1.         What does "per stirpes" mean?

 Answer:           In Latin, it literally means "by the branch."  This means if one of your children dies, his/her children get the share of their deceased parent.

 

2.         What does the "generation-skipping paragraph" mean?

 Answer:           Generation-skipping means that you are skipping your children and leaving assets to your grandchildren.  This could be intentional or it could be caused by the death of one of your children prior to your death.  You and your spouse are each allowed to leave $1,100,000 to your grandchildren without payment of a generation-skipping tax.  The generation-skipping tax, combined with the tax on your death, can be as high as 75%.  Therefore, if you want to employ this technique, it needs to be done very carefully.  We may include this paragraph in your Will/Trust even if you are not leaving any assets immediately to your grandchildren.  Possibly, you are setting up your assets in Trust for your children with provisions for the Trust to end at a certain point in time.  If your children pass away before the assets are distributed, this could be a generation-skipping transfer if the ultimate beneficiaries are your grandchildren.  Another way you can make a generation-skipping transfer is by designating a grandchild to be the beneficiary of a retirement account, life insurance or annuity.  Accordingly, we normally put this paragraph in your document even if nothing in the Will/Trust is designated to pass to your grandchildren.

 

3.         What does the "age requirement" paragraph mean?

 Answer:           The Wills/Trusts drafted by our office often include contingent beneficiaries.  For instance, if you leave everything to your son and provide that if your son fails to survive you, his share goes to his children, his children are your contingent beneficiaries.  In that situation, clients usually do not want their minor grandchildren to receive their assets outright on their 18th birthday.  Rather than using a formal Trust for something that may never occur, we typically put an age requirement paragraph which would specify that if any beneficiary of the Will/Trust is under a certain age, his or her share would be held in Trust until he or she attains the specified age.

4.         What is the considered "reasonable compensation" for a Personal Representative?

 Answer:           Normally a Personal Representative is entitled to reimbursement for all reasonable expenses incurred in the discharge of his or her duties.  Colorado does not have a statutory fee schedule and does not allow a Personal Representative to base his or her fee on a percentage of the estate.  Colorado law allows a Personal Representative to be receive "reasonable compensation" based upon the complexity of the estate and the skill and experience of the person performing the job.  A Personal Representative is not obligated to take this fee. 

 

5.         Please explain the term "Ancillary Fiduciary."

 Answer:           Real estate owned outside the Colorado may have to be probated in the state where the property is located.  If probate is necessary, then an Personal Representative can appoint another party to handle the probate of the property outside the Colorado.  The Ancillary Fiduciary's job would be to handle the probate of the property outside the Colorado

 

6.         What does the "nomination of a Successor Trustee" clause mean?

 Answer:           In all situations where a Trust is created, we include a paragraph which will allow our law firm to designate a Successor Trustee in the event there is no Trustee capable of serving.  This is important in the event of a Trustee refuses, resigns, or is unable to serve.  This paragraph gives you the security of always having a backup in place. 

 

7.         Please explain the formula leaving my spouse "the smallest fractional dollar or a sum equal to."

 Answer:           The intent of this formula is to place the maximum Credit Shelter Amount ($1,00,000,000 in calendar year 2002) into a Family Trust.  The amount transferred to the Family Trust is the amount of the exemption from federal estate taxes.  The formula is self-adjusting so that if Congress changes the amount (either up or down) you do not need to change your Will or Trust.  Everything in excess of the Family Trust is distributed to the GST-QTIP Trust and Martial Trust or your spouse as provided in your Will or Living Trust and qualifies for the marital deduction which defers tax until the death of the surviving spouse.

 

8.         Please explain what a "Family Trust" is.

 Answer:           When one spouse dies, assets in an amount based upon the current exemption from federal estate taxes ($1,000,000 in calendar year 2002) are frequently placed into a Trust.  We call this Trust a Family Trust because, often, not only can the surviving spouse have access to the income and principal in the Trust, but upon the spouse=s death, if any assets remain, typically the beneficiary is the family, i.e., the children or grandchildren.

