COVID-19 Update: You can do Your Planning From Home

In an effort to provide Americans with access to retirement savings, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act created profound retirement and tax reforms resulting in myriad implications for American workers. The changes should prompt individuals to reevaluate their Colorado estate plan documents to ensure a happy and secure retirement.

The SECURE Act requires Colorado certain employers to offer their employees a retirement savings plan or enroll their qualifying workers in a state-sponsored retirement account. The Act applies to most employers besides small private and nonprofit entities. Significant changes include 401(k)s, IRAs, and 529 college savings accounts. The ACT offers small Colorado business owners a tax credit for starting a workplace retirement plan. Further, new parents receive a benefit in the form of a penalty-free $5,000 withdrawal from a 401(k) or IRA following the birth or adoption of a child.

One of the most significant changes involves the elimination of the “stretch” option for retirement accounts. Under the Act, the majority of non-spouse beneficiaries must withdraw the balance of any inherited retirement accounts within ten years. Beneficiaries must adjust their withdrawal plans to avoid a drastic increase in their tax bills. Before the change, beneficiaries of inherited retirement accounts could opt to take distributions over their lifetime. The change may result in a change of a beneficiaries tax bracket, thus receiving more minor of the funds in the account than initially planned.

Estate plans allow individuals to contemplate their final wishes regarding their healthcare, finances, and disposition of their remains. A Colorado estate planning attorney can assist individuals in determining the best way to document their final wishes to ensure that their family correctly effectuates their desires. Although last will and testament documents may include funeral and burial wishes, these documents may not be discovered until it is too late. In an effort to avoid this situation, individuals should include their wishes in more than one place. In addition to a last will and testament, funeral and disposition arrangements may be included in a revocable trust or additional document. The importance of clear and binding instructions is vital given Colorado’s new human composting bill.

The new bill may create a feeling of discomfort for some families; however, individuals maintain the right to reasonably dispose of their bodies in a manner that they wish. In most states, individuals are given three options for the disposition of their bodies after they pass: burial, cremation, or donation. Although these options often align with religious, traditional, and cultural beliefs, they pose their own challenges and limitations. In response to these limited options, many people have begun touting Colorado’s green burial movement as an economical and environmentally friendly option.

Human composting, sometimes known as Natural Organic Reduction (NOR), works in the same way as any other form of composting. It is the process of breaking down human remains into the earth to be reused. The body is placed inside a large cylinder vessel with bacteria and wood chips that allows the body to break down naturally. The resulting soil may be used for forestry, land conservation, and agriculture. Although it is similar to cremation in that it saves space, money and allows the loved one to be spread in a cherished location, it provides a biological value that cremation does not.

Funeral arrangements are something that are extremely personal and poignant. While a family will often have to go through the emotionally tolling process of planning a funeral, the individual can minimize the burden by putting their wishes in their estate plan. This cannot entirely alleviate the work the family must do after the death, but this can ensure the family knows what the deceased would want done. With the emergence of new funeral options—especially when it comes to dispersing the remains—elaborating on end-of-life arrangements is absolutely necessary.

The Colorado State Legislature recently passed a bill that would permit the composting of human remains instead of processes like burial and cremation. The governor has also indicated he will sign the bill into law. Many Coloradans have expressed interest in composting their remains—both because it is an alternative to traditional burial methods and because of their love of the environment and sustainability. While many individuals may not want to use this method of dispersal, this empowers people to have another choice for their funeral arrangements.

Individuals can plan other aspects of the funeral—and include it in their estate plan—to reduce the burden on loved ones during what is already a difficult time. This can often be incorporated into the estate plan through an End-of-Life document, which informs the Executor of the estate how to carry out the deceased’s final arrangements. End-of-Life plans can also include what the person wants to be done with their remains—as discussed above—as well as any details they want in the memorial service. End-of-Life plans can also have other benefits: individuals will often set money aside in a trust to take care of funeral expenses. Doing this ensures loved ones are not overwhelmed paying for the funeral themselves.

Over the past year, many changes have occurred due to the COVID-19 pandemic. While people are realizing those things that are most important to them, it has also invoked reminders to prepare for the future. For many, this should include updating an estate plan, which can provide peace of mind for them and their family. Additionally, the pandemic has caused new situations and scenarios that require estate planning documents to be further specified. Below are some elements of an estate plan that should be updated and discussed with family members—particularly in light of the pandemic.

