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Articles Posted in Estate Planning

Many individuals look forward to the day when they retire and spend their days relaxed and free—be it at home reading a book or tanning on a beach. However, they may not think about the planning they need to do beforehand to actually enjoy their retirement. Most people think about the most important aspect—saving money—but they do not think about other critical aspects of estate planning. Some of these steps are simpler than others but all are crucial financial preparation in order to be comfortable in retirement. Below are these vital steps Coloradans should accomplish as they prepare for retirement.

Paying Off Debt

While saving for retirement is extremely important, paying off any outstanding debts is just as critical. This includes debts from credit cards, mortgages, and student loans. Otherwise, the money the individual is saving for retirement will be eaten into by further debt repayment over the years. Many people overlook this crucial step and paying off debts sooner than later will leave more money in the future for retirement pursuits.

Retaining Health Insurance and Other Forms of Insurance

When people near retirement, it is essential they focus on the health insurance they have—both now and in the future. Especially are individuals age—and more health issues arise—they tend to rely on health insurance more than before. Beyond qualifying more Medicare when a person reaches 65 years old, many estate planning attorneys recommend having supplemental insurance as well. This can be one of many options, including a Medigap policy, a Medicare Advantage plan, or—if the individual was a federal employee—their federal employee health benefits.

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Married couples receive special benefits in estate and tax planning solely due to their married status. Many of these benefits make it easier for couples to pass assets along to one another and avoid complications when one of them die. Estate planning attorneys can advise clients on strategies they should utilize to take advantage of these benefits. One of these is a bypass trust, which married couples can use to avoid estate taxes on certain assets when one passes away. Below is information on bypass trusts and how they can be implemented into a Colorado estate plan.

What is a Bypass Trust?

A bypass trust is a legal arrangement that permits married couples to split their joint assets in order to avoid estate taxes when one spouse passes away. When the first spouse dies, the estate’s assets are split into two trusts. The first trust, called a marital trust, is owned by the surviving spouse. This is a revocable trust that can be altered at any time, and the surviving spouse owns the assets in this trust.

The second trust, the bypass trust, is an irrevocable trust—meaning it cannot be changed later. When the first spouse passes away, a majority of their assets go into the bypass trust. The surviving spouse can access the assets in the bypass trust and receive income from it. However, they technically do not own the assets in the bypass trust.

What Are the Benefits of a Bypass Trust?

One of the major benefits of a bypass trust is that often the surviving spouse does not need to pay the estate tax on the trust. Because of this, many couples will plan to have their IRA or 401(K) proceed placed in a bypass trust. However, it is important to note that after the passage of the SECURE Act, if IRA or 401(K) proceeds are within a bypass trust, the proceeds must be paid out within 10 years. This is a new change, so estate planning attorneys can advise clients on how this will affect their current trusts.

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Because everyone is different, they have unique estate planning needs. For some people, this means prioritizing savings for retirement, whereas for others, it may mean planning how they would like end-of-life care handled. For ultra-high net worth individuals, their primary estate planning goal is protecting their current assets for future generations. Ultra-high net worth individuals are those with over $30 million in net worth. Because of this, their estate planning strategies may be different from other individuals. Below are some estate planning strategies that ultra-high net worth individuals can utilize to maximize their wealth for future generations.

Splitting Family Income

Splitting family income can assist ultra-high net worth individuals in mitigating their estate tax liability—one of the primary estate planning goals for these people. The American tax system is based on the idea that individuals who earn more pay higher taxes. Because of this, their estate tends to be larger—meaning, their estate will have to pay an estate tax before assets are distributed amongst beneficiaries. By dividing income among other lower-income earners in the family, the family’s tax burden will be reduced. This reduction will be seen both yearly through income taxes and when a person passes away in their estate tax liability.

Planning for Business Succession and Instilling Financial Responsibility

Many ultra-high net worth families have accumulated most of their wealth through owning a business. For those families who this is true, they should start taking steps now to plan for the future of the business. This may include planning for who will take over the business in the future, discussing the transition, and giving them the ability to ease into a larger role in the corporation over time. Planning for a business’s future can allow owners to know that the business will be in capable hands, even after they pass away. While this may not seem like an estate planning issue, attorneys can advise clients on how to ensure a smoother transition and how to incorporate the business success into their estate planning documents.

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In today’s world, an estate plan must be more than just crafting a will. With technology at everyone’s fingertips, if an individual dies without disseminating their online accounts and passwords, most of the information within these accounts may be lost forever. While estate planning attorneys may have different recommendations for how to handle the protection of digital assets, this process does not need to be as stressful as it seems. Below are steps and advice for how to secure a loved one’s digital information and include it in the estate plan.

Share Account Information with Loved Ones via a Password Manager

It is understandable that individuals do not want to be sending other people their password information while they are alive, as the accounts are still being utilized. However, it is important that loved ones know this information, so when the person passes away, they can access it. This is especially critical for accounts like financing or bank accounts, or the password to the individual’s phone so loved ones can notify others about the person’s passing.

