Feeding and Watering your Estate Plan

You’ve done your due diligence, evaluated your assets, consulted an estate planning attorney and created and filed your estate plan.  However is this the end of your estate planning process?

Once you’ve created your estate plan don’t just put it up on the shelf or in a safety deposit box never to be looked at or thought of again until your demise. You should treat your estate plan as a living breathing document.

About every 2-3 years you should consult your estate plan to consider if there are any changes that need to be made.  It may be relevant to include any new assets you have accrued or assets that you have disposed of.  This also would be true if you experienced a life changing event such as a marriage, divorce, birth of a child etc.  Also with the ever changing economy and numerous changes in the tax laws the would make an update of your estate plan mandatory.

As mentioned above its very important to update your estate plan in the event of a divorce, marriage or remarriage. These events are likely to change your beneficiaries of things like life insurance or annuities for example.  Or at a minimum change the way your assets are distributed and it what percentages. Individual state tax laws may also effect your estate plan concerning an ex spouse and property.

Another life event that would warrant an update of your estate plan would be the death of beneficiary that you have designated.  Again laws vary by state in these situations and could severely impact distribution of your assets.

One thing that could change significantly,over the course of time that would cause you to update to your estate plan would be a change in your financial situation.  We all hope our financial situation would always improve for the better but we know the opposite could be the case as well.  In either event a significant change in your assets would require you to update your estate plan.

Last but not least and very simply your desires could change over time,  The way you feel today could be different than three years ago when you created your estate plan.  Your personal values and beliefs could have changed, how you feel about your beneficiaries could of changed, any number of things can effect your life.

Update your your estate plan regularly and make sure it keeps in step with your life.


Which Kind of Trust Is Right For You?

There are many factors to be considered when creating a living trust but one point of confusion that often arises is how do things work when a couple decides to create to living trust involving both individuals.

Individuals do not have to be married to be considered a couple in the eyes of creating a living trust.  Each individual can create their own trust including their property and assets or both individuals can create a shared living trust.

For married couples a shared trust would be appropriate in most situations.  Each member of the couple can act as a co-grantor and co-trustee of the trust.  Both members contribute their property and assets to the trust and each member has control over all the property in the trust, however each individual retains the ability to indicate separate beneficiaries of his or her individual property and his or her share of the commonly held property.  Also as each member is a co-grantor and co-trustee each member as the right to revoke the trust at any time; in such situations ownership of the contributed property reverts back to the original owner before the trust was created.

Upon the death of one of the individuals in the trust his or her property originally contributed to the trust will be distributed to the beneficiaries and prescribed.  Any property distributed to the surviving spouse will remain in the trust and the trust continues until the death of the other member. As discussed above shared trusts make sense in most couple situations, however there are many good reasons to create individual trusts.

One of the most significant reasons that dictates the use of individual trusts is the ownership of the property going into the trust.  A couple may own significance property separately before becoming a couple and may wish to retain that ownership without the other individual having any control over his or her assets.

There are many factors to consider when making plans to create a trust, either shared or individual.  The laws covering marital property vary by state and are sometimes very complicated.  Should you find yourself in the situation of wanting to create any kind of trust you should seek out a qualified estate planning attorney to help guide you through the process.  A qualified attorney will posses the knowledge and skills to effectively assist you in creating your living trust and will be able to answer all your questions.

Estate Planning in the Real World

To better understand estate planning in the real world, it is helpful to review real-life scenarios. The following scenario concerns a death in the family, and will allow you to analyze and understand the impact of the planning, or lack thereof, and proper estate planning on behalf of the decedent.

Let’s start from the beginning.  Jane, age 86 has four children. Each of her children has children of their own (grandchildren of Jane), and one of their children has a child (great-grandchild of Jane).

Jane is getting along in years and it’s decided by the children that Jane will live with her daughter.  Through the course of things Jane and her daughter have a falling out and Jane decides that she wants to live on her own; however most of her belongings remain in the daughter’s house and in a storage unit that has been rented by the daughter.  This daughter has complete control over Jane’s affairs with the other children having little or no knowledge of what is happening by any other of the children.

