| Attorneys At Law
Trusted Legal Counsel for Colorado Families and their Estate Planning needs
| Attorneys At Law
Trusted Legal Counsel for Colorado Families and their Estate Planning needs
On January 1, 2013, with their toes just over the edge of the fiscal cliff, Congress passed the American Taxpayer Relief Act of 2012. From an estate tax standpoint, the Act appears to be aptly named as it does provide “permanent” tax relief for most American families.
Below are a few of the key provisions of the Act regarding estate planning:
1. $5M Estate Tax Exemption Remains. Each taxpayer will retain a $5,000,000 exemption from estate, gift, and generation skipping transfer tax. The $5M is indexed for inflation, which means that the inflation-adjusted exemption is $5.25M in 2013, and estimated to be approximately $5.38M in 2014, approximately $5.52M in 2015, and approximately $5.66M in 2016. These figures would be doubled for a married couple, which means in 2013, a couple could leave $10.5M to their heirs estate tax free.
2. Top Marginal Rate Increases. The top estate, gift, and GST rate is increased from 35% to 40%. The increased rate should give individuals whose estates exceed $5.25M and married couples whose estates exceed $10.5M, additional motivation to implement advanced estate planning strategies in order to reduce their tax burden.
3. Portability of Exemption Between Spouses Remains. Portability of the estate tax exemption between spouses has been extended permanently. Portability allows a surviving spouse to transfer their deceased spouse’s unused estate tax exemption to the surviving spouse. In order to preserve their right to portability, the surviving spouse must file a Form 706 (United States Estate Tax Return) tax return even if there is not any estate tax due.
4. Income & Capital Gains Tax Increases. The rate for long-term capital gains will remain at 15% with the addition of a new 20% rate for single taxpayers with taxable income above $400,000 or $450,000 for married couples filing jointly. Individual income tax rates will remain the same, with the addition of a new 39.6% tax bracket for single taxpayers with taxable income above $400,000 or $450,000 for married couples filing jointly.
5. Major Transfer Tax Changes Avoided. The Act avoided the fiscal free-fall associated with 1) a return to the $1M exemption for estate, gift, and GST tax; 2) the “clawback” of previous gifts where the estate tax exemption is lower than a prior gift; 3) de-unification of the estate, gift, and GST exemptions; and 4) the loss of portability.
Federal Estate "Death" Taxes: In general, when an individual passes away, the transfer of assets to his or her beneficiaries will be taxed. This is called the estate tax. Recent tax law changes which are favorable to tax payers will result in even fewer Americans being subject to this tax. The Act allows each individual to transfer up to $5.25M at death estate tax free, or $10.5M per couple. The tax rate for estates above $10.5M is a flat rate of 40%. Furthermore, the Act allows a surviving spouse to add to their deceased spouses exemption amount to their own exemption (which is called "portability"). The additional federal estate tax deductions below also apply under the new law:
FEDERAL ESTATE TAX CHART
2013-2016
|
2013 |
2014 |
2015 |
2016 |
|
|
Estate Tax Exemption * |
$5,250,000 |
$5,380,000 |
$5,520,000 |
$5,660,000 |
|
Maximum Estate Tax Rate |
40% |
40% |
40% |
40% |
|
Lifetime Gift Tax Exemption |
$5,250,000 |
$5,380,000 |
$5,520,000 |
$5,660,000 |
|
Maximum Gift Tax Rate |
40% |
40% |
40% |
40% |
|
Annual Gift Tax Exclusion Amount ** |
$14,000 or $28,000 per married couple |
$14,000 or $28,000 per married couple |
$14,000 or $28,000 per married couple |
$14,000 or $28,000 per married couple |
|
Generation Skipping Tax Exemption |
$5,250,000 |
$5,380,000 |
$5,520,000 |
$5,660,000 |
|
Maximum GST Rate |
40% |
40% |
40% |
40% |
* Amounts are estimates indexed for inflation.
