5 Reasons to Proactively Plan Your Estate in 2020
I had to check the date twice before I realized we are nearly half-way through the first month of 2020. Weren’t we just celebrating New Year’s Eve last week?! Okay, I digress. Today we are talking about several of the reasons that you and your family should be thinking about estate planning this year. Believe me, there are SO many reasons, but for brevity, I chose five that are likely very relatable to my followers. Here we go!
1. Passing Away Intestate is NOT the Way You Want to Pass on Your Estate
Have you ever had the thought, “I wonder what happens when I pass away without a Will?” As a baseline, your Will effectively acts as instructions to the probate court to tell them that you have already made the decisions for who and how your estate will be divided and given to at your death. When you die without a Will in place, this means that you die “intestate.” If this happens, the intestate succession laws of the state where you reside will determine what happens to your property at death. Yes, I’m serious!
This means a one-size-fits-all statute is applied to your estate. Assets such as bank accounts, securities, real estate property, and other assets that you own at the date of your death, will not be distributed how you choose, but instead by Colorado statute. Not to scare you, but if you don’t have a little pit of worry in your stomach right now, let me keep going.
The laws of intestate succession vary greatly depending on whether you were single, married or had children at your death. In Colorado, if you are married and you die without a will, what your spouse gets depends on whether or not you have living parents or descendants (children, grandchildren, or great-grandchildren). After identifying your heirs (ie: those people that Colorado statute determined has a right to inherit from you because of their relationship to you), there is then a decision tree that a probate court will look to, depending on the structure of your family, and make a decision who and how much those people will inherit.
Why does this matter? Here are a couple examples:
• If you own a farm, your spouse has passed away, and you have children, the court will decide how that farm will be divided amongst your children. If your children disagree on distribution or would rather receive cash instead of land ownership, and the issue cannot be resolved, then the court may have no other choice than to sell your farm land. Your children’s inheritance could therefore be in cash, but your farm is gone. This is a real, unexpected reality when you don’t plan.
• Another common situation where your estate may be distributed unintentionally (or at least differently than you hoped or expected it to be) is if you are separated from your legal spouse, and your divorce has not been finalized. Your estranged spouse will inherit a large portion, or even all, of your estate if you die without a will. Or vice versa, in the situation where you have a partner, but have not legally married, in most situations that partner will have no right to inherit from your estate.
• Step children and foster children that you have not legally adopted will not be able to inherit from you under Colorado intestate law.
2. Choose Your Fiduciaries
Let’s first establish what a fiduciary is. A fiduciary is a person or institution who has the power and obligation to act for another under circumstances which require total trust, good faith and honesty. Think: the attorney/client relationship. When you hire me, I have a fiduciary duty to act solely in your best interest as my client. This is because this relationship creates a special trust, confidence, and reliance on me to exercise my discretion or expertise when acting on your behalf. (BTW, this DOES NOT make you my client!)
Potential fiduciaries that can be part of your estate plan include: personal representative(s) (executor of estate), agent under financial or medical powers of attorney, trustee(s) of any trust, or guardian(s) or conservator(s) of your minor or disabled children.
Right now you have the power to proactively choose the individuals in your life that could best handle these responsibilities. Have you thought about this? If you fail to make your own fiduciary selections by Will, then the probate court will have no choice but to appoint fiduciaries for you, in accordance with a statutory preference list established under Colorado probate law. I’m not sure about you, but there is no way that the probate court would likely appoint my fiduciaries how I would. Why? Because no one knows my family or those trusted individuals quite like I do, especially not a probate court. So why would I let them make decisions that impact my assets and family?
3. Provide for Minor Children
As mentioned above, proactively planning your estate allows you to decide who should be the guardian(s) of your minor children should you and your spouse both die before your children reach the age of majority (18 in Colorado).