There is specific password manager software that families utilize that stores all account logins and other information they want securely hidden. While the software contains all of the login and password information for the individual’s accounts, they need only remember a single master password to set up the account and access these digital assets.

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Estate planning is a complex and complicated endeavor for many individuals. While the estate planning industry is constantly evolving, this process may be even more difficult for high-net-worth individuals. These individuals may have more considerations to take into account when planning their estate, including minimizing estate taxes, protecting their funds for heirs, and changing laws around estate law. Another important consideration for high-net-worth individuals is appointing the right person to manage their estate. Below are tips and answers to common questions to help Coloradans choose the right trustee or estate executor for them and their financial situation.

What Is a Trustee?

Many high net worth individuals have trusts in place—meant to financially benefit their loved ones in the future. By forming a trust, an individual, known as the trustor, gives another party, the trustee, the ability to hold assets for the benefit of another person, a beneficiary. Because the trustee holds and administers the assets in the trust, they are granted major responsibilities. This includes communicating with beneficiaries, paying taxes on the assets of the trust, and providing yearly financial statements.

In many cases, the trustor will write into the trust that the trustee is given leeway to make financial decisions regarding the trust, so long as it is in the best interests of the trust’s beneficiaries. This is a major obligation.

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Married couples often wonder if there are specific ways to protect their assets that apply specifically to them. One of these lesser-known estate planning options is the creation of a spousal lifetime access trust (SLAT), which is utilized to transfer assets outside of the estate. Using a SLAT can protect assets from the federal estate tax but ensure the spouse will be able to benefit from the gift after the other spouse passes away. Below is information on SLATs, their purpose, and how to take advantage before the current exemption limit is lowered.

What Is SLAT and How Does it Work?

A SLAT is an irrevocable trust where one spouse places assets in a trust for the benefit of the other spouse. Because the trust is irrevocable, the action cannot be undone and the spouse who created the trust can no longer access the assets. However, this also means that the asset is considered removed from their estate and cannot count for estate tax purposes anymore. For married couples that have an estate of over $24.12 million, they will have to pay an estate tax after they have passed away. Utilizing a SLAT is one way to reduce the overall total of the estate and avoid the estate tax.

When Will the Exemption Limit Be Reduced?

The current provision that exempts married couples with estates over $24.12 million from paying the federal estate tax will be reduced in 2026. By creating—and funding—a SLAT prior to the exemption being lowered, the couple will be able to transfer up to $24.12 million into the SLAT without having to worry about tax implications. However, after the exclusion limit is reduced to $6 million in 2026, couples will be unable to transfer more than $6 million into a SLAT without having to pay taxes. However, married couples that take advantage of the current higher exemption will not be adversely affected when the limit is reduced in the future—meaning, there will be no impact on their already funded SLATS. Additionally, Congress has the ability to lower the exemption limit even sooner, so it is important for interested couples to begin the process of funding a SLAT as soon as possible.

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Many people are passionate about collecting. Whether stamps, coins, or baseball cards, these collections hold both sentimental, and sometimes, monetary value too. Despite this, individuals may be unaware of how to incorporate these valuables into their estate plan—who will receive these prized belongings once they pass away and how to reduce tension in case multiple family members want the collection. Below are tips that Coloradans should incorporate into their estate plan, especially when thinking about family heirlooms or collections.

Decide Whether Items Will be Kept or Converted

Many antiques and collections have sentimental value. However, because of this, individuals may overestimate their monetary value. When crafting an estate plan, individuals should decide if they would like items to be sold after their death—and the money given to a loved one—or if the item should be kept and passed on to someone. Having an estate planning attorney work with an appraiser can help the client to decide whether it is worth it to sell the collection or not.

After making these choices, the individual must then be clear in their estate plan whether they want the item sold or not. Some estate planning attorneys will also recommend explaining the importance of the collection, so the person receiving the item will know its value, whether monetary or sentimental.

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It’s that time of year again: As the snow moves in, another year is on its way out. Although you may find yourself busy with holiday gatherings and the multitude of outdoor activities that Colorado has to offer each winter, it is also an important time to check in on your estate plan.

Here are some of the main areas of estate planning to review in 2021.

Tax Exclusions

The unified tax credit allows people to transfer portions of their estate without incurring federal gift or estate taxes.

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Recent surveys show that fewer than half of all U.S. adults have a will, let alone a complete estate plan. While those in the minority may rest easier at night, they may still forget an important piece of effective estate planning.

Put simply; it is not enough to draft a will and be done with it. Instead, it is essential to review and update your estate plan at least every few years, as well as whenever you experience a major change in life circumstances.

Whether you have a simple will in place or a more comprehensive estate plan, such as planning documents for end-of-life medical care and documents pertaining to the care of your children should they become orphaned, there are several reasons why you should consider reviewing and updating your plan on a regular basis.

It’s that time of year again: As the snow moves in, another year is on its way out. Although you may find yourself busy with holiday gatherings and the multitude of outdoor activities that Colorado has to offer each winter, it is also an important time to check in on your estate plan.

Here are some of the main areas of estate planning to review in 2021.

Tax Exclusions

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