** Annual Gift Tax Exclusion amounts subject to increase with inflation.
Under the current law, if your total taxable estate (including stocks, bonds, real estate, business interests, life insurance, personal property,
retirement plans, etc.) exceeds the $5.25 million applicable exclusion equivalent, your estate will be subject to federal estate taxes at a rate of 40%.
However, there are many advanced planning strategies available to help you minimize estate taxes.
Key Points:
Many clients will not be subject to federal estate taxes due to the increased
applicable exclusion amount of $5.25 million per person. However, some highter net worth clients' estates could be subject to taxes. Your taxable estate is probably more than you realize (Remember- life insurance proceeds will be included in your taxable
estate regardless of who the beneficiary is unless the policy is owned by an
irrevocable trust). Below are a few of the techniques that can be used to
reduce or eliminate your estates tax burden. Other trust techiniques mentioned in the FAQ "What are some of the different trust tools available?" can also be used for larger estates.
Gifting: Clients may wish to keep their taxable estate below
the $ 5.25 million threshold by taking full advantage of the gift tax exceptions,
including 1) giving away portions of the estate in the form of gifts that are
less than the applicable exclusion of $14,000 per individual 2) paying
educational expenses for a family member or friend directly to the educational
institution 3) giving a portion of the estate outright to a qualified
charitable organization during the life of the donor, or 4) making a charitable
contribution in their will.
Credit
Shelter Trust: Including a discretionary credit shelter trust provision in the
estate planning documents could still be a good idea for some clients with larger estates. Although the $5.25M federal estate tax exemption is portable between spoues (allowing a couple to pass $10.5M to heirs estate tax free, indexed for inflation for years beyond 2013) it could still be a good idea to include this provision in your documents for a couple of reasons. First, although the new tax act makes exemption portability permanent, nothing is ever permanent in Washington and it certainly does not hurt to have this lanauge in your document. Even if you never have the need to fund a credit shelter trust for tax purposes, it could be a good safety net in case of chaning tax laws in the future. Additionally, portability is not automatic. If the surviving spouse fails to file Form 706 with IRS within 9 months of their spouses' death, they will not be able to preserve their right to use the $5.25M exemption of their decased spouse. Secondly, the future growth of assets in placed into a credit shelter trust will avoid further estate taxes on those assets. The downside to using this type of trust, is that the assets in the trust will not receive a step-up in basis for capital gains tax purposes on the second spouses death. If assets passed from husband to surviving wife outright on the first death (with wife filing Form 706 to exercise the portability of his exemption of course), his assets would receive a step up in basis at that time and upon the wife's death, the assets would recieve another step up in basis.
Example (for high net worth clients): Harry dies leaving Sally $5.25M of assets he owned in his name alone. Sally already had $5.25M in her name prior to Harry's death. Sally could take Harry's assets outright and file Form 706 to preserve her right to use Harry's exemption upon her death which would keep all $10.5M of the combined estate free from estate tax liability and the assets would recieve a full step up in basis (allowing the kids to sell the assets without paying capital gains taxes). This plan is simple and effective thanks to the new federal estate tax laws. However, let's assume Sally is going to live another 10 years past Harry's death. If the assets grow from $10.5M to $21M, Sally's estate now has to pay taxes on the $10.5M. Let's assume that Sally's exemption from estate taxes is now $7.25M (because the current $5.25M exemption is indexed for inflation in future years beyond 2013). There would be a federal estate tax applied to $8.5M ($21M total estate - Sally's inflation indexed $7.25M exemption - Harry's $5.25M exemption that Sally claimed at his death via portability by filing the 706 = $8.5M taxable). At a 40% federal estate tax rate, Sally's estate will pay $3.4M in federal estate taxes. What if Harry's Will included a Discretionary Credit Shelter Trust? In that scenario, upon Harry's death, Sally would fund the trust with Harry's $5.25M exemption and the trustee (likely Sally), would use the trust for her benefit during her life (she is entitled to income, up to 5% of the principal annually, and principal for her health, education, maintenance, and support). Upon her death, the trust assets pass to a beneficiary, such as a child, free of estate taxes, with the appreciation of the trust assets also
passing tax free. Assuming the total estate doubled (including the assets in the credit shelter trust) the tax savings to Sally's family would be significant. Again assuming a $21M total taxable estate and an inflation adjusted $7.25M exemption for Sally, Harry's orginial $5.25M exemption placed into the trust grew to double its original amount to $10.5M (remember the growth in the trust is estate tax free), the estate would now pay taxes on only $3.5M for a total tax of $1.3M. This strategy saved Harry and Sally's kids a total of $2.1M in federal estate taxes.