 

9.         Please explain the "restriction" clause.

 Answer:           Usually a Trust is set up for the surviving spouse to take advantage of the first (deceased) spouse=s Unified Credit Amount.  The Trust also allows the first spouse to control the ultimate disposition of his or her assets.  The Trust that is established often allows the surviving spouse access to the money for his or her health, welfare, maintenance and support.  Usually, the decision as to what is distributed is left to the discretion of the Trustee.  The surviving spouse is often the Trustee or Co-Trustee of the Credit Shelter Trust.  If the surviving spouse was able to ask for the money with no restrictions or without the consent of a Co-Trustee, the proceeds in the Credit Trust could be considered as included in the surviving spouse=s estate.

 

10.       Please explain the "Rule Against Perpetuities" clause.

 Answer:           This provision specifies that a Trust cannot go on forever.  Some states do not recognize the Rule Against Perpetuities.  However, we often include this paragraph in the event that the situs of a Trust later changes to another jurisdiction which still recognizes the Rule Against Perpetuities.

 

11.       What does the "common disaster" clause mean?

 Answer:           We sometimes put a common disaster clause in our tax planning documents because it deems one person to have predeceased another.  This is important when we are setting up a Trust for a surviving beneficiary.  The order of death in the common disaster clause will specify who is considered to be the survivor.  For married couples we typically designate the spouse with the larger amount of assets in his or her name to be the first person to pass away.  In non-tax planning situations, a common disaster clause is often utilized to avoid subjecting an estate to be probated more than once in a short time period.

 

12.       Please explain the purpose of the "disability provision" clause.

 Answer:           This paragraph gives the Trustee the discretion as to whether or not to distribute assets outright to a person who is suffering from a mental or physical disability.  Often clients have their Wills prepared and are not aware that their beneficiary suffers from a disability.  If subsequent to the execution of a Will a disability is determined, this paragraph gives the discretion to the Trustee to distribute the money outright to the beneficiary or to retain a portion in a Trust for the benefit of the disabled beneficiary.  There are practical and legal reasons to have this provision in your document.  A practical reason is that it gives the Trustee the ability to manage funds for an individual who may not be able to manage them.   A legal reason for this provision is that a disabled person who receives government benefits such as SSI or Medicaid can be disqualified from receiving his or her government benefits if he were to inherit assets outright.

 

13.       Where shall I keep my Estate Planning documents?

 Answer:           Place your Will or Trust in a safe deposit box, in a locked, fireproof cabinet, or a similar secure location.  You should give copies of your health care power of attorney to your primary care physician.  You should also give a copy of your health care power of attorney to your agent and successor agent.  You might consider giving a copy of your Power of Attorney to your Agent.  If you are uncomfortable giving a copy of your Power of Attorney to your Agent, let that person know that he or she is your Agent and let them know the location of your documents. 

 

14.       When should I review my Estate Planning documents?

 Answer:           Estate Planning documents should be reviewed at least every three years.  It is recommended that you review your financial status on an annual basis.  There are five major occasions upon which an estate plan should be amended:

 

1.         As I have explained, the federal estate tax is scheduled to be repealed in 2010.  If Congress does not vote to continue the repeal, the federal estate tax will be reinstated in 2011.  In addition, it is very likely that Congress may change the law prior to the repeal.  If the federal estate tax is repealed, it will be necessary to redraft your trust.  You should contact this office if the federal estate tax is repealed.

 

2.         Change in Personal Circumstances - Such changes include: marriage, divorce, or remarriage; the birth or adoption of a child; the death of a beneficiary; or the death of a personal representative such as a Personal Representative, Health Care Representative or Agent under your Power of Attorney.

 

3.        Change of Assets - This includes a significant change in your income or assets, including the receipt of an inheritance or substantial gift.

 

4.        Change in the Laws Which Affect Your Estate Planning - You should have our office review your estate plan on a periodic basis.

 

5.                  Change in naming who you would like to receive your property at your death or the manner in which you would like them to receive your property.

