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When starting with estate planning, several critical documents are typically involved. Here's a brief overview of each:
Also known as a revocable trust, a living trust is a commonly used estate planning tool. It helps avoid the probate process, which can be time-consuming and costly. Despite having a living trust, an individual also needs a will.
Often referred to as a pour-over will, this legal document dictates how any assets not titled or given to the trust during the person's lifetime (referred to as the settlor, the person who creates the trust) will be distributed upon their death. The will essentially acts as a safety net, capturing any assets unintentionally or intentionally left out of the trust.
An example of an intentionally omitted asset could be a motor vehicle. Often, vehicles are not titled in the name of the trust to avoid potential lawsuits. If someone is suing the trust, it may give the impression of considerable wealth. In Colorado in 2024, if the total value of assets not in the trust is $82,000 or less, these assets can be transferred to the trust with a simple one-page affidavit. If the assets exceed $82,000, then the estate must go through probate.
This document authorizes another person to act on the client's behalf for various financial transactions. The "durable" aspect means the power of attorney will continue to be effective even if the client becomes mentally incapacitated. A power of attorney ends once the person is no longer competent. A durable power of attorney is effective for the rest of the person's lifetime, terminating upon their death.
This document allows another trusted individual, usually a family member (though it doesn't have to be), to make medical decisions on the client's behalf if they are unable to do so themselves. For instance, if a person were in a medically induced coma due to an accident, this document would authorize the appointed person to make necessary medical decisions, like treatment for a broken leg.
While less commonly utilized, a special power of attorney serves a specific purpose, such as authorizing someone else to sell a piece of real estate or access a bank account. This form of power of attorney is more limited compared to a general power of attorney and is used when a person does not wish to grant broad authority to someone else.
These documents form the foundation of estate planning and ensure a person's wishes are honored regarding the handling of their assets and medical decisions. A living will is also called an Advanced Directive, allows you to make life decisions known, if you are not able to make them at the time. Sometimes grossly referred to as determining when to “pull the plug”, this document details your wishes if you have a terminal condition and identifies what type of sustenance, if any, you want, at the end of your life.
Estate planning isn't just about large assets and property. It also involves dealing with items of sentimental value, charitable gifts, tax considerations, end-of-life preferences, and trusts to benefit specific individuals. Here are a few more components to consider in your estate planning process:
People often have personal property with sentimental value that they wish to leave to specific individuals. These could be items like a cherished hunting rifle, fishing rod, or grandmother's china. To handle these belongings, a memorandum provision in a will is typically used, though it's essential to note that this method should not be used for items of significant financial value because it is generally signed with no witnesses as opposed to a will which usually is signed by two witnesses and a notary.
Many individuals consider charitable gifts in their estate planning, which can help fulfill personal philanthropic goals and potentially offer tax advantages.
As of 2024, estates worth up to $13.61 million per person are exempt from federal estate tax, meaning a couple could have in excess of $27 million in estate tax-exempt property or distributions. However, this exemption is subject to change. In 2026, the law currently provides for a halving of this exemption, though it will still be adjusted for inflation.
For larger estates, generation-skipping trusts can be established. These allow wealth to be passed down to non-spousal beneficiaries two or more generations younger than the grantor, such as grandchildren.
This document outlines your end-of-life preferences, such as whether you wish to be buried or cremated, the type of memorial service (if any) you desire, and instructions for your funeral or memorial service, if any.
When considering end-of-life arrangements, people might also plan for their memorial service, burial location, and final resting place ahead of time.
A special needs trust is typically established for a child or adult with special needs who is receiving government benefits, such as social security disability or veterans benefits. These trusts are designed to provide for extras of life without disqualifying the beneficiary from their government benefits. This might include things like vacations, haircuts, musical instruments, electronics, and even luxury items.
These additional elements are crucial for comprehensive estate planning and can further ensure your wishes are met and the interests of your loved ones are protected. For more information on Basic Estate Planning Documents In CO, a free initial consultation is your next best step.