PLANNING POINT: Considering the ever changing estate tax landscape, flexibility is the key to creating an estate plan that can accomplish your wishes regardless of future tax law changes. For most large estates, including discretionary Credit Shelter Trust language in your Will may still be a good idea. Discretionary Credit Shelter Trust language in your estate plan gives the surviving spouse the option (but not the obligation) to fund a trust for tax avoidance purposes based upon their needs and the current laws.
529
College Savings Plan: Section
529 of the Internal Revenue Code affords a taxpayer with an opportunity to
establish a special account for the purpose of paying higher education
expenses. Investments in a 529 Plan accumulate income tax free and
distributions used for qualified education expenses are not subject to federal
income tax. One common technique used to reduce the size of taxable estate
involves "frontloading" gifts to a 529 education savings plan. You can make
five years worth of annual exclusion gifts ($70,000 as an individual or
$140,000 per couple) to a 529 plan in 2013 for the benefit of any one person,
but annual exclusion gifting to that person over the next four years will be
reduced by $14,000 per year. Qualified higher education includes anything past
high school, meaning college, grad school, or trade school would all qualify.
Furthermore, the person who makes the gift owns the account and has control
over it. The owner can change the
beneficiaries at will and can even get to the money during an emergency if they
are willing to pay a penalty.
Example: Grandpa
and Grandma want to reduce their $10.5 million taxable estate because they are right at the federal estate tax threshold. Grandpa and Grandma set up a 529
plan and frontload their gifts to the plan for the benefit of their 4 young
grandchildren. Using both of their
5 year frontloading gifts the couple is able to fund the 529 with $140,000 per
grandchild or $560,000 total. The
gifts will grow tax free and be available to pay for the grandchildren's post
high school education. Grandma and
Grandpa could get to the money if it was absolutely necessary, but they would
have to pay penalties to do so.
However, that safety net is there if they need it. Now suppose one of the grandkids goes
to 2 years of junior college and one wants to go to medical school. The donors can give the remaining money
in the account of one of the beneficiaries to another beneficiary who is
continuing their studies. The
couple here has reduced their federal estate tax liability to zero and they have
provided for their loved ones education.
The flexibility and tax free benefits of the 529 College Savings Plan
make it a great estate planning tool.
Family
Limited Liability Company: A Family Limited Liability Company (FLLC) is an
estate planning device which is commonly used to eliminate or minimize estate
taxes. In a FLLC, the senior generation
(parents) transfers valuable assets (such as investment real estate) into the
entity in exchange for membership interests in the company. The junior generation (children) are
given membership interests in the company as a result of a gift from the senior
generation or by transferring their own assets into the company in exchange for
such membership interests. The senior generation can use annual exclusion
gifting ($14,000 per person or $28,000 per married couple) to transfer their
wealth during their lifetime to the junior generation via membership interests
in the family controlled company.
There are a couple of reasons for creating a FLLC. First, when the senior generation
passes away, their property which has been converted to membership interests in
the FLLC will receive a valuation discount for estate tax purposes. Due to a lack of control rights and the
lack of marketability associated with membership interests which are restricted
to family ownership, the value of the interests owned by the senior generation
are discounted for estate tax purposes.
