Boulder Estate Planning Legal Blog

Adult children often want to ensure their parents are cared for and protected. If your parent is sick or elderly, you may have questions about the best way to protect their assets while they are alive. Consequently, you may decide to talk to your parent about initiating a trust and appointing a trustee to honor your parent’s wishes. To establish a living trust, your parent will need to appoint a trustee to manage the trust’s assets. Often, parents appoint their adult children as trustees. However, before accepting the role, it is important to be as informed as possible about the duties of a trustee. In some circumstances, working with a professional trustee may be the more appropriate course of action.

What Are Your Responsibilities as a Trustee?

As a trustee, you are primarily responsible for making financial decisions about your parent’s trust. To effectuate these decisions, you may invest part of the trust, handle businesses held in trust, or manage assets held in trust, such as property. Braverman Law Group’s Managing Attorney, Diedre Wachbrit Braverman, delineated additional responsibilities of a trustee in a recent Wall Street Journal article. As Attorney Braverman explained, trustees administer a trust by supervising and collaborating with financial professionals, such as accountants, financial advisors, property managers, and estate planning attorneys.

Additionally, you should be prepared to serve as a trustee for an extended period of time depending on the complexity of the trust. For example, if beneficiaries are minor children, they may not inherit money for several years. Accordingly, a trustee should expect to manage the trust for the requisite time period until minor beneficiaries are old enough to receive assets from the trust. Conversely, if a trustee can administer the entirety of a trust’s assets at once, the process may take less than a year. However, before stepping into the role of trustee, you should ensure you understand the level of commitment required to responsibly handle your parent’s assets.

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When appointing a person to administer your trust, you may assume that a family member would be less expensive than using a professional trustee or executor. In reality, working with a professional could be more cost-effective in the long run. Many people believe that a professional trustee or executor’s services add no value, believing payments to the trustee will only serve to reduce the amount you can pass on to your beneficiaries. However, this assumption is mistaken. Hiring a professional may be the most financially sound option for several reasons.

First, professional trustees’ fees, when viewed as a percentage of the estate, are generally not high. For example, a professional trustee or executor may charge an hourly rate or a fee as a percentage of the estate. When considering the estate as whole, the extra percentage is often worth the assurance that your estate is in competent hands. Additionally, the fees usually amount to less than the amount an institutional trustee, such as a bank, would charge.

A professional trustee can also avoid or settle disputes between beneficiaries. If you appoint a family member to administer your trust, they may experience difficulties mediating between family members without damaging the familial relationship. If the family member is also a beneficiary, they may allow their personal interests to affect any disputes that arise. Conversely, a professional trustee has no personal relationship with your beneficiaries or any personal interest in your estate. Therefore, the professional can resolve conflicts with the impartiality required to handle your estate.

If a person has a will, their beneficiaries often need to go through probate proceedings to receive the property allotted to them in the will. In probate proceedings, a court appoints a personal representative to administer the person’s estate to the intended beneficiaries. As a result, before receiving a single asset, the beneficiaries must participate in a long, complex, and confusing process. Thankfully, Colorado provides a few steps people can take while they are alive to spare their beneficiaries from probate procedures.

How Can You Avoid Probate in Colorado?

One way to prevent your beneficiaries from going to probate court is by creating a living trust. This document allows you to designate a succeeding trustee to transfer assets to your beneficiaries after death. Colorado law allows you to make living trusts for nearly any type of asset, including houses and vehicles, as well as bank accounts. To make a living trust, you can transfer ownership of your property to yourself as the living trustee of your estate. Then, with the help of an attorney, you can create a document that designates another person to take over as trustee after death. That succeeding trustee can then transfer your property to the trust beneficiaries without going through probate court.

In the event that an individual does not leave a will to determine the division of their property and assets, their estate will go through the intestate succession process designated in their state. Intestate succession is a legal process that comes into play when someone passes away without leaving behind a valid will or other legally binding document dictating how their assets and property should be distributed. Instead, the distribution of assets is determined by the laws of intestacy in the state where the person passed away. The laws of intestacy establish a specific order of priority for the distribution of assets. Typically, a surviving spouse and children are given priority, followed by other close relatives, such as parents and siblings. If there are no surviving relatives, the assets may escheat to the state.

What is a Will?

A will is a legal document dedicated to establishing and coordinating a person’s wishes regarding the distribution of their assets and property as well as the care and guardians of their minor children after they pass. A will is the most established manner of ensuring that an individual’s wishes regarding each of those issues are accurately and dutifully carried out following their passing. Wills are helpful for reducing conflict between an individual’s heirs, making sure that the division of assets is a smooth process, and easing tension.

Navigating the Inclusion of Friends in Estate Planning

Passing assets to friends and non-family members can be surprisingly difficult for a number of reasons. The current estate planning landscape is heavily skewed toward the distribution of assets towards family members and traditional heirs and does not always provide a straightforward path for those without children or spouses. As a result, some organizations suggest avoiding using wills for such transfers of assets altogether and instead giving the assets to friends while still alive and sound of mind so that heirs and family members cannot challenge the transfer in the future.

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A will is a legal document dedicated to setting forth an individual’s wishes regarding the distribution of their property and assets as well as the care of their minor children. A will is the most established manner of ensuring that an individual’s wishes on those matters are accurately carried out. Wills are also helpful for an individual’s heirs, making sure that the division of assets is a smooth process.

What is Interstate Succession?

In Colorado, if you die without a will, your assets are distributed to your closest relatives under the Colorado interstate succession laws. In various states, the interstate succession process occurs when someone without a valid will or other legal declaration passes away. The court distributes their property according to the current state laws rather than a pre-existing plan prepared by the decedent or with input from those closest to them.

Which Assets Pass Through Interstate Succession?

In Colorado, the only assets that pass through probate are impacted by interstate succession laws. Subsequently, a large variety of valuable assets are not subject to interstate succession laws as they do not go through probate. Common examples of items that do not pass through probate and are not impacted by the interstate succession process include (1) property transferred to a living trust, (2) life insurance proceeds with named beneficiaries, (3) IRA, 401(k), and other retirement account funds with named beneficiaries, (4) securities held in transfer-on-death accounts, (5) real estate with a transfer-on-death deed, (6) vehicles with transfer-on-death registration, (7) payable-on-death bank accounts, or (8) property owned with someone else in joint tenancy or tenancy by the entirety. Such assets will pass to the surviving co-owner(s) or named beneficiaries regardless of the existence of the existence of a will. One exception to this rule is if no will exists, and the named beneficiaries are no longer alive to accept the assets, the property could end up being transferred according to the interstate succession process.

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