Healthcare Documents

While every estate plan includes healthcare-related documents—including a living will and healthcare proxy—some of these forms may need to be altered because of the treatment needed for serious cases of COVID-19. For example, one of the common estate planning documents is a DNR (Do Not Resuscitate) or POLST (Physician Orders for Life-Sustaining Treatment). On this form, some people will indicate no life-saving measures be taken if they are sick, including a prohibition against intubation. However, for many hospitalized individuals with COVID, intubation is necessary to survive. As a part of their estate plan, individuals should specify the cases where they may want intubation—such as COVID treatment—from those situations they do not want intubation—like if they are in a vegetative state. Coloradans can revise their healthcare documents to reflect this change in circumstances.

Over time, the federal laws surrounding estate and gift taxes have been altered—often with the change in administration. This past month, Senator Bernie Sanders introduced his estate and gift tax reform legislation to lower the estate tax exemption to $3,500,000. For Coloradans with an estate plan in place, this may affect them. While this bill has not been passed yet, it is important for Coloradans to contact their estate planning attorneys and get ahead of the curve in case it does.

Senator Sanders’ bill aims to reduce the estate tax exemption from $11,700,000 to $3,500,000. This means if the proposal passes, an individual with an estate valued at over $3,500,000 will have to pay 45% on the excess of the limit up to the first $10 million of assets, 50% on the next $40 million worth of assets, 55% on the next $50 million, and 65% on everything over $1 billion in assets. For married couples, the estate tax exemption will be $7,000,000.

Often, individuals will think gifting away part of their estate is the solution to fall under the estate tax limit. However, this can have complications if a person gives away more money than is exempted from the gift tax. The gift tax exemption is the amount of money that an individual can give away as a part of their estate without paying a tax on the gift. Currently, the limit is $11,700,00, but Senator Sanders’ proposal will reduce the gift tax exemption to $1,000,000. This does not include the $15,000 per year that a person may gift without worrying about it being taxed.

After creating a Colorado estate plan that contains a trust, there is one final step: choosing the trustee to oversee the trust after the creator of the estate has passed away. The trustee manages the assets in the trust and distributes the assets according to the creator’s wishes. A lot of people have misconceptions about who to pick as their trustee, assuming that picking a family member will be more cost-effective and no one knows them better than a loved one. However, there are benefits to picking a professional trustee instead—and all the knowledge and experience that comes with one. Below are common misconceptions people have about choosing a professional trustee and why they are ultimately incorrect in holding these assumptions.

A Professional Trustee Does Not Understand Me or My Family’s Dynamics

Many individuals worry that if they hire a professional trustee, they are choosing someone who does not know them and their family—as compared to picking a loved one to serve as trustee. However, professional trustees not only strive to get to know their clients but also come with the experience to navigate the complicated nature of estate planning. A major part of a trustee’s job is to fulfill the creator’s written wishes. To do so, they build strong relationships with families by learning more about them and treat beneficiaries as partners during the administrative process.

While creating a trust is critical for many people and their loved ones, it may seem complicated at first. There are also important decisions that must be made throughout the process that will impact the beneficiaries and the assets within a Colorado estate plan. One such choice is who to designate as the successor trustee to a revocable living trust. A successor trustee is appointed to take over the trust when the creator of the trust—who normally serves as the initial trustee—becomes incapacitated or dies. Because the successor trustee has important responsibilities, it is important to choose the right person to serve this role.

Initially, the person creating the revocable trust normally acts as the trustee. However, in an irrevocable trust, someone else must be appointed to this position. The successor trustee’s role only comes into play when the initial trustee can no longer manage the trust. When the initial trustee either passes away or becomes incapacitated, the successor assumes control of the trust.

While a successor trustee’s role may seem similar across all successor trustees, this is not the case. The exact duties the successor trustee must undertake depends on the terms set in the trust agreement. The successor trustee often appraises the value of all the assets in the trust, pays all taxes, and sets aside funds for expenses the trust may incur. Regardless of the specifics of the trust, the main duty of all successor trustees is to handle the transfer of assets to the beneficiaries and ensure that they follow the terms written in the trust. Unlike an estate executor, a successor trustee’s role may continue for years after the initial trustee’s passing. For example, the initial trustee may leave a grandson assets that they do not want him to receive until his 25th birthday. If the initial trustee passes when the grandson is 14 years old, the successor trustee must safeguard his inheritance until his 25th birthday.