Secondly, the FLLC provides a legal structure for transferring wealth
from one generation to the next.
If drafted properly, the value of the membership interests transferred
to the junior generation will not be included in the taxable estate of the
senior generation. The FLLC can be
a powerful tool used to reduce or avoid federal estate taxes. However, due to very complex tax laws
associated with this structure, the advice of an attorney is essential when
creating this estate planning device.
Furthermore, several bills have already been introduced in the U.S. Congress that could substantially limit the use of this planning technique. If passed, such a bill could prohibit valuation discounts with respect to the transfer of an interest in a
closely-held entity. Therefore,
there is a current incentive to complete any such gift planning in a timely
manner.
Conservation Easements in Estate Planning: A
conservation easement is a legally enforceable land preservation agreement
between a landowner and a qualified land protection organization (often called
a "land trust" or "land conservancy"), for the purposes of conservation. It restricts real estate development,
commercial and industrial uses, and certain other activities on a property to a
mutually agreed upon level. The
activities allowed by a conservation easement depend on the landowner's wishes
and the characteristics of the property. In some instances, no further
development is allowed on the land. In other circumstances, development is
allowed, but the amount and type of development is restricted by the terms of
the agreement. Conservation
easements may be designed to cover all or only a portion of a property. Every
easement is a unique document, tailored to a particular landowner's goals and
their land. The decision to place
a conservation easement on a property is strictly a voluntary one where the
easement is sold or donated. The restrictions, once set in place, "run with the
land" and are binding on all future landowners. After the easement is signed, it is recorded with the Clerk and Recorder and it becomes a part of the chain of title for the
property. The primary purpose of a
conservation easement is to protect agricultural land, timber resources, and/or
other valuable natural resources such as wildlife habitat, clean water, clean
air, or scenic open space by separating the right to subdivide and build on the
property from the other rights of ownership. The landowner who gives up these
development rights continues to privately own and manage the land and receives
a charitable deduction on their federal income taxes (which may be applied over
a period of several years). Additionally, the property owner may benefit from
reduced property taxes and estate taxes. If granted during lifetime, the
easement significantly reduces the value of the property for estate tax
valuation purposes and a portion of the land value may be excluded from the
gross estate altogether. Perhaps more importantly, the landowner has made the
decision to be a good steward of their natural resources preserving the
conservation values associated with their land for future generations.
Conservation easements are particularly useful for families looking to pass
along a family farm to their heirs in a tax efficient manner. In a state with
rich natural resources like Colorado, the conservation easement is becoming a
poplar estate planning tool. Because conservation easement negotiation
and conservation easement drafting can both be quite complex, both the land
trust and the landowner are typically represented by legal counsel. Buell & Ezell, LLP walks clients through the
conservation easement process, negotiates the terms of the agreement, and helps
clients identify a qualified land protection organization who will accept and
enforce the easement.
Gift Taxes
The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not. The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift. Gift taxes are paid by the donor of the gift. The donor must file a gift tax return with the IRS when a taxable gift has been made. There is not a limit on how much a person can give to others during their lifetime, but a gift to an individual that is more than $14,000 (2013) in a year must be reported to the IRS in the form of a gift tax return. Additionally, any amount above $14,000 will be counted against a $5.25 million lifetime federal gift tax exclusion and the estate tax applicable exclusion amount (unified $5.25 million in 2013, discussed above) available to the individual will be reduced by the lifetime gift tax exclusion used. The $14,000 figure is an annual exclusion from the gift tax reporting requirement. This means that you may make an annual gift of $14,000 to each individual of your choice without reporting the gifts to the IRS. If you are married, both you and your spouse can separately give gifts valued at up to $14,000 (collectively $28,000) to the same person without making a taxable gift. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally the following gifts are not taxable gifts:
1. Gifts that are less than the annual exclusion for the calendar year ($14,000 in 2013, discussed above)
2. Tuition or medical expenses you pay directly to a medical or educational institution for someone else
3. Gifts to your spouse
4. Gifts to a political organization for its use, and;
5. Gifts to qualified charities
Concerning education and medical expenses, federal tax law allows an individual to pay for another's tuition or medical expenses above and beyond the annual exclusion amount and there is no limit on the amount that can be given for these purposes. The payments, however, must be made directly to the medical or educational institution, rather than to the recipient of the gift. Educational gifts must be applied specifically towards tuition. Payments cannot be used for room, board, books or other ancillary education expenses. Tuition payment applies to any level of schooling from nursery school to graduate school. The student may be enrolled full or part-time. Additionally, the exemption is not limited to traditional academic institutions such as colleges and universities. Any educational organization with a regular faculty, curriculum, and a student body will generally qualify. The following examples should clarify how the federal gift tax works.
