Fundamental Colorado Estate Planning
There are many legal strategies involved in estate planning, including wills, revocable living trusts, irrevocable trusts, durable powers of attorney, and health care documents. New clients often say that they do not have an estate plan. Most people are surprised to learn that they actually do have a plan. In the absence of legal planning otherwise, their estate will be distributed after death according to Colorado's laws of intestacy. Of course, this may not be the plan they would have chosen. A properly drafted estate plan will replace the terms of the State’s estate plan with your own.
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Your Last Will and TestamentYour last will and testament is just one part of a comprehensive estate plan. If a person dies without a Will they are said to have died "intestate" and state laws will determine how and to whom the person's assets will be distributed. Some things you should know about wills:
- A will has no legal authority until after death. So, a will does not help manage a person's affairs when they are incapacitated, whether by illness or injury.
- A will does not help an estate avoid probate. A will is the legal document submitted to the probate court, so it is basically an "admission ticket" to probate.
- A will is the only legal document through which parents can name the guardians (or back-up parents) for minor children should those children become orphaned. All parents of minor children should have a legal will naming guardians for those children.
Trusts: Revocable Living Trusts, Irrevocable Trusts, Testamentary Trusts, Special Needs Trusts, etc.Trusts come in many "flavors," they can be simple or complex, and serve a variety of legal, personal, investment or tax planning purposes. At the most basic level, a trust is a legal entity with at least three parties involved: the trust-maker, the trustee (trust manager), and the trust beneficiary. Oftentimes, all three parties are represented as one person or a married couple. In the case of a revocable living trust, for example, a person may create a trust (the trust-maker) and name themselves the current trustees (trust managers) who manage the trust assets for their own benefit (trust beneficiary).
Depending on the situation, there may be many advantages to establishing a trust, including avoiding probate court. In most cases, assets owned in a revocable living trust will pass to the trust beneficiaries (or heirs) immediately upon the death of the trust-maker(s) with no probate required. Certain trusts also may result in tax advantages both for the trust-maker and the beneficiary. Or they may be used to protect property from creditors, or simply to provide for someone else to manage and invest property for the trust-maker(s) and the named beneficiaries. If well drafted, another advantage of trusts is their continuing effectiveness even if the trust-maker dies or becomes incapacitated.
Powers of AttorneyA power of attorney is a legal document giving another person (the attorney-in-fact) the legal right to do certain things (powers) for another. What those powers are depends on the terms of the document. A power of attorney may be very broad or very limited and specific. All powers of attorney terminate upon the death of the maker and may terminate when the maker (principal) becomes incapacitated (unable to make or communicate their own decisions). When the intent is to designate a back-up decision-maker in the event of incapacity, then a durable power of attorney should be used. Durable Powers of Attorney should be frequently updated as banks and other financial institutions may hesitate to honor a document that is more than a few years old.
Colorado Advance Directives for Health CareIt is important for individuals to have written instructions for their medical treatment and financial affairs should they become incapacitated. Most hospitals and nursing homes now ask patients, upon admission, whether they have Advance Medical Directives, such as a Medical Durable Power of Attorney, a Living Will, a Proxy Decision Maker, a Do Not Resuscitate order (DNR), and/or a Cardiopulmonary Resuscitation Directive (CPR). It is important to have these documents in place before you need them. Without them, a probate court proceeding, such as a guardianship and/or conservatorship may be required.
Learn more about Colorado Health Care Directives from the Colorado Bar Association. You can even download a full-color brochure.