An unfortunate incident occurs and Jane passes unexpectedly. As they begin the probate process, it is discovered that Jane didn’t have will, living will, power-of-attorney, trust or any other legal document that settled her affairs upon her death.  There are also allegations of missing money, and the children can’t agree on what should be done with the many pieces of jewelry that Jane owned, some of which were specifically promised to individual children.

In short this situation is tearing this family apart.  Jane’s situation is not uncommon. She thought she had more time to get her affairs in order.  She had given estate planning some thought but, she felt that she didn’t have that much to worry about and that her children would be able to figure things out after she was gone.

The fact is that the ability of your family members to be able to figure things out upon your demise should never be taken for granted.  Death of a mother or father affects everyone differently, and what you thought would be an open and shut case has the potential to wreak havoc upon even the strongest families.

Everyone has assets that will need to be divided upon the surviving family members; whether its property, life insurance, savings or checking accounts, or even jewelry.  The stress of the death of a parent is tough to deal with at any age.  Take the burden off of your family and help them avoid situations that could ruin family relationships.

If this situation has made you think of your own life and the assets you posses you should seek the help of a qualified estate planning attorney to help you figure things out and help your family.  Even if you choose to use one of the many self-help estate planning tools available, please have a qualified attorney review your papers for accuracy and to ensure you are in accordance with the laws of your particular state you reside.

Inheritance Tax In Colorado

What is Inheritance Tax?

Inheritance tax is a tax paid by a beneficiary after receiving inheritance.  If the inheritance tax rate is 10%, and you inherit $100, you pay $10 in inheritance tax.

The good news is that since 1980 in Colorado there is no inheritance tax, and there is no US inheritance tax. The bad news is there are other taxes that can reduce your inheritance.

Estate Tax

Estate tax is a tax on assets typically valued at the date of death. Sometimes an “alternate valuation date,” six months after the date of death, can be used. If the asset value exceeds the “exemption” amount, there can be a significant estate tax at rates between 35% and 55%.

Currently the estate tax has an exemption amount of $5 million and a tax rate of 35%.

Estate INCOME Tax

Estate income tax is a tax on income, like interest and dividends.  However, estate income tax returns can be fairly complex, even if there is very little income.

If you are a personal representative or executor, you should make sure your accountant knows how to prepare an estate income tax returns (Form 1041). Only a small percent of Form 1040 preparers are capable of preparing estate income tax returns.

Beneficiaries commonly receive taxable income from estates. This should not be confused with inheritance tax. If you inherit $1,000 of stock and you receive $50 in dividends from that stock, you will pay tax on the $50 of dividends.  This is where a good tax preparer comes in handy. If you have certain types of estate expenses, some of those expenses can reduce the $50 of dividend income. You might even end up with tax losses and deductions rather than taxable income!

The estate can take deductions for “Administrative Expenses” as long as a proper election (statement) is made in the estate income tax return.

If there is a trust involved with the estate, serious thought should be given to making a Section 645 election. By making a Section 645 election, the tax returns for the trust and estate can be done with one federal tax return instead of two. There are other reasons, including year-end and estimated tax considerations, for making the Section 645 election.

In the last year of an estate beneficiaries might be able to deduct expenses that the estate was unable to deduct. Again, an accountant that understands estate and trust tax can pay off.

An estate that holds a residence has some special tax issues. Is there a loss? Is it deductible? Were there fix up costs? These may require special treatment.

Do You Need Assistance?

Please feel free to call Ellmann & Ellmann, P.C. at Castle Rock Estate Planning. [number type=”1″] to set up a consultation!

Dissecting a Living Trust

” You can’t see a trust, you can’t touch it, you can’t speak to it, but it is a living entity capable of owning property.  “

Even so it’s still difficult to explain what a living trust can really do?  A trust allows you to gather together all your significant property in one “place” so to speak. This becomes very important if you want to make sure that your property is distributed easily and quickly after your death. Once y our property is included in the trust the trust owns the property not you.