Example 1: In 2013, you give your daughter a cash gift of $10,000. It is your only gift to her that year. The gift is not a taxable gift because it is less than the $14,000 annual exclusion. No gift tax return needs to be filed.
Example 2: In 2013, you and your spouse give your son $28,000, your daughter $28,000, and your grandson $28,000. It is your only gift to each of them that year. None of the gifts are taxable because the gifts to each individual do not exceed the annual gift tax exclusion (husband and wife combined their $14,000 annual exclusions). No gift tax returns need to be filed.
Example 3: In 2013, you pay the $30,000 college tuition of your friend directly to his college. Because the payment qualifies for the educational exclusion, the gift is not a taxable gift. No gift tax return needs to be filed.
Example 4: In 2013, a single mom gives her 25 year old son $25,000. The first $14,000 of the gift is not subject to the gift tax because of the annual exclusion. The remaining $11,000 is a taxable gift. Due to the $5.25 million lifetime gift tax exclusion, the mom will likely never have to pay gift taxes on the remaining $11,000. However, a gift tax return must be filed with the IRS and the mom's applicable exclusion for estate tax purposes will be reduced by the amount of the taxable gift.
Annual Exclusion Gifting
For clients who are trying to reduce the size of their taxable estate, an aggressive gifting plan which utilizes the annual gift tax exclusions can be a great way to reduce estate tax liability while providing gifts for family, friends, and charity while the donor is still alive.
Example: Grandpa and Grandma have a combined taxable estate of $10.5 million. They do not want their heirs to pay any Federal Estate Taxes when the second spouse passes away. In order to reduce their taxable estate to an amount which is below the $10.5 million combined Tax Exemption, the couple decides to adopt an aggressive gifting plan. In 2013, they use their combined annual gift tax exclusions to give $28,000 to their son and $28,000 to their daughter. In that same year, they also pay tuition payments of $25,000 directly to a private college for each of their 6 grandkids who attend that college ($150,000 in total tuition payments for the year 2013). In 2013 they are able to give total gifts of $206,000 without the need to file any gift tax returns with the IRS. Grandpa and Grandma have kept their total estate below the $10.5 threshold, kept both of their federal estate tax exemption amounts fully intact, and they have helped their loved ones in a significant way while they are still alive. In order to keep their estate below the inheritance tax threshold, Grandpa and Grandma will want to monitor the growth of their estate and continue to make future non-taxable gifts in order to compensate for the inflation and growth. They will likely want to continue this strategy every year. Furthermore, they may also want to gift $28,000 to a mutual fund for each grandchild on an annual basis. This would 1) utilize their annual exclusion gifts and 2) transfer the future growth of these assets out of their estate and into an account that will grow for the grandkids benefit.
