrupulous reasons, or who might lack the capacity to serve properly.
The same issue exists with respect to who is entitled to serve as guardians for minor children. Without a will or other written nomination, a court will be left to decide who is to serve as guardian for minor children without input or insight from a parent.
The consequences of dying without a will are often dramatic, severe, and difficult upon survivors. Most often, the end results are not anticipated, are generally unacceptable and highly undesirable, particularly when forced upon surviving spouses and family members who have differing notions of what is right. This is particularly so for a surviving spouse who naively believed he/she would be adequately cared for following the death of a spouse, and would have total control of settling the final affairs of deceased spouse.
The good news is that by drawing up a will, you can avoid all of the unwanted, unpleasant, and unanticipated legal consequences, as well as, most of the highly emotional family turmoil associated with such occurrences.
By simply executing a will, you can:
- Specify to whom your wealth shall pass.
- Identify a Personal Representative to settle your affairs.
- Identify a Guardian or Trustee for your minor children.
- Minimize family emotional turmoil.
- Give control of your final affairs to a responsible person.
If it is that simple, why don’t more people have a will or estate plan in place?
The answers, rationalizations and explanations all have the same common theme flowing from the natural human tendency of avoiding unpleasant thoughts of death, and the emotions associated with thinking about the how to treat family members.
The barrier to creating an estate is usually overcome by an immediate sense of reality, emerging urgent need, impending medical procedure, upcoming travel plans, worry and anxiety over thoughts of who should or will care for minor children, and the most common motivation stated by many people—nudging from family members to “get it done.”
- What is your unique situation?
- What is keeping you from acting, if you have not yet done so?
The Process of Planning an Estate
The first step in estate planning is to decide that you need or want to plan for an orderly and smooth transfer of your wealth at your death, and that you desire to leave specific instructions concerning your final medical and financial care when you may become incapacitated, unable to communicate your desires, or handle your own affairs should you become disabled, but not die.
Ask yourself a few questions. . .
- Do you care about what happens to your personal or family wealth at your death?
- Do you want to leave family heirlooms to certain members of your family?
- Do you want to financially provide for a surviving spouse, minor child, or other special person in your life?
- Do you care about minimizing the amount of estate taxes that will diminish the size of your estate at your death?
- Do you have a business that you want to see continue in a certain manner after your death?
- Do you care about what may happen to you or a loved one in the event of disability?
- Do you want to leave instructions about how medical decisions are to be made for you when you are not able to communicate your desires?
- Would there be an advantage to appointing a trusted person as an agent to make financial decisions and handle financial matters when you are unable to do so?
- Do you want to protect family wealth from being inherited by unintended persons?
If you answeredYESto any of these questions, you should consider scheduling an initial, no cost, no obligation consultation to discuss your needs and desires.
The second step in planning your estate is to assemble and choose the right professional team to assist you in your efforts. It is simply foolish to think that an internet provided form can capture your intentions, and achieve your goals given the complexities of differing aspects of the law which must be taken into account (e.g., real estate, business, probate, insurance, federal retirement, intestate statutes, tax code, and medical privacy, etc.). There are multiple legal and tax aspects that should be carefully considered and professional advice rendered before making any estate planning decision. The traps for the unwary are numerous.
Your estate planning team can consist of several professionals, including your lawyer, accountant, life insurance representative, and other financial advisors. Each team member fulfills a particular role. Generally, your lawyer manages the process in close working relationship with the accountant and other financial advisors. You may be encouraged to initiate estate planning by any one of these individuals, in addition to family members.
Generally, your lawyer will be the centerpiece of the effort. Your lawyer will ultimately be responsible for drafting the legal documents and reviewing the other financial instruments that will comprise your estate plan. Your accountant will provide vital information about the nature, valuation, and tax consequences of your estate plan. Your life insurance representatives and other financial advisors will offer sound advice and provide a variety of financial products, and investment services that will be appropriate for you to consider as options and alternatives to the needs that will be identified.
It is a standard of practice for estate planning lawyers to provide an engagement letter outlining the specific scope of services offered to you, along with disclosures of how fees are calculated, and possible conflicts of interests your lawyer may perceive. A few words about attorney fees are appropriate here. There are philosophical and actual differences among lawyers with respect to their fees, and the methods by which they establish and charge their fees. Colorado law provides that attorney fees must be reasonable with respect to the skills, knowledge, and experience of the attorney, as well as, the extent and nature of the legal problem, and the results achieved. It is difficult for lawyers to determine the nature and extent of work that will be necessary to achieve a particular estate plan. Each prospective client brings a unique financial landscape these needs to be addressed, along with a personal psychology, goals, desires, uncertainties, etc. that need personalized time, attention, and often, counseling to resolve during the planning phase. It is for this reason, that lawyers will often charge an hourly rate for evaluating, planning, designing, advising, counseling, and implement an estate plan, along with a flat fee for preparation of each individual document required by the plan, once a client has cast in stone his/her desires.