This doesn’t mean that you no longer have control of your assets. Normally when you initially create a living trust you, the grantor, will usually appoint yourself as the trust’s initial trustee, which means that you still have complete control of your property. You can manage your trust any way you like which means you can do what you want with that property – you can even transfer property out of the trust or add property to it.

A living trust is an easy way to keep track of all your assets and manage them as a single unit. Most importantly, a trust allows you to provide for the quick and efficient distribution of your property to loved ones when you die. ??A living trust is created with a document known as a Declaration of Trust. This is the legal document which names your beneficiaries, describes the trust property, and provides for the terms of its transfer. The living trust is managed by a named trustee; in most cases, the initial trustee (you) is the person who forms the living trust. You may later designate another individual or an institution, like a bank, to act as a trustee. The trustee is also responsible for managing the property covered by the trust.

A living trust sounds like a very simple thing to do, however there are many details involved in the creation of a trust.  If you find yourself in the position of needing or wanting to create a trust you should consult a qualified estate planning attorney to assist you.

A Living Will explained

A living will is a legal document that a person uses to make known his or her wishes regarding life prolonging medical treatments. It can also be referred to as an advance directive, health care directive, or a physician’s directive.  It is important to have a living will as it informs your health care providers and your family about your desires for medical treatment in the event you are not able to speak for yourself.

There are plenty of resources available to assist you in preparing a living will however, the requirements for a living vary by state so you may want to consult a lawyer to help you prepare your living will. Many estate planning lawyers include a living will and a health care power of attorney in their package of estate planning documents.  If you are considering investing in a living will you may be able to have your lawyer prepare a living trust as well as other estate planning documents.

Generally, a living will describes certain life prolonging treatments. You indicate which treatments you do or do not want applied to you in the event you either suffer from a terminal illness or are in a permanent vegetative state. A living will does not become effective unless you are incapacitated; until then you’ll be able to say what treatments you do or don’t want.

A living will also will not become effective until certification is received by your doctor and another third party doctor that you are either suffering from a terminal illness or permanently unconscious. For example, if you suffered a heart attack but otherwise do not have any terminal illness and are not permanently unconscious, a living will does not have any effect; you would still be resuscitated, even if you had a living will. A living will is only used when your ultimate recovery is hopeless.

If you are injured or become ill and not able to speak for yourself, but your health is not such that your living will becomes effective, you should have a health care power of attorney or health care proxy. A health care power of attorney is a legal document that gives someone else the authority to make health care decisions for you in the event you are incapacitated. The person you designate to make these life decisions on your behalf should consider what you would want in this situation; be sure to talk with them about it before this person is required to make these decisions.  It may be a difficult conversation, but you’re asking someone to take on a great burden for you – letting him or her know what you want lessens that burden.

None of these documents will do you any good if no one knows about them.  Discuss with your doctor what kinds of end of life medical treatments you want.  Once you’ve decided what it is you do or don’t want, make your wishes known to your doctor and your family.

Top 10 Recommendations For Estate Transfer

Estate planning is one of those things that we all think about but put off planning.  Who wants to think about their demise and the anxiety level associated with splitting up the estate is a huge stress that we like to avoid.  However even doing the minimum work will relieve you and your family members of the hassles of figuring things out and could save them a lot of money too.

1. Write a will period.  This is really a simple thing to do.  Enlist the help of an attorney, and utilize your  options for software programs available and web sites to visit that can help you.  Just list whom you want to inherit what, sign it in front of witnesses, and you’re done. It doesn’t need to be filed anywhere; just tuck it away in a safe place.

2. Much of your valuable property—retirement accounts, life insurance proceeds, jointly owned real estate or cars—probably won’t pass through your will. Again make sure you know who will inherit what.

3. About your retirement plan. Your spouse has an automatic legal right to inherit the money in your 401(k) plan (but can give it up in writing).

4. You don’t have to leave anything to your children but nothing says you can’t. If you choose not to leave them anything you should, at the minimum list them in your will, though, so it’s clear that you didn’t inadvertently overlook any of them.

5. A common misconception. Recipients don’t pay income tax on money they inherit. (one exception: money in tax-deferred retirement plans.)