Generation-Skipping Transfer Tax (GST)
The generation-skipping transfer tax is a flat tax applied to estates in addition to income, estate, and gift taxes. The tax is imposed on a transfer (either a gift during life or a transfer at death) to a person two or more generations below the transferor. A person two or more generations below the transferor is referred to as a "skip person". Grandchildren and nonrelatives 37.5 years younger than the transferor are considered skip persons by the IRS. There are several exclusions from GST. First, each transferor is granted an exemption on generation-skipping transfers. The exemption is $5.25M in 2013 (see chart above). Secondly, transfers under I.R.C. § 2503(e) for medical or educational expenses are excluded. Thirdly, annual exclusion gifts of $14,000 or less (subject to adjustment annually for inflation) are excluded. Lastly, the predeceased parent exception allows a grandparent to make a transfer to their grandchild free from GST where the grandchild's parent (i.e. grandparent's child) has predeceased them.
1. Review Your Estate Plan. An estate plan is similar to a vehicle. In order to make sure that it will reach its destination, you need someone (your attorney) to look under the hood every once in a while and make sure everything is working properly. This is especially true now that we have new estate tax laws.
2. Revise Wills with Formula Provisions. Now that there is at least some predictability to the estate tax laws, tax formulas in wills with A-B Trust provisions are likely no longer necessary, and in many cases can have adverse effects on an estate plan. Estate plans should be revised if they contain tax formula clauses.
3. Consider Adding a Disclaimer Trust Provision. Larger estates that are still under the Estate Tax Exemption amount ($5.25M) may want to consider substituting a disclaimer trust provision for their old A-B Trust provision. A disclaimer trust provides the greatest level of flexibility to take into account the possibility of future changes to the Estate Tax Exemption, while giving the surviving spouse maximum discretion regarding the funding of a trust for their benefit.
4. Create An Estate Plan If You Don’t Have One. It is estimated that over 70% of Americans do not have a basic estate plan in place. Now that the estate tax is settled for the foreseeable future, estate planning for the majority of clients has been greatly simplified. The desire to get your “affairs in order” and to make sure that your loved ones are “taken care of” will now take precedence over avoiding the long arm of good old Uncle Sam. Non-tax aspects of planning such as wealth distribution, asset management for minor and special needs children, asset protection, and charitable giving should be the primary focus of clients. Considering the favorable new tax laws, there has never been a better time to plan.
5. File Form 706 Upon the Death of a Spouse. Within 9 months of the death of a spouse, the surviving spouse should file Form 706 with the IRS (even if no tax is due) in order to take advantage of the portability function of the new law and preserve their right to claim their deceased spouse’s unused Federal Exemption.
6. Continue To Make Gifts. In 2013, individuals can continue to gift up to $14,000 per year, per individual (or $28,000 per married couple), without having to file a federal gift tax return. Furthermore, the lifetime gift tax exclusion has been increased from $5.12M in 2012 to $5.25M in 2013, offering clients who maxed out their lifetime gift exclusion in 2012 the ability to make additional lifetime gifts in 2013 and beyond as the exclusion increases with inflation.
7. Consider a Charitable Trust. For individuals who want to leave a legacy through charitable giving, there are a variety of planning tools available. One such tool that can be particularly effective in a low interest rate environment is the Charitable Lead Annuity Trust (“CLAT”). A CLAT combines philanthropy with tax planning through the creation of an irrevocable trust that pays a charity or charities a specified annuity payment for a fixed term. At the end of the term, the remaining assets in the trust pass to the donor’s non-charitable beneficiaries (typically children). A CLAT is primarily used by individuals who wish to further the work of a charity that they believe in, with the added benefit of ultimately passing on their assets to family members at reduced tax rates.