 

15.       Do beneficiary designations supersede my Will or Trust?

 Answer:            Yes.  When you designate a beneficiary on an account, or on a life insurance policy or retirement account, the account will pass to the designated beneficiary.  This will occur even if your Will or Living Trust specifies that your assets pass in some other manner.

16.       What are the differences between tenants in common and joint tenants with right of survivorship?

 Answer:            Tenants in Common:  This type of ownership means that the interest owned by each tenant is subject to probate. Their share will pass through their Will when they die.

 Joint Tenants:  Each joint tenant owns the whole and each you have equal rights to the property.  Upon the death of one of the joint tenants, the surviving joint tenant or tenants automatically get the interest of the deceased joint tenant.

 

17.       Do I have to leave something in my Will or Living Trust to my children?

 Answer:            No. You are not required to leave anything in your Will or Living Trust to your children.  You should specify in your Will or Living Trust that you are leaving out a child or certain children and specifically name which children are to be left out and why they are being left out, in order to avoid a Will contest.  If you don't want to put the reason in your Will or Living Trust, you should at least have a memorandum in the attorney's file.

 

18.       Who should get copies of my estate planning documents?

 Answer:            Whether copies of your estate planning documents should be distributed is a personal decision.  However, it is important to let your personal representatives know of their appointment, their responsibilities and where your documents are kept.

 

19.       Will my estate planning documents be valid if I relocate?

 Answer:            If you relocate to another state, your documents should be valid in that state.  Most states follow the Uniform Wills Act.  However, if you relocate to another state, you should contact an experienced estate planning attorney in that state to determine if your documents need to be changed.  This office will make a recommendation, if you so desire.

If you relocate within the same state, a mere change of address does not require a change in your estate planning documents.  If your personal representatives, including your Executor, Trustee, Health Care Representative, and Agent under your Power of Attorney change their addresses, it is not necessary for you to change your documents.

 

20.       What are the duties of a personal representative of a Will and whom should I select?

 Answer:            If your estate is modest in size, you should probably select a family member.  If your estate is substantial in size, you might want to consider a professional, such as a lawyer, bank or trust company.

Under Colorado law, the Personal Representative's job is to file the Will for probate with the court, gather the assets, pay  the  bills, file any necessary tax returns and distribute the assets in accordance with the Will.

If there is a trust, you need a Trustee.  The Trustee needs to manage the money for the term of the trust which is often the remaining life of the surviving spouse or until younger children reach an age of responsibility.  Individuals usually do not manage money as well as financial institutions.  Therefore, you might want to think of having a family member and a financial institution act as Co‑Trustees if the size of the trust is substantial.

 

21.       Can a beneficiary of a Will also be a witness to the Will?

 Answer:            It is not expressly prohibited, but it is not recommended.  When a beneficiary is also a witness, if the Will is contested, anything the beneficiary might have received through the Will could possibly be invalidated to the extent it is more than the witness would have received if there was no Will at all.

 

22.       How can I change my Will?

 Answer:            By Codicil or a new Will.

 

23.       Are Wills required to be registered?

 Answer:            They are not until they are presented for probate.

 

24.       How do I alter or revoke my Will?

 Answer:            A Will can be revoked by being destroyed (torn, shredded).  However, if the Will is not replaced, your estate may be subject to the Laws of Intestacy.  A Will can be changed by a Codicil, and a Trust can be changed by an Amendment.  However, it should not be changed by handwritten or typewritten marks on the Will itself.  Frequently, such changes will make the Will or Trust inadmissible and raise questions regarding whether you intended to revoke or amend the document. 

If you wish to change or revoke your Will or Trust, please contact our office so that the change can be implemented properly.

 

25.       When is someone mentally incapacitated to make a Will?

 Answer:            To have capacity to make a Will, a person needs to know the nature and extent of their holdings, the natural objects of their bounty, and be able to form a rational plan of disposition.  (Who do they want to leave the money to?) (Who are their family members?) (What do they own?)

 

26.       Is a Will executed in another state valid in this state?

 Answer:            Generally, a Will which is valid in the state where it is signed is valid in the state to which you may move.

