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

Members of the U.S. Congress recently proposed a striking $3.5 trillion spending plan that, if passed, would be funded largely through a significant tax overhaul. Here is what Colorado residents need to know about the tax increase proposal as it currently stands.

Reduction in the Unified Credit Amount

Effective in 2022, the current proposal halves the estate and gift tax exclusion. This change essentially reverses the Tax Cuts and Jobs Act’s recent change to the exclusion and will affect Coloradans with large estates.

For many people, discussing end-of-life costs can be uncomfortable and emotionally daunting. However, despite the discomfort, it may elicit, having a secure and legally sound plan can provide individuals and their families with peace and security. Colorado estate planning attorneys can provide families prepare for the costs associated with dying.

There are many steps that individuals can take to ensure that their wishes are known and properly executed when the time comes. An attorney can assist people with creating and modifying wills and other estate documents to address any concerns and head off any potential issues. Many of the issues involve paying for probate proceedings, bank transfers, and funeral costs. Further, after a loved one’s death, there are many institutions and agencies that must be notified. For instance, families should contact an attorney to discuss how to address loose ends regarding insurance proceeds, Social Security, retirement accounts, car loans, mortgages, and credit card debt.

After one dies, a probate court works to validate their will and confirm the appointment of the deceased’s requested executor. The court can work with the parties’ attorneys to identify assets and liabilities and address any tax issues. Further, specific accounts, such as those held as joint tenants with the right of survivorship, may avoid probate proceedings. However, banking institutions may require substantiating documentation. In other situations retitling, accounts and assets may be more challenging and have specific tax implications.

Thoughtful estate planning can help prevent conflict among surviving family members. It can also save families the hassle of Colorado probate court, which can be a costly process involving significant delays in the distribution of assets.

Often, a lack of communication is at the root of familial estate-planning conflict. The following examples demonstrate this principle.

First, consider the case of siblings who, unbeknownst to them, will be tasked with determining the distribution of their parent’s estate. Although parents almost always have the best intentions when adding these types of provisions to their will, these provisions often come as unwelcome surprises because they require siblings to reconcile differing opinions, preferences, and financial situations. Instead, parents can consider identifying their children’s preferences ahead of time and working with a planning attorney to create a will that balances those preferences as much as possible.

Estate planning is a serious and complex area of the law, and hiring a Colorado estate planning attorney is essential to creating binding and legally sound documents. One misstep in drafting or executing these documents can completely change the intent of a will or trust. Colorado state laws are complex and require a thorough understanding of procedural and statutory laws. Further, while the Constitution explains that states should recognize legal documents, some states do not honor documents drafted in accordance with other states’ laws. An attorney can help individuals ensure that their documents meet the applicable state laws.

Generally, Colorado estate plans involve four primary documents, the will, power of attorney, health care directives, and a living trust. These documents affect various aspects of a person’s wishes, and individuals should review their circumstances and create these documents regardless of economic standing.

One of the most demanding parts of Colorado estate planning is gathering all vital documents. This includes vehicle titles, property records, insurance provider contact information, and original documents and certificates. An attorney can help parse out these documents, determine which documents are necessary, and provide guidance on retrieving missing documents. Further, estate planning lawyers can complete and execute a person’s last will and testament and living trust.

Nursing home and other long-term care costs can be extremely high for the people in need of care and their families. Medicaid and other federal programs may help those in need to pay for long-term care costs. In some states, including Colorado, eligibility for Medicaid assistance with nursing home care is dependent on a person’s income rather than their need. In Colorado, it is common for someone who legitimately cannot afford long-term care to make too much money to qualify for Medicaid assistance.

In Colorado, the Medicaid income limit for 2021 is generally $2382. Persons who generate more than this amount of income will not be eligible for Medicaid assistance in paying for long-term care or nursing home costs. Most long-term care facilities and nursing homes will cost substantially more than this amount for care, and many people with income above the limit will be unable to afford the care they need without additional assistance. With the help of a Colorado estate planning attorney, however, people in need of care may be able to use what is called a qualified income trust to sequester some of their income for care costs while still maintaining Medicaid eligibility and receiving federal benefits.

A qualified income trust, also known as a Miller trust, is a specific legal instrument that is used to manage a person’s income. Income that is deposited in the trust account is not counted toward the income limit for Medicaid eligibility. Miller trusts require a trustee to be appointed to manage the income and expenses of the account. In order to successfully establish a qualified income trust, a person must meet the other requirements for Medicaid eligibility, including a medical need for care, as well as owning less than $2000 in countable assets.

When adults think about the future, it can be difficult to envision where they will be living. For some, they assume they will be staying with a loved one, whereas others save so they can reside in an assisted living facility. There are many long-term care options for seniors as they age—but it may be difficult to discern the differences between these options. Below are explanations for some of the most common long-term care options that can help a person to determine the best choice for them depending on their needs.

Home Care

Home-based care allows individuals to stay at their home—or that of a loved one—and live as independently as possible. Home-based care primarily involves personal care, such as help taking medication, bathing, and daily activities. For the most part, family members, spouses, friends, and neighbors provide this care.

While most people obtain health insurance through an employer, they will lose this coverage once they retire. Thus, as we approach retirement, one of the most important considerations is the availability of long-term healthcare coverage. This coverage is imperative to cover the high costs of medical expenses as we move into the next phase of life and protect familial assets from the skyrocketing costs of long-term care.

Recent surveys suggest that most people want to live at home as long as possible, preferring in-home care to that provided by nursing homes and assisted living facilities. However, this is not the reality for many. In fact, 78% of the state’s long-term care dollars are spent on care facilities rather than in-home caregivers.

Medicare, which is widely available for anyone over 55 years old, Medicare does not provide meaningful coverage for long-term care—either in-home or in a long-term care facility. Thus, this means that most people on Medicare will end up paying out-of-pocket for these expenses. This is where Medicaid planning comes into play.

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.

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