The third step in the process of estate planning is to compile information about the nature, scope, and current valuation of your estate. This is necessary in that these details are the very ingredients of your estate plan that need to be confirmed, revised, re-titled, and dealt with in your estate plan. Please, remember that accuracy and complete disclosure are vital to achieving your goals and intentions.
The fourth step in the estate planning process is to think about your desires, goals, and intentions. It is important that you be able to articulate what you want to accomplish with your estate plan. There are numerous factors you should consider and decide upon. These items are outlined in the next section of this work. During an early meeting with your lawyer, you will be asked to describe your desires. With this information, he/she will be able to evaluate, identify, and describe the consequences from legal, tax, and investment perspectives.
It is likely that you will discover that your personal desires will have unanticipated tax consequences that were unknown to you. It is also possible that some of your desires may be difficult to achieve since the tax code and state laws are often at odds with the personal desires of individuals.
Your estate planning team will offer you a variety of alternatives, options, and paths for you to consider. At this point, the period of reflection begins for you and you will have to decide what is most important for you to have embodied in your estate plan. There will be heartfelt conversations with your lawyer about family members, desires to control, fears, anxieties, worries, other concerns that will emerge. Have faith, you will figure it out, and you will find the peace you desire.
The fifth step is for your lawyer to draft the various documents you will need. This will take a short period of time depending upon the lawyer’s work load. You will be provided copies, asked to review the drafts, and return for another office visit with your lawyer to consider revisions, have questions answered, and confirm your desires.
The sixth step is to finalize your plan by executing the legal documents appropriate for your estate plan. The actual signing of the legal documents requires a bit of formality. You will be asked to state that you have read the documents, understand what they do for you, and that you are signing them as voluntary act, free from undue influence, coercion, or control. Your signature will be witnessed by to other people, and a notary will be present to affix his/her seal to the legal documents.
Once the legal documents are signed, the originals of the documents will be given to you to retain and keep safe until needed.
People often ask where their estate planning documents should be kept. The ideal answer is in a fire proof, limited access, cabinet or safe in your home or in a safe deposit box at your local bank. Most people, however, simply keep them at home in a desk, or drawer with other important documents.
The final step in an estate planning process is to change ancillary documents such as beneficiary forms for life insurance, retirement accounts, bank/savings accounts, real estate deeds, and other instruments as required by your estate plan. This step should not be neglected, and if you have agreed to do these tasks, and have not asked your lawyer to undertake these actions for you, you should make immediate plans to get this done. People have a tendency to forget these matters when done immediately, and the results of failing to accomplish these final steps can defeat the best estate plan ever written.
Levels of Estate Planning
Estate Planning can be as simple as understanding and acknowledging that you do not want or need a will or other estate plan, to completing highly sophisticated, extremely complex, and detailed estate plans that take into account, tax, charitable, and multi-generational matters.
For purposes of simplicity, think of estate planning as a pyramid having 6 (six) levels with each level becoming more complicated.
- Intestate (Statutory) Default Level involving no estate planning other than reliance on the inheritance laws of the State of Colorado outlining what happens to a person’s wealth at death.
- Basic Will for a Single Person or Married Person involving the drafting and creation of a Simple Will that leaves property in accordance with a person’s desires without creating any type of trust for management of the estate on behalf of the beneficiaries. This basic planning can also involve the drafting of other documents such as Medical Power of Attorney, Financial Power of Attorney, Living Will, and Disposition of Last Remains. Normally, the value of a person’s estate at this level does not justify or trigger the need for estate tax planning.
- Last Will with Testamentary Trust involving a Last Will and provisions for the creation of a trust at the death of the Maker of the Will. Generally, the trust is for the benefit of the Maker’s minor children requiring allowing the Trustee is use the principal and income of the trust for the general support, health, education, maintenance, and welfare of the children for a period of time with distribution of the principal to the children upon attainment of a specified age. This level of planning can also involve the drafting of other documents such as Medical Power of Attorney, Financial Power of Attorney, Living Will, and Disposition of Last Remains. The value of a person’s estate at this level may or may not justify the need for estate tax planning.
