Many people believe that they have done everything that they can to prepare for the day when they will no longer be around to care for their loved ones. They may have taken out insurance policies and prepared a will so that their dependents will be financially secure after they are gone.
But, what most people don't know is that by simply making a will and taking out a life insurance policy, they have done just slightly better than nothing to protect their assets. This is because, after you are gone, any asset that is only governed by your will must go through probate and probate fees and attorney expenses must be paid in order for that to happen.
In addition, the probate process can take months or years to complete. So, your beneficiaries may have to wait a long time to inherit your estate, after it has already been considerably diminished by probate fees. While this may be a minor inconvenience for those who do not rely on your financial support, it can create a very difficult situation for those who look to you to supply them with their basic needs.
This is where a Colorado trust comes in. Instead of forcing your beneficiaries into the legal limbo of probate with the result being a smaller estate than they had expected, you may want to consider other estate planning options, like a revocable living trust. A revocable living trust can save your estate tens of thousands of dollars in probate costs and expenses, leading to more of your estate going directly to your beneficiaries, instead of being wasted on probate.
Revocable Living Trust
A revocable living trust is often the cornerstone of a thoughtful Colorado estate plan. A will is often too limited to address all but the simplest estate planning, asset protection, and probate avoidance needs.
A living trust is as an arrangement whereby you (the grantor) transfer legal title of an asset to a trust where it will be managed by a trustee, pursuant to your instructions, for the benefit of a beneficiary. Let's say you establish a trust for the benefit of your family. If drafted properly, you can achieve your estate planning goals and retain control over the trust assets, even after you have passed away.
- You draft the trust rules that must be followed by the trustee.
- You are the sole trustee doing your lifetime and can change the rules at any time.
- You select a successor trustee (such as a spouse, relative, or friend) to manage your assets after you die or while you are incapacitated, and in accordance with your instructions.
- You can change the beneficiaries at any time prior to your death.
The bottom line is that you retained total control over the trust and its assets while you are alive and then set up the rules that must be followed after you are gone.
Funding a Revocable Living Trust
In order for a revocable living trust to work for you, you must fund it with assets such as your real estate, business interests, bank accounts, brokerage accounts, life insurance policy, etc. This is done by tilting the assets in the name of the trust.
The trust becomes the new owner, but you (as the grantor and the trustee) continue to have complete control over the assets. For example, you can transfer assets in and out of the trust whenever you want, usually without tax consequences.
Trust Beneficiaries & Probate
After you die, the successor trustee takes over management of the trust. And at this point, your revocable trust typically becomes irrevocable. You can give the trustee limited power to change the trust, if you think it is appropriate to do so. In most cases, you would not allow the trustee to change the beneficiary of the trust, but under some circumstances you may want to give the trustee this power too. For example, if you want some of your assets to go to a charity, you may want to allow the trustee to select a different charity if they charity you chose goes out of business or changes its focus.
The most important parts of your trust will usually involve when and how your assets will be distributed to your beneficiaries. For example, you may dictate that after your death, the successor trustee must pay income to your spouse, and upon your spouse's death, pay the remaining trust assets to your children or grandchildren. However, you can also dictate that your assets won't be distributed to your beneficiaries until they reach a certain age, have gone to college, or have a steady job.
Living Trust Advantages
Here are some of the many benefits offered by a revocable living trust:
- Creditors and Asset Protection - under Colorado law, a trust can provide trust beneficiaries, other than the grantor, with protections from various creditors who may try to take the trust assets
- Tax Planning - a revocable living trust can achieve tax planning goals, for example, by drafting for both Colorado and federal estate tax exemptions.
- Probate Avoidance - a revocable living trust can avoid expensive and time-consuming probate.
- Privacy - a probated will typically becomes a public record, but a revocable living trust usually need not be disclosed and remains confidential.
- Asset Management During Incapacity - a revocable living trust is also better than a power of attorney (POA) when it comes to giving someone else the authority to handle your affairs when you are incapacitated. This is because institutions don't always respect the authority of a power of attorney.
There are many options to consider when you begin to investigate the intricacies of estate planning, but the one thing that you should never wonder about is whether or not you should be working with an experienced estate planning and trust attorney.
For more information about how you can use a Colorado revocable living trust to protect your assets and provide for your loved ones, schedule a consultation with our experienced Colorado estate planning attorneys through the contact link on our website.