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Stewart + Gordon
Purpose and Peace of Mind

Estate Planning

Wills and Trusts and How to Decide

 

Wills and when to use one

One of the most common inquiries we hear is “Don’t I just need a will?” The answer is usually some version of “Yes, but….”

The most basic of estate plan tools is a will, or last will and testament. Most of us conjure images of an attorney called in to “read the will” after someone dies, but it’s important to understand what a will does and doesn’t do.

A will is used when properties of any kind are left in the name of a deceased owner. For example, the home owned by a deceased person cannot be sold until it is established who is in charge of the deceased person’s affairs (i.e., the executor or personal representative). The will does NOT give anyone this power alone, however. Getting back to the example, even the person named in the will to be in charge cannot simply show that will to a buyer and expect to handle a purchase.

A will does not mean much without probate. Probate is the system of laws and processes in place to make sure that the will is followed. When these processes are necessary, as in to sell the home of a dead person, the will is submitted to the probate court together with some fees and additional paperwork. The probate court then issues paperwork called “letters testamentary,” which create the estate of the dead person and allow the named manager to proceed. The processes provide some accountability to ensure that the wishes laid out in the will are followed.

A cautionary note: properties owned jointly with another individual aren’t “part of a will,” nor are accounts that have named beneficiaries, among other properties. Sometimes the planning process is more about coordinating all of these different properties together with preparing a clear, ironclad will.

Trusts and Why we love them

Trusts of all kinds are powerful estate planning tools for many families. Another common question many of our clients have is, “How do I make sure that my family can just step in and handle my affairs without any fuss or getting the State involved?” In many cases, the answer is to use a revocable living trust, the most commonly used trust in family estate planning.

When you make a trust the primary engine of your estate plan, you can (and must!) make the trust the legal owner of your properties that would otherwise need to be a part of your probate process. We help our clients through this process all the time. This means that the house, the investment accounts, or what have you, will never be owned by a dead person—they’ll remain owned by your trust even after you die. The person you’ve named to manage your affairs does not need to use the probate process to administer things because that authority is right there in the trust document.

There are added benefits to this arrangement. First and foremost, properties owned by the trust will also never be owned by a disabled person, so there won’t be any problems with a power of attorney document not being honored or in place and no need to use the guardianship or conservatorship process for trust properties.

Another benefit is that it is a lot simpler to give extra tools to our heirs through a trust. If there are any concerns about the heirs having financial problems, marriage or business problems, if any of the heirs are disabled or potentially receiving public assistance, the trust can be designed to assuage those concerns by putting protective provisions in the trust document. If there is concern about personal liability or losing one’s savings to a nursing home, different kinds of trusts can be deployed to protect hard-earned savings.

Every family is different, but trusts are no longer just tax vehicles for the super rich.

Probate and why to avoid it

There’s an old fable about a retiring estate planner showing her office to a younger partner. She shows the younger partner a massive file drawer full of copies of all the wills she’s written over the years and remarks, “You know what this is? This is my retirement. I get to step away, and all these families will hire you to handle these folks’s estates, and you’ll give me a cut.”

As described above in “Wills and When to Use One,” probate is just a set of processes and laws that are there to help when assets of any kind are owned by a person who’s now dead. It ensures that the right people get access to the assets, can sell or transfer them to the proper heirs, and that there’s a venue to handle issues or disputes. But in the end, it’s a state-supervised proceeding that becomes public record and is handled through court filings and documents. And, except in the simplest of cases (as in when there is only a modest bank account to close or car to sell), can’t be handled just over a weekend.

Colorado has worked hard to count itself as one of the simplest probate states in the country. Most of the forms are downloadable through the Colorado Courts websites. So, at its best, the probate process is a layer of barnacles that drag on the ship we’re trying to get to its destination of a wrapped up estate. At worst, it’s a full-blown legal proceeding akin to a law suit. Most of the time, it costs thousands of dollars in legal fees and takes a year. It is nearly always less costly on balance to spend time time and money avoiding probate than it is to go through it.

disability and why not to forget it

Key to putting together a proper estate plan is to provide tools for our personal care and tools to manage our finances should we become permanently or temporarily disabled. If injury, illness, or age, take us to a place where we can no longer reliably make or communicate our wishes or decisions, we need to have a plan in place. A proper estate plan will include legal documents such as powers of attorney, advance medical directives or living wills, or living trusts, so that the people we want to rely on to help will have the legal authority necessary to voice our wishes. It is crucial to understand that a spouse or parent does NOT automatically have this right without either a legal document or permission from the State. A person in this situation with no legal tools in place becomes protected by the State. Even a spouse or child would have to petition the State to become that person’s guardian or conservator. This is probate for the living. It’s expensive, it’s stressful, and it’s easy to avoid.

A proper plan will include, at least, basic power of attorney documents and other medical directives. A world class plan will include these documents and a solid understanding of how to use them, when to favor the use of a trust or trusts, and well thought out statements of wishes regarding needs and preferences in case of disability or frailty, together with safeguards to protect against abuse or neglect.

WARNING: it is becoming increasingly the trend for banks and other financial institutions to reject power of attorney documents that are not current. This needs attention at least every handful of years.