Generally, the law requires that adults manage children's inheritances until the children turn eighteen. If a testator wants to leave property to children, it makes sense to name an adult to manage that property. Otherwise, a court will name someone to safeguard the property, a procedure that may delay speedy transfer of assets. There are several ways a will can provide for property management while heirs are underage, including:
1. Trusts: A will can establish a trust to handle property left to children. A trustee is named to manage the property for the children's benefit, and distribute trust property according to the testator's instructions. A will can either set up an individual trust for each individual child, or a pot trust that covers multiple children. The trustee usually follows instructions to spend trust funds to meet children's needs until they come of age. When the child or youngest child covered by the trust reaches eighteen or another given age, the trust funds usually are distributed amongst the beneficiaries and the trust ends. A trust for minors can be very flexible. For example, the testator can specify that the children are to receive 1/3 of the trust principal at the ages of 21, 25, and 30. Or the trust may specify that all of a child's share of the trust principal be distributed to any child who is 21 years of age. Due to its flexibility, most clients prefer setting up a trust for minors as opposed to allowing transfers under the statutory guidelines of the Uniform Trust to Minors Act. For more information on adding a trust form minors clause to your Will, please review "How do I choose a trustee for my children's trust" below.
2. Uniform Transfers to Minors Act (UTMA) Custodians: The UTMA is a law that exists in almost every state, and gives a testator the ability to choose a custodian to manage property left to a child. If at the testator's death, the child is a minor, the custodian will manage the property until the child reaches the statutory age of twenty -one (21). At that age, the child receives whatever is left of the property outright. Unlike a trust, the testator cannot change the age at which the child receives this distribution.
3. Property Guardians: A will can name a property guardian for a child. At the testator's death, if the child is still underage, the probate court will appoint the chosen guardian to manage property for the child. At age 18, the child receives the property outright and without restrictions.
The choice of a trustee is extremely important. The trustee owes beneficiaries a fiduciary duty to act in their best interests and usually receives compensation for trust management activities, so the grantor usually wants to make this decision personally. Many grantors choose family members or close friends due to personal confidence in those individuals, but others prefer professional trustee institutions (such as attorneys, trust companies, banks, or CPA’s) because of staff expertise. A grantor should consider the burden posed by the trust's administration, the compensation required by a trustee, and the particular needs of the trust. If a trustee is not specified in the trust document, then a court will appoint one, possibly choosing a trustee the grantor would not have chosen freely. Legally, it is not necessary to notify the trustee prior to creating a trust, but a trustee may decline his or her appointment. Therefore, the grantor should choose someone who is willing to take on the required responsibilities, and should inform them of their appointment. It is advisable to choose an alternate trustee in the event the original choice is unable or unwilling to accept the trust obligations when the trust commences.
Under C.R.S. § 15-11-201, a surviving spouse may elect
against his or her share under the decedent's Will, or their intestate share if there is no Will. The elective share is a statutory minimum entitlement of the surviving spouse. If the surviving spouse elects to exercise this
right, they will be entitled to an amount equal to the value of the decedent's augemented estate multiplied by a percentage which is based on the number of years of
marriage. Therefore, a surviving spouse may demand a larger distribution of
their deceased spouse's estate, even if the decedent wanted them to have a
smaller share. The elective share percentage is determined as follows:
|
Number of Years Married
|
Elective Share %
|
|
Less than 1 year |
Supplemental Amount*
|
|
1 year but less than 2 years |
5% of augmented estate
|
|
2 years but less than 3 years
|
10% of augmented estate |
|
3 years but less than 4 years
|
15% of augmented estate |
|
4 years but less than 5 years
|
20% of augmented estate |
|
5 years but less than 6 years
|
25% of augmented estate |
|
6 years but less than 7 years
|
30% of augmented estate |
|
7 years but less than 8 years
|
35% of augmented estate |
|
8 years but less than 9 years
|
40% of augmented estate |
|
9 years but less than 10 years
|
45% of augmented estate |
|
10 years or more
|
50% of augmented estate |
* To offset the possibly harsh results of the vesting schedule for short-term marriages, the elective-share statutes provide a “supplemental elective-share amount” which gives the spouse a minimum of $52,000 (subject to a reduction by property otherwise passing to or owned by the spouse).