 

27.       What are the requirements to execute a valid Will?

 Answer:            To have a valid Will, someone needs to be over 18 years of age and mentally competent.  It needs to be in writing and must be signed in front of two witnesses.  Good practice is to have an acknowledgment signed by a Notary Public so that the Will is self proving in almost any state.

 

28.       Are handwritten or oral Wills valid?

 Answer:            Oral Wills are not valid, but handwritten Wills are valid if certain requirements are satisfied.  However, handwritten Wills cause a tremendous amount of probate litigation.  The cost of having a Will professionally prepared is very small compared to the cost of the probate litigation which often results from a handwritten Will.

 

29.       Can I make a Will in this state if I own property in another state?

 Answer:            You should make your Will in the state in which you have your principal residence.  If you own real estate in another state, you should consider a Living Trust so that you can avoid probate in the other state.

 

30.       I have heard that a Living (inter vivos) Trust is a good way to avoid the costs of probate and inheritance taxes.  Is it a good idea?

 Answer:            Probate costs are usually minimal.  A Living Trust does not save inheritance taxes or estate taxes.  A Living Trust is a good idea if:

(a)        You own real estate outside the Colorado.

(b)        You want to keep something private.

(c)        You may move to another state where probate is more complex.

(d)        You may acquire real estate in another state such as a vacation home or retirement home.

(e)        The size of your estate is substantial or complex.

 

31.       When do I have to file a gift tax return?

 Answer:            Everyone can give everybody in the world $11,000 per person per year without filing a federal gift tax return. Gifts in excess of this amount require filing of a federal gift tax return.  The excess over the $11,000 annual exclusion gift is subtracted from the Credit Shelter Amount available to persons for transfers made during the lifetime or upon death.  For calendar year 2002, the amount is $1,000,000.

 Example:  If you made a $50,000 gift to one of your children, you would file a gift tax return showing that you had made a $50,000 gift and that $11,000 was to be considered your annual gift and the other $39,000 was to be subtracted from your $1,00,000 exemption equivalent.  If you made no more such gifts during your lifetime, the $39,000 taxable gift would reduce your exemption amount.  If you are married, you can elect to use your spouses $11,000 annual exclusion.  A gift tax return must be filed to make the election to split gifts between spouses.

 

32.       I want my child to take care of my affairs when I am no longer able to do so.  How can I make sure she will be permitted to act for me?

 Answer:            A Durable Power of Attorney (POA) is the best way to do this.  Just creating joint accounts is not always a good choice because of possible tax liabilities and for Medicaid planning.  There are many things an agent may need to do other than deal with bank accounts.

 

33.       What is a Durable Power of Attorney?

 Answer:            It is a legal document whereby you give another person (called an Agent) the legal authority to manage your affairs.  A Durable Power of Attorney means that the POA remains in effect if you become disabled.

 

34.       How do I revoke a Power of Attorney?

 Answer:            You can revoke a POA by giving written notice to your Agent.  It is also a good idea to give notice to any banks, brokerages or other places where the Agent  conducted normal business on your behalf.  If a POA is durable and you become incompetent, only the court can revoke the POA and then only for good cause.

 

35.       Can my Agent under my POA be forced to act, even if he or she does not want to do so?

 Answer:            No.  Make sure to appoint alternate Agents.  The alternate agent also serves if the primary agent is unable to do so.

 

36.       If I have given someone a Durable Power of Attorney, will it be necessary to have a guardianship proceeding if I become incapacitated?

 Answer:            Usually the power of attorney makes a guardianship unnecessary.

 

37.       lf I give a POA to another, do I give up the right to manage my own affairs?

 Answer:            No.  You retain full control over your affairs. You can allow your Agent to act if you so choose.  You can revoke those rights at any time.  You can also have a springing power of attorney that does not become effective until a physician certifies that you are incapacitated.

 

38.       Is a Power of Attorney for health care valid?

 Answer:            Yes, they are valid if they are signed in front of either two witnesses and/or a Notary Public.  Because of the limitations of a Living Will, the health care power of attorney is a much more flexible document to make sure your health care decisions are followed.  Under Colorado law, a living will supercedes the terms of a health care power of attorney.