- Revocable Living Trust involving the drafting of a Trust into which property is transferred and managed by the Settlor (Maker of the Trust) for the benefit of the Settlor and others, but which contains provisions outlining what happens to the property in the trust upon the Settlor’s death. It can provide numerous options for distribution of the trust property at the death of the Settlor, including continuation of the trust after the death of the Settlor by a named Successor Trustee and distribution to the named beneficiaries upon the occurrence of certain future events. Use of a Revocable Trust is more complicated than a Basic Will and is not a complete substitute for a Will in that a Simple Pour Over Will (one that provides for any property owned by the Settlor but not included in the trust, is, at the time of the Settlor’s death to be paid the trust (i.e., pour over into the trust and be managed and distributed as outlined in the trust instrument). This level of planning can also involve the drafting of other documents such as Medical Power of Attorney, Financial Power of Attorney, Living Will, and Disposition of Last Remains. The value of a person’s estate at this level may or may not justify the need for estate tax planning.
- Marital and Family Trusts (Initial Estate Tax Planning) involving the creation of a Last Will or Revocable Living Trust that provides for the creation and management of two trusts at death of the Maker: Marital Trust into which property passes for the benefit of the Spouse, and a Family Trust which passes for the benefit of the spouse and the children but intended to be excluded from the spouses estate 9and therefore incur no estate tax) at the death of the surviving spouse. This is the first step in estate tax planning and minimization and becomes more complicated for both the lawyer, other members of the estate planning team, and the family. This level of planning can also involve the drafting of other documents such as Medical Power of Attorney, Financial Power of Attorney, Living Will, and Disposition of Last Remains. The value of a person’s estate at this level justifies the need for estate tax planning.
- Sophisticated Estate Tax Planning involving not only Marital and Family Trusts, but other devices and techniques such as one time and annual gifting to individuals and charitable organizations, irrevocable life insurance trusts, as well as, various kinds of charitable trusts and foundations. This level of planning can also involve the drafting of other documents such as Medical Power of Attorney, Financial Power of Attorney, Living Will, and Disposition of Last Remains. The value of a person’s estate at this level justifies the need for use of these extremely complicated and expensive estate tax planning techniques.
So, what level of estate planning is appropriate for you?
The answer is, of course, a personal decision, depending upon two factors:
- the extent of your wealth; and
- your desire to minimize the burden of estate taxation.
As a practical matter, most younger families desire or need either Levels 2, 3, or 4 estate planning, while older, more established and financially well off families, require and desire either Levels 3, 4 or 5 deferring to Level 6 Estate Planning when their financial holdings permit property transfers to others and loss of asset control without jeopardizing their own financial futures.
27 Questions Regarding End of Life Decisions
- Who are your natural heirs?
- Which of your natural heirs do you want to share in the wealth you have created?
- How do you want your heirs to share in your estate?
- Do you want to determine how that wealth transfer should occur?
- Do you want the state to determine how your wealth is distributed at your death?
- How do you want to provide care for a surviving spouse?
- How do you want to provide for your surviving children, grand children, or step-children?
- Do your children need a trustee to manage and protect their wealth.
- Do you have a “special needs” child, or other persons in your life, who need continuing financial assistance from you, or need someone to make life decisions for them?
- Who do you want to act as your personal representative to settle your final worldly affairs?
- Do you want to minimize federal and state death taxes?
- Do you have business or professional interests that require specialized planning to protect?
- Do you want to appoint someone to make medical decisions for you when you lack decisional capacity?
- Do you want to leave instructions concerning the withdrawal or continuation of life sustaining medical procedures when you have a terminal condition, or are in a persistent vegetative state, and are unable to communicate your desires?
- Do you want to leave instructions concerning CPR and other life saving medical procedures?
- Do you want to avoid or minimize “probate?”
- Do you want to provide a home, a financial legacy, or a trust for the on-going care of your pet?
- Do you have a life partner you want to include in medical decisions for you?
- Do you want to leave certain property to particular people?
- Do you want to leave property or a part of your wealth to a charity?
- Do you want to be an organ donor?
- Do you want to leave instructions concerning the disposition of your body and memorial services?
- How should “joint tenancy” property assets be titled to most effectively achieve your goals?
- Who do you want to designate as beneficiary of other “payable on death” assets?
- How should your creditors be taken care of at your death?
- What effect do you want “community property” laws of other states to have on your estate?
- How do you want to coordinate Medicare, Medicaid, and other government benefits?
For a lot of people, these questions are overwhelming and are often ignored. For many people, thoughts of death, incapacity, or similar matters evoke unpleasant feelings, and they suppress, or ignore the issues raised by the above mentioned end of life decisions.No doubt, there is a lot to consider. And, most important, it takes time, effort, and money to properly plan your estate.I can tell you that people who complete a deliberate process of estate planning, walk away from the process with great peace of mind, knowing that they have faced the issues, made the difficult decisions, and left a written legacy that will bring about for their loved ones that which is in their hearts. If that is important to you—peace of mind—at this time in your life, call to schedule an initial, no cost, no obligation consultation.