GLOW Magazine, Women’s Guide to Mountain Living
-Article By Kimberly Nicoletti
Fifty-five percent of adults in the U.S. do not have their affairs in order: they don’t even have a basic will. Overall, Vail Valley probably falls close to the national stat, says attorney Amy Goscha of RKV Law. And, it’s a wake-up call to both groups of people: those who haven’t carried out estate planning, and those who have but don’t meet with estate planners annually to discuss exemption amounts and changing financial or personal circumstances.
Estate planning encompasses a variety of situations, including: wills, medical directives, disposition of last remains, trusts and more.
“Properly organized living trusts will avoid probate. This may be important, depending on issues such as cost of probate, privacy, etc.”
Amy Goscha, RKV Law
Any parent, and any individual who has amassed a fair amount of money or assets, should have, at the very least, a will and medical directives — and possibly a trust. And, they should make any pertinent changes to the legal documents if significant life events, like marriage, divorce, illness, great financial gain or having kids, come into play.
ESTATE PLANNING PRIMER
Probably the most basic, and necessary, part of estate planning comes in the form of a will, which allows people to choose who receives their assets and who would become their children’s guardians, upon an untimely death.
Within a will, attorneys can create a trust. While trusts serve a number of purposes, the most basic directive designates who would act as trustee for their children’s financial needs, upon an untimely death. A will also names a personal representative, who administers the estate through the probate process.
Without a will, the process of distributing assets can get held up in court. While each state law differs slightly, it can look like this real case: a 70-year-old Ohio woman who suffers from debilitating back pain and depression broke her neck last year. Then, her husband died — without a will. She moved to an assisted living residence, but she’s still entrenched in legal processes, trying to prove that both her husband and his mother are, indeed, deceased, because the title to their home was in his name only.
In Colorado, joint tenancy assets, like real estate and bank accounts, automatically pass to the surviving joint tenant. Life insurance policies and retirement accounts pass to the named beneficiary(ies) on the documents; no will is needed for that.
However, if a person dies without a will, other assets and property will be distributed through the intestacy rules, according to state law. This leaves room for family feuds and other meddling and misunderstandings. It can also leave family members out. For instance, if a couple jointly owned a home but the deceased husband (who didn’t have a will) verbally told his down-and-out sister to live there with his wife upon his death but the wife disagrees, the wife wins, and the sister has no legal recourse.
TRUSTS:MORE DETAILS
Trusts specify how people’s property is managed and/or distributed during their lifetime and after their death. A trustee manages assets based on terms of the trust.
“In Colorado, if your assets are under the exemption amount (of $5.45 million), it may not be necessary to set up a trust,” Goscha says — unless you have specific and detailed wishes for your property and want to create a trust. One common situation Goscha sees is aging couples that brought their children to their second home in Vail regularly, and they want to keep the home in their family line, rather than allow the children to sell it. In that case, a trust would specify how one child, who might not want to own the property, could be bought out without selling the home.
Trusts can delineate how much a child receives after a parent’s death and when — for example, a parent may direct the trust to pay out a third of its worth when the child turns 21, another third at age 25 and the last third at age 30.
Another reason for a trust involves reducing tax burdens for adult children; if a surviving parent owns significantly more than the $5.45 million estate exemption, he or she can set up a generation-skipping trust, so that a portion of the assets eventually go to grandchildren, once they’re grown.
Another tax-savings option includes gifting money and portions of property to reduce the estate’s worth, because beneficiaries don’t pay tax on gifted money, which the government places amount restrictions upon. For example, in 2016, it was $14,000 per beneficiary, annually. The government also imposes lifetime gifting caps.
One important caveat to understand is with a will, one spouse’s assets, upon death, can transfer to the other spouse without taxation, no matter the amount.
Revocable, living trusts allow for modifications during a creator’s lifetime. Irrevocable trusts are often used to “lock in” an estate tax exemption, which changes annually (however, in the past 10 years, it has continued to rise). In 2016, a beneficiary could inherit $5.45 million before being required to pay the estate tax rate of 40 percent on any assets above $5.45 million.
“Properly organized living trusts will avoid probate,” Goscha says. “This may be important, depending on issues such as cost of probate, privacy, etc. Trusts can also be used to address issues like tax planning, asset protection and problematic heirs.”
For example, a mother’s trust could specify that since she gave one of her three sons $100,000 during his lifetime, he doesn’t receive anything upon her death, while her two other children will receive $100,000 each. In probate, without specification, the son who used the $100,000 during her lifetime would most likely receive another $100,000, due to state laws.
Gabe Hogan, tax attorney at Vail Tax and Accounting, recommends finding an estate attorney younger than you — whom you communicate well with and trust — when creating a trust. Though you can’t control death, it’s best to choose someone who will hopefully outlive you to create your trust(s), because if there’s not enough clarity or if it was written before newer, applicable laws existed, the estate can end up in probate, and it’s easier for the original attorney to explain your exact wishes.
“One thing every planner reads about is a poorly drafted estate plan,” Hogan says. “If there’s not enough clarity and it’s challenged by family members (or others), then all the assets go through probate. It makes it a very difficult process while you’re going through the grieving process.”
OTHER DIRECTIVES
Living wills, disposition of last remains, financial power of attorney, medical power of attorney and other legal documents fall under estate planning as well. Each allows you to designate a person to act on your behalf to carry out your wishes regarding life support, organ donation and more.
Medical power of attorney gives someone you trust the power to act on your behalf regarding medical decisions if you’re incapacitated, while a living will informs people of your wishes regarding the use of artificial life support systems and food and hydration in the event of terminal illness, coma and no hope of recovery.
All of these documents can be as specific as you’d like; for example, power of attorney can be very broad, as in, “This person can decide anything if I’m incapacitated,” or can narrow the designated person’s power. When people don’t have these documents, conservators are appointed, but they won’t know exactly what the incapacitated person wanted, financially or medically.
Sometimes even the smallest issues can become major hassles within the law. For example, a wife Goscha worked with couldn’t file her annual taxes because her husband was out of the country on active military duty. She thought the power of attorney they filled out online would cover the signature, but, oddly enough, the government wouldn’t accept its tax money without his signature. She ultimately found a way for him to physically sign it — but not without great difficulty.
Estate planners caution against creating estate plans online, as they usually don’t address varying, specific needs. Ideally, individuals should work on a collaborative team made up of an estate attorney, a CPA and a financial planner.
“It’s not this isolated thing,” Goscha says.Rather, estate planning is an ongoing, evolving process to review and discuss with professionals as priorities and life situations change. Estate planning is an ongoing, evolving process to review and discuss with professionals as priorities and life situations change.