Tax deferred accounts such as IRA’s consist of money which has not been subject to federal income taxes. Therefore, when funds are distributed from the IRA to the participant or to the plan’s beneficiaries upon the participant’s death, federal income taxes will be assessed. A surviving spouse can roll over the IRA into their own IRA in order to defer the distribution income taxes and a non-spousal designated beneficiary can roll over the IRA into an Inherited IRA, thereby deferring the distribution income taxes. The period for deferral varies depending on the specific circumstances. Additionally, an IRA roll over must occur within 60 days of the participants death in order to meet the IRS guidelines. If the estate of the participant is the named beneficiary, income taxes will be due upon death. A trust may also be named beneficiary of the IRA and the trust can defer income taxes, however, very technical rules must be followed in order to do so. So, who should you name as beneficiary of your IRA? A spouse is typically the best choice with children being named as contingent beneficiaries. A charity would be a good choice if a spouse and/or children are not named. Your estate would be the next best choice. A trust would be the last option. IRA participants should consult with their financial advisor to make sure that their beneficiary designations on the plan reflect their wishes, and they should review the beneficiary designations regularly.
A financial durable power of attorney is a document which authorizes an "agent" or an "attorney- in- fact" to make financial decisions on your behalf, particularly when you are not able to do so yourself. A durable power of attorney can be effective upon execution or it can be a "springing" power of attorney to be triggered only in the event of the client’s incapacity. Creating a durable power of attorney for financial decisions avoids the possibility of the court system appointing a conservator to make decisions for you during incapacity. You and not the court system get to decide who will make important choices for you when you are not able to make them yourself. Every client should have a financial power of attorney prepared along with their Will.
A Medical Power of
Attorney is a document which names someone to make health care decisions for
you (your "health care agent") if you develop a condition that makes it
impossible for you to speak for yourself (you become "incompetent"), and it
makes clear (in the form of written instructions to your health care agent)
what medical treatment you would want if you can no longer speak for yourself. A Medical Power of Attorney is often combined with a Living Will (not to be confused with a Last Will and Testament) which describes your wishes regarding nutrition, hydration, artificial breathing, etc, if you are in a terminal condition or a persistent vegitative state.
For clients who would prefer a Medical Power of Attorney
from a distinctly Pro Life perspective , the National Right to
Life's "Will to Live" is available at:
https://www.nrlc.org/euthanasia/willtolive/index.html
Buell & Ezell, LLP typically prepares a Medical Power of Attorney along with a Last Will and Testament as part of your overall estate plan.
To learn more about the Will to Live, we would suggest the following websites:
https://www.family.org/socialissues/A000000371.cfm
(Focus on the Family Ministry).
The original will should be kept in a safe place so that it will not get lost or harmed by fire or weather, such as in a fireproof safe or a safe-deposit box. Additionally, the testator should leave readily available instructions to the Personal Representative regarding the whereabouts of the original will. For example, a notation can be placed on any copies of the will stating the location of the original will. The PR should also be fully informed (either in writing or orally) of the location of safe deposit boxes, the whereabouts of any keys to such safe deposit box, have access to such safe deposit boxes, and should be informed of any codes necessary to access a fireproof safe. Some Colorado counties will allow you to record the Will in their probate records or Register of Deeds office for a small fee, however, you should contact your specific county to see if this option is available. Financial Power of Attorney documents should also be kept in a safe place such as a fireproof safe or a safe-deposit box. Furthermore, you should inform your attorney in fact(s) of their appointment. A copy of your Medical Power of Attorney should typically be given to your physician.
Funeral instructions and instructions for the disposition of remains should not be included in your will. Instead, a separate writing with such instructions should be created by you and your personal representative should be informed of its whereabouts.
Sure you can, however, it is true that you get what you pay for. Attorneys are licensed professionals who provide high quality legal document preparation and legal advice. There are countless do it yourself estate document prep websites and software programs, however, there is no substitute for competent and state licensed legal counsel. A software program may be able to spit out a document, but without legal counsel and a complete review of your estate assets, there is no way to know whether the cheap document will accomplish its goals.