This is an extremely important decision, because if arrangements are not made for who the guardian(s) should be, the probate court will once again decide. Let’s stop here for a minute. I know that this thought is so uncomfortable and scary. Often, it is this line of thinking that stops young parents from contacting an attorney to create the estate plan that they know they need. I hear you.
But here is the dilemma, it is likely that the probate court’s decision may be very different from the one you would have chosen. At any rate, your child will be placed with a new family, and this disruption alone can be very difficult for your child.
The second reason is that there are two kinds of guardians: guardians of the estate and guardians of the person. Guardians of the estate manage the money or assets held by the child and the Guardian of the Person steps in as the parent and raises the child. It is very likely that for your family, this may be two separate individuals.
Considerations in choosing your guardians may include: relationship to your family, age of guardian(s), child-rearing and social attitudes, location, income and lifestyle, the guardian’s own family size, religious beliefs and practices, and the anticipated attitude of your children as to this person(s). If you have young children, definitely start thinking about this!
4. Avoid Family Disputes and Fallout
Think about your family. Your kids, siblings, parents. The different personalities, motivations, and lifestyles. There may be a sibling rivalry between your children that has been present most of their life. You may have a child that has a drug, alcohol, or gambling addiction. You may have children that have entirely different socio-economic status or interests. Or a child that always seems to find him/herself indebted to creditors. You may have estranged or disinherited children. For the record, all of these potential issues can be planned for.
The reality is that in any family, the potential to disagree over inheritance is readily present. Add the emotions of the death of a parent to the mix, and a whole lot of feelings, grudges, and perceived wrongs from the past rise to the surface.
You have the power, while you are alive, to decide the rules that your children and other beneficiaries must abide by. Given your particular circumstance and assets, you can choose how the loved ones in your life will receive your legacy.
• You may decide that it is fair to give each of your children an equal share of whatever is left of your estate.
• You may decide to give your son or daughter that has continued running the family business, the assets necessary to continue operations.
• You may perceive the predicted difficulties between your children and decide on a distribution strategy that makes the most sense for them or your family.
• You may also keep your assets in trust to protect what you have created throughout your lifetime, and set the rules for how the trust should be operated after.
The point here, is that if you fail to create the plan, there will very likely be consequences, one of which is conflict between your loved ones. It is much more likely that your kids will honor your wishes when they are documented in your Will and signed by you.
5. Avoid Prolonged and Expensive Probate Administration
Good news, finally! Colorado has a relevantly quick and painless probate process when compared to other states like Florida, California and Texas. Nonetheless, probate is public and your Personal Representative will likely need to hire an attorney to file with the probate court, communicate with heirs or beneficiaries, inventory your estate, pay your debts and taxes and distribute your assets. Even in a state like Colorado, this process may cost your estate several thousands of dollars depending on the complexity of what you own.
By planning ahead you can avoid probate entirely (via a trust) or at least make it as effective and efficient as it can be.
So how do you do this?
• Choose a personal representative that can handle the task of administering your estate.
• Keep records of your assets: bank accounts, investment accounts, securities, retirement accounts, title or deeds for property. A sure-fire way to spend unnecessary legal fees and time, is to be so unorganized that your Personal Representative and attorney must spend months, if not years, tracking down everything you owned.
• Have a conversation with your fiduciaries to give them an understanding of your estate and what their duties and responsibilities are when you pass. If you aren’t sure, have them give me a call. I would be happy to walk them through the process.
• Set up a trust and move your assets into the trust so that probate no longer becomes necessary.
Estate planning is hard. And emotional. And probably the last thing you want to deal with at this time in your life. But you can see the consequences of not planning. It’s vital. THE GOOD NEWS- it’s much easier to create your estate plan than you think! All it takes is deciding that it is necessary, and we can help with the rest.
Buck Law aims is to demystify the attorney-client relationship and give you the information and tools to take care of your family.
As the brilliant Benjamin Franklin once said, “Don’t put off until tomorrow what you can do today.”