 |
CBA Home | CLE Home | Contact Us |  Cart - empty |
Search |
|||||||
Most Viewed |
Home >
For the Public >
Legal Resources >
Senior Law Handbook >
2006 Senior Law Handbook >
Chapter 7 - Estate Planning >
PART ONE
Transfer of Assets Outside ProbateSurvivorship Interests Holding property with another under a survivorship interest such as joint tenancy is sometimes used as an inexpensive alternative to a will or trust. A survivorship interest may be applied to both real and personal property. However, there are large pitfalls to this transfer method, both during life and at death, including problems with creditors, taxes and lack of control. Also, a will is still necessary in the event both joint owners die simultaneously. (See Chapter 7, Part II, for more information on survivorship interests and options to joint tenancy such as life estates.) Payable On Death (POD) & Trustee Accounts POD and trustee accounts are other alternatives to wills and intestate succession for bank accounts. Such accounts are treated like a normal bank account during the lifetime of the account owner (sometimes called the trustee). On the account owner’s death, any funds in the account will be automatically distributed to recipients (the beneficiaries) designated by the account owner. The beneficiaries have no control over the account during the owner’s lifetime. Contact your bank if you wish to set up an account in this manner. Before doing so, however, remember that there are pitfalls to this transfer method, just as with survivorship interests. Securities Registered to Transfer On Death (TOD) This device for transferring stocks and bonds at death to named beneficiaries works like a POD bank account. It has similar advantages and disadvantages. Beneficiary Deed Title to an interest in real property may be transferred on the death of the owner by recording, prior to the owner’s death, a beneficiary deed designating a beneficiary. The transfer is effective only on the death of the owner, and owner can revoke or cancel a beneficiary deed by recording a proper revocation prior to the death of the owner. Trusts A trust is an arrangement where real or personal property is held by one person, called the trustee, for the care or benefit of another person, the beneficiary. There are basically two types of trusts: testamentary trusts and living trusts. A testamentary trust is set up in your will, and takes effect only after your death and after your estate has been administered. Testamentary trusts, like living trusts, are set up to save estate taxes and to manage assets for minor or disabled adult children. Because testamentary trusts become effective after death, they are useful in situations where asset management is not needed during life. Living Trusts A living, or intervivos, trust may be revocable or irrevocable, and it may be funded or unfunded. A funded living trust is an alternative to a will and to probate. In a funded living trust, a person (the settlor) puts property and money into his/her trust during his/her lifetime for the benefit of him/her and possibly other family members. An unfunded living trust typically receives assets through a simple pour-over will following the settlor’s death. Most people who are able to handle their own financial affairs usually name themselves as trustee of revocable trusts they set up. The trustee invests the trust assets and makes the assets and income available to the settlor/beneficiary during his or her life. Such a trust is almost always revocable, meaning that the settlor can revoke or amend the trust so long as he or she is able. If the settlor/beneficiary becomes disabled, alternate trustees are usually named in the trust to assume trustee responsibilities, the most important of which is providing for the financial needs of the disabled settlor/beneficiary. A settlor will usually name a spouse, adult child, relative, friend or a bank as alternate trustees. When the settlor/beneficiary dies, the trust often terminates, and the successor trustee will distribute the trust property to the beneficiaries, as under a will. In many situations, however, living trusts will continue for the benefit of the settlor’s spouse and children. A living trust has several advantages if it is set up properly and fully-funded, meaning all the settlor’s assets are placed in trust. First, a fully-funded trust can reduce or eliminate the need for probate upon the death of the settlor. Second, a Colorado resident who owns real property in another state can put that real estate into a living trust and thereby reduce or eliminate the need for probate in the other state. Third, a living trust may avoid the need for a conservatorship for the settlor if he or she becomes legally disabled. However, a living trust cannot avoid a guardianship, because the trustee of a living trust cannot make medical or care decisions for the settlor unless the trustee is the named agent for the settlor under a separate Medical Power of Attorney. (See Chapter 6 for more information on guardianships and Health Care Powers of Attorney.) Many people think they need a fully-funded living trust so that probate is not necessary when they die. In some states, the probate process is cumbersome and costly, and it is thus desirable to avoid that process. In Colorado, however, probate is relatively simple and avoiding probate is not, by itself, a good reason to have a fully-funded, living trust. Trusts are complex legal documents that require the use of competent and experienced estate planning attorneys. Preparing and managing the trust can be more expensive in Colorado than a will and probate. If the trust is not drafted correctly, significant harmful tax results may occur. You should not try to create your own trust or purchase a preprinted living trust. Initially, living trusts and wills with testamentary trusts are more expensive to prepare than wills without trusts. However, they may save you many thousands of dollars if you have a complex estate. Changing Your Will or Living Trust A will or living trust that meets all of the requirements described earlier is valid until you revoke it. A will or living trust that is valid in another state is also valid in Colorado. If you change your mind about a particular distribution of your property, or if circumstances force you to otherwise change your will or living trust, you can create a codicil to your will (a document amending your will) or a trust amendment to change your living trust. The codicil or trust amendment must be signed and Life Insurance Life insurance proceeds pass to whomever you have named to receive those benefits; that person is the beneficiary. The insurance company will have a record of the beneficiary you chose when you purchased your policy. You also should keep a record of the current beneficiaries of each life insurance policy. You have the option to change the beneficiary at any time. You must tell your insurance company in writing if you wish to do this. Most insurance companies provide a form to change the beneficiary. It is also wise to name another person as an alternate beneficiary in case your first beneficiary dies before you do. A beneficiary may be the personal representative of your estate (though this can have unfavorable consequences) or trustee of a living trust. All beneficiary designations should be coordinated with your overall estate plan since the insurance company will pay the policy proceeds to the named beneficiary, even if your will says someone else should receive the money. |
||||||
