This is the sixth in a series of brief articles that Moye White is sending to its clients and friends to provide practical advice about the opportunities and challenges presented by today's economy.
With the new year upon us, now is a great time to create or update your estate plan. Creating an estate plan is not just drafting a will to transfer your assets upon your death. There are a variety of tools to support you while you are living or to support your spouse, heirs and beneficiaries after your death.
- Disability. First, plan for the possibility that you could become disabled. A complete estate plan includes documents which can go into effect during life in the event you are unable to continue making decisions for yourself. A general durable power of attorney for financial matters and a medical durable power of attorney for healthcare identify agents to act on your behalf should you be unable to do so yourself. A living trust allows a successor trustee to begin acting seamlessly on your behalf. A “living will” directs medical personnel and family members regarding your wishes if you are being kept alive artificially. You also can leave instructions regarding organ donation.
- Appoint Trustworthy People. Documents such as powers of attorney, wills, and trusts appoint trustworthy people to be in charge upon your disability or death. The documents not only express your intent, but also grant powers and impose restrictions to enable these people to fulfill your intent. Your documents should be flexible and powerful enough for trustworthy appointees to manage unanticipated circumstances that might occur in the future. Planning without an advisor or relying on intestacy laws can hinder your appointee’s ability to manage your affairs, the result being the opposite of your wishes, or worse, conflicts that require a costly resolution by a court.
- Beneficiaries and Timing. An effective estate plan states your choices for beneficiaries and conditions of inheritance, including timetables for distribution of your assets. In Colorado, if not otherwise declared in a will or trust, minors have full access to an inheritance at 18 years of age.
- Coordinate Beneficiary Designations. Assets such as life insurance and retirement plans do not pass through a will or trust, or even the probate process. These assets pass via a beneficiary designation, so it is important to coordinate them with the rest of your estate plan.
- Business Succession Planning. If you have a business or are a partner, shareholder or investor in a business, knowing how your business will continue and how your interests may vest or pass requires business succession planning. Key employee incentives, buy-sell agreements, shareholders’ agreements, and life insurance are tools that can support your goals.
- Shelter Assets. Estate plans can also help to shelter assets from estate tax through balancing estates between spouses, creating a credit shelter trust, or other planning to avoid a generation-skipping transfer tax.
- Move Assets out of your Taxable Estate. In some cases, it may be beneficial to move assets out of your taxable estate. Creating an irrevocable life insurance trust not only removes life insurance proceeds from your estate but also can generate liquidity for the beneficiaries. A family limited partnership can transfer assets to multiple beneficiaries while continuing to provide for centralized management. Grantor retained annuity trusts can be used to shift asset appreciation to younger family members without using your lifetime gift tax exemption.
- Charitable Giving. You may want to leave a legacy through charitable giving. Proper planning can support your favorite charities and provide tax benefits to you now and still benefit your family later. Gifts specified in your estate planning documents will ensure that money is used according to your directions.
- Stay out of Court. A proper estate plan can also serve goals such as simplifying asset transfer and maintaining privacy. Likewise, they reduce the risk that your beneficiaries will end up in court. Many of the tools in an estate plan are completely amendable when circumstances change. Wills are revocable and small changes can be made through a codicil. Many trusts, likewise, can be amended or revoked.
- Peace of mind. Estate planning takes some thought and effort, but it is comforting to know your plan is in place. You give a gift to your survivors by setting up a way to implement your plans and by removing uncertainty about your intent. Many loved ones are comforted knowing that your wishes are being observed.
Finally, consider that the interest rates in January 2009 provide a great opportunity for making intra- family loans. The mid-term annual compounding applicable federal rate ranges from 2.06% to 3.62%.
From preparation of wills to complex business succession and estate plans, Moye White’s attorneys in the Estate, Trust, and Tax Group help clients plan for the future and realize goals for themselves and their families. We are happy to help.
For more information contact: Marilyn McWilliams or Scott Greiner at (303) 292-2900.
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Moye White LLP has prepared this bulletin to provide general information, however this bulletin does not provide legal advice and does not create an attorney-client relationship between the reader and Moye White. No legal or business decision should be based solely on the content of this bulletin.