Frequently Asked Estate Planning Questions
What is the difference between a Will and a Trust?
Wills and trusts have some similarities. They are both estate planning tools and can also work together to create the most complete plan for an estate. The main differences between a will and a trust are:
First, Wills must go through a process called Probate where they are proved in a court of law. Trusts remain private and rely on the document itself to complete estate administration.
Second, Wills become effective after death, whereas some trusts are effective upon creation
Third, Wills direct who receives property upon death and appoint a legal representative to oversee this process, whereas a trust can distribute property prior to death
Fourth, Trusts cover only property placed in the trust, whereas wills cover anything owned solely by the person creating the will.
Fifth, Wills are public record, whereas generally a trust remains private.
You can read more details about the differences Will and Trust.
What is a revocable living trust?
A revocable living trust is an estate planning tool commonly used today to accomplish more complete planning. It is revocable because during the lifetime of the person setting it up, they can amend or revoke the trust language. It allows individuals to gift their assets to their children or beneficiaries with some control over how the inheritance is used. I.e using it specifically for education costs or note granting the child access to it until a certain age. You can read more at our full article Revocable Living Trust.
How should I estate plan for my rental properties?
If you own rental property, or multiple, you absolutely need to include them in your estate plan. How we include them will depend on a number of variables such as, how the property is titled, whether you want your liability limited, and the type of estate planning tool you decide on. I will point out that with a Will, any county where property it owned, must have its own probate proceeding opened. Meaning that if you own rental properties all over Denver Metro or the state of Colorado in general your executor may have multiple court proceedings to handle at the same time. Read more about rental property planning Rental Property LLC's.
When should I update my estate planning documents?
There five major life events that require an update to your current estate plan. 1) divorce/marriage 2) additional children 3) cash windfall 4) starting or selling a business and 5) moving to or buying property in a new state. Most commonly, estate plans are updated for additional children and starting or acquiring a business interest. With additional children, the changes are further reaching than just making sure that the document mentions them by name. You must rework the percentage breakdown of the residuary estate, you must add a guardianship designation for that child and ensure that they are taken care of financially and emotionally if the worst were to occur. You can read more about the ways a business changes your estate plan Make Estate Plan Changes.
What is probate and why do I want to avoid probate?
Probate is the court process that first proves a Will, then follows the wishes of the person who wrote the Will. It is a lengthy process and typically involves hiring an attorney. Under Colorado Law, any estate that owns real property, such as a house, rental property, vacation condo must be probated in that county. Meaning, every county where real property is situated must have the Will filed with the courts to start their own probate proceeding. It is possible to have multiple proceedings going on at the same time. It is a public process making most filings and court orders publicly searchable. Why would you want to avoid it? Well, besides the reasons listed above it is an added stressor on your family members who are still dealing with your passing. It is possible to avoid the probate process entirely through private estate planning document such as a trust. Read more in our Probate article here.
Should I name my children the beneficiaries of my retirement accounts and life insurance?
The answer is almost always no. If your child is a minor, then they should definitely not be listed as beneficiary on your life insurance policy. If you pass away, your spouse will have to file for legal conservatorship so the funds can even be distributed from the life insurance company to an account in your child's name. This will also give your 18 year old child full access to the entire amount of cash with no stipulations that it be used responsibly. Even if not a minor leaving large sums of cash directly to a young adult may not be the best idea. Read more here at our life insurance article.
What is a Living Will?
A lot of my Denver estate planning clients ask this one. There are many names for this type of document, advanced medical directive or declarations as to medical or surgical treatment, just to name a few. A lot of states even have their own version of this form, for example Colorado has the MOST form. Ideally, your incapacity planning has more than just a standardized template, you should also designate a medical power of attorney and have a HIPAA release signed for release of medical records. Read more on our article about Living Wills.
Why is it important to update my Will or Trust?
Its important to update your will or trust to reflect the new laws of the state you are residing in. For example if you moved to Denver, Colorado and your documents were drafted referencing another states laws, there may be some gaps. Secondly, federal law may have changed, especially the IRS tax code. If your will or trust takes advantage of a tax loophole or tax planning method, its important to go through an annual review with your attorney to make sure that code is still in use. You can read more at our tax savings loophole article Update My Estate Plan.
Do I need to register my Will or Trust with the state?