While many people put off thinking about death, recent policy initiatives have made this not the case for many. With a dramatic increase of states considering right-to-die initiatives—that make it possible for terminally ill patients to use medicine to end their lives—strong opinions over the topic are rampant. Colorado passed The End-of-Life Options Act (the Act), providing terminally ill individuals with the right to use prescribed medication to end their lives. Although many individuals do not think about how this Act could impact estate planning matters, it does. There are critical estate planning measures individuals with terminal illnesses must take to aid their loved ones after their death.

After failing to pass in the Colorado legislature, the End-of-Life Options Act was placed on the Colorado ballot in 2016. This initiative passed and led to the bill’s enactment, which allows terminally ill people to request assistance in dying—but in only certain defined situations. To request a prescription for life-ending medication in Colorado, a patient must be: at least 18 years old; a Colorado resident; mentally capable of making and communicating health care decisions; diagnosed with a terminal disease in which they will die over the next six months. Beyond these requirements, the patient will only be prescribed the medicine if they make three requests—two verbal and one written— for the medicine at least fifteen days apart in front of two qualified, adult witnesses. The doctor must also offer the patient the opportunity to withdraw the request for the medication before providing the prescription.

For individuals with a terminal illness, it is critical to have an estate plan in place before they pass away. This is because an estate plan explains how individuals want to be cared for in their final days and what measures should be taken—this can include taking actions legalized under The End-of-Life Options Act, if the individual has a terminal illness. Otherwise, it provides instructions on the medical interventions they want to be taken, and who should make decisions on the individual’s behalf if they become incapacitated. Additionally, creating an estate plan provides for how, and to whom, they want their assets to be distributed. If a person does not have an estate plan before they die, the court will decide how their assets will be handled. While creating an estate plan—and specifically making end-of-life decisions—may be uncomfortable, it alleviates a major source of stress in the end.

Those who are in the midst of divorce proceedings or planning a divorce should consult a Colorado estate planning attorney to discuss any implications of the life change. Probate courts do not consider the circumstances surrounding a couple’s separation, and consider the couple married, until a judge signs a final divorce decree. As such, individuals must amend their documents in a timely manner, to avoid unintended consequences.

Understandably, those involved in divorce proceedings may become overwhelmed with the time, energy, and logistics that necessitates this life change. However, individuals should prioritize reviewing and modifying their estate plans so that the changes are enforceable in court. There are many components to a complete estate plan, and concerned parties should address each facet.

Specifically, parties should review their:

  • Health care proxy
  • Power of attorney
  • Will
  • Trust
  • Prenuptial and Postnuptial agreements

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The federal gift and tax application exclusion amount, or exemption, was raised from $5.49 million per individual to $11.58 million per individual last year. This means that a married couple can transfer about $23 million without having to pay a gift tax or estate tax. However, the federal gift and estate tax exemption is set to decrease again in 2026. On January 1, 2026, the exemption is scheduled to revert to the previous limit, which is estimated to be around $6 million per individual at that time, though, the exact amount depends on inflation. According to federal regulations, individuals and couples who take advantage of the exemption prior to 2026 will not be adversely affected when the cap decreases. The increased limit has inspired many families to consider ways of taking advantage of the exemption before it decreases. One way families have considered doing so through Colorado estate planning measures is by creating a Spousal Lifetime Access Trust.

A Spousal Lifetime Access Trust (SLAT) is a gift from one spouse to an irrevocable trust with the other spouse as the designated beneficiary. Unlike some similar trusts, the SLAT is established by a gift while both spouses are still alive. Other family members such as children and grandchildren can also be beneficiaries of the trust. A SLAT allows the donor spouse to transfer up to the exemption limit without incurring a gift tax. The value of the assets in the SLAT is excluded from the donor spouse’s gross estate and not subject to the estate tax upon the donor’s death. The appreciation of the SLAT assets may not be subject to estate tax, as SLATs are excluded from the beneficiary spouse’s gross estate and not subject to an estate tax when the beneficiary spouse dies.

The beneficiary spouse can request distributions from the trustee during their lifetime if needed. The trustee can then approve the request and distribute the income or the beneficiary spouse. However, the distributions will be reintroduced into the taxable estate, and the goal of a SLAT is to allow the trust assets to grow for future generations outside of the taxable estate. The SLAT has some drawbacks and risks, and a married couple’s particular personal and financial circumstances should be considered before setting up a SLAT. Consult with an estate planning lawyer to determine if a SLAT is right for you.

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