6. Additionally, you don’t have to worry about federal estate tax unless you leave more money in your estate than 98% of the U.S. population does. If you think estate tax will be an issue for your survivors, see a lawyer, he or she can assist you.

7. Be very specific in your wishes.  You may not think it important but include your items of sentimental value, that antique radio form WWII or your stamp collection that your grandson or granddaughter loves.  Your family will thank you, many bitter fights will be avoided if you think ahead.

8. If you own a business, make plans for what should happen to it after you’re gone.

9. You might also consider a living trust.  A living trust allows your family to skip probate court after your death.  Usually a living trust comes into play when you are older or seriously ill.  Until that times or if that time comes a simple will is enough.

10. This may be overly obvious but let someone know where your important documents are.  None of your estate planning documents or insurance policies will do a bit of good if your family can’t find them after you’re gone.

How to Reduce Estate Tax: Gifts, Plans, and Spending?

For people in Colorado, or anyone with an estate that may be taxed, here are a few options to reduce your estate tax bill.

Gifts & Charitable Contributions

Give pieces of estate as gifts to direct family members or charitable organizations.

Giving an estate as a gift or as a charitable contribution of course will only serve as an option for those comfortable giving their estate away while still alive. Of course this is not an easy option, and is not an easy process to gauge. This will only serve well for those not afraid of running out of money.

Create a foundational estate plan.

For those who are married, the use of basic ABC trust or AB trusts in their estate can sometimes eliminate all taxes against their estate,

Since 2011, between married couples, the federal estate tax exemption has been made “portable“.  This has eliminated the need completely for traditionally AB and ABC trust planning couples.

For singles and married couples alike, the use if an “ILIT (Irrevocable Life Insurance Trust) can benefit the parties greatly.   The life insurance will remove proceed value of the insured’s estate. All proceeds can be used to pay expenses, bills, and taxes in the form if immediate cash.

Spend your assets.

Spending your assets is one of the quickest and most efficient ways to reduce the value of an estate that may be taxed. Of course there is no way to measure the individuals life span may live or how much capitol they will need.

Just as the first option above mentioned, this option is only recommended for those who have accumulated or inherited a tremendous amount of wealth and are not worried about running out.

How to Select an Estate Planning Attorney?

An estate planning attorney will help you to manage your assets during your lifetime, protect your assets if you get seriously ill or badly injured, and provide for the care of your loved ones after you are gone.

You want an attorney who’s intelligent, who understands the law as it relates to estates and probate, and who will create legal strategies that protect your interests before and after your death. A good estate planning attorney will work closely with you to identify your specific goals, to plan for the unexpected, and create an estate plan that makes sure that all of your wishes are carried out.

This process usually includes legal documents — “instruments” — that are designed to bypass probate, to set aside assets, to minimize estate taxes, and to specify and therefore  control who will be your beneficiaries.  When you want to select an estate planning attorney, ask the lawyer questions about the specific legal documents that you think you’re going to need.  This will give you an opportunity to evaluate the lawyer’s level of interest in your personal situation.

  • A will that governs the distribution of your assets
  • A document that gives someone durable power of attorney to handle your financial affairs
  • A medical power-of-attorney document
  • A health care directive — a living will — that specifies your wishes regarding life support measures and/or matters relating to in-home or nursing-home care
  • A document that appoints  guardians for your minor children
  • A special-needs trust for a child or adult who will need special care
  • The paperwork that’s needed to pass a family-owned business on to the next generation or to your employees
  • Annuity trusts, irrevocable life insurance trusts, and/or revocable trusts
  • Charity trusts or charitable remainder trusts
  • Trusts to protect your assets from creditors

You should also ask about your attorney’s experience with probate law:

  • Planning for matters that may arise in probate court
  • Administration of your estate, including guardianship and conservatorship — which involves getting the court’s approval for taking control of your finances, for the personal care of an underage child or an adult who is going to need care now and/or in the future
  • Probate litigation if your will is contested or if there are disputes regarding probate or trust administration
  • Settling a family member’s estate
  • Payment of estate debts, liquidation of assets, and distribution to heirs
  • The filing of tax returns for your estate