I get this question a lot. "So now that I have it signed and notarized, who do I record it with? The State of Colorado? City or County of Denver?" The answer is neither. It is not required that you record or register your Will or Trust with anyone. However, if you are worried about a contest or any tom foolery in your family about possibly changing your document postmortem then you are certainly allowed to register the documents if you wish. Most county Probate courts in the county you reside will simply charge a fee for recording your document. Keep in mind though, that any changes you yourself make to the original document will have to be re-recorded to make sure the document on file matches your final updates. For more information and tips click this link here for an article on Estate Planning.
I own a family business, can I put this into my living trust?
Owning a family business is truly rewarding. Not to mention a remarkable feat in and of itself! What you plan to do with your business at three key times/events is what indicates the best planning option for you. To start off, the business is never presently transferred in to the trust, especially if all of your other assets in there. Businesses get sued and you would hate to put your other personal assets in any risk. If you plan to have your children take over the business little by little, over time until you retire. A different form of trust known as a DST may be an option for you. This would also be an option if you were planning to sell. If your leaving the business to a friend, sibling or other relative you want to make sure that your spouse and immediate family are taken care of in the event you became disable or passed away. You should consider a Buy-Sell Agreement and transfer of death assignment. A buy-sell agreement funded by life and disability insurance can ensure that your spouse or surviving beneficiaries are immediately paid for the interest in you business. Allowing them the full benefit of your business as soon as possible. Please read more about business succession planning in our buy-sell agreement article.
How do I find an estate planning attorney?
If I, as an attorney, was searching for another attorney I would look for several things. First, is this attorney active in their engagement of the community i.e. do they put on seminars, teach courses and actively answer their clients questions. Second, I would select an attorney at a smaller firm simply because I know I will more likely be working with the same attorney the entire time. Larger firms have teams of attorneys and while this may sound good, it spreads your point of contact around and things may get miscommunicated. Lastly, I would chose an attorney that is easy to reach and responsive. Which is why I still answer my own phone line. I want my clients to know that I will respond to them as soon as I can. Read more in our recent blog post here.
Can I put my Mineral Rights into My Estate Planning Trust?
The short answer is yes, however it depends entirely upon how the mineral rights are held. If they are deeded mineral rights then you can simply draft a deed to transfer the rights to your revocable trust. If the mineral rights arise from a lease of assignment then the language of that document controls how and when you can transfer your rights to your trust. Placing your mineral rights in your trust is just one piece of the trust funding that should occur. A Trust is only beneficial to the property that it controls. If property, assets or accounts are not titled in the trust, then those assets run the risk of being swept into probate. A fully funded revocable trust can easily pass your assets including any mineral rights you own to your listed beneficiaries.
Who should be my trustee? Can I change my trustee later?
For many clients, selecting a trustee is just as difficult a task as talking with me about their own demise. To make matters more difficult is the fact that every client, depending on life stage and estate complexity may be required to consider a different set of potential candidates. For clients that are new parents, selecting a trustee may be as simple as deciding which sibling of theirs would be the most financially responsible. Then you have to consider if the trustee and legal guardian for your child should be the same person. Later in life, you may be faced with the decision, which one of my children should I choose to be trustee. The important thing to remember about your trust and estate plan is that you can change the trustee at anytime provided it is a revocable Trust. Read more about selecting a trustee in or estate planning article here.
What is the benefit of a trust vs a will?
The benefit of your trust can be broken down in to two categories: 1, Is your estate complex such that consolidating assets in a trust would ease administration or 2, are your goals for distribution be suited by stretching out the inheritance over a longer period of time. The first benefit of a trust would arise if you owned multiple pieces of real estate or you owned a business or several. Consolidating those assets, say all of your pieces of real property, into one trust will allow you to relieve some the burden on your family during the estate administration period. Alternatively, if you had young children, children with significant debt or children that were not fiscally responsible placing their inheritance in a trust managed by an independent trustee may be the best option. This will allow you to protect your child's inheritance from creditors, divorces as well as from themselves. Please read more about our Trusts here.
What is the best estate planning?
What is considered the best estate planning may vary depending on the attorney. For some, the best estate planning is the one that fully capitalizes on every state statute, tax code and case law to provide the next generation with the easiest, largest and most tax friendly inheritance. To be honest, the best estate planning attorneys will say the the most effective estate plan is the one that meets all of the clients goals. Estate planning, is not a one size fits all service. It must be tailored to the individual family. A family with children under the age of 18 will have different concerns than a client with children aged 40 and 45. The estate plan for a business owner will have drastically different goals and documents than an estate plan for the military service member. The best estate planning is the one that fully utilizes the laws available while meeting or exceeding all of the clients goals.