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May 10, 2003: Estate Planning Documents

This column is the first in a series of up to eight columns on estate planning documents, pitfalls, techniques, etc. The basic estate planning document in Colorado is a Will and there are only three types of Wills.

A standard Will is for an individual whose net worth is under $1,000,000 and whose beneficiaries can inherit directly without the need for a protective devise such as a trust. The cost for such a document is normally between $150 to $200. To do one, decide who should be the personal representative and how assets should be distributed.

Normally a family with minors or a beneficiary that needs protection such as a college student, a beneficiary with special needs, or a parent in a nursing home, selects a testamentary trust Will, which is a Will with a trust as part of the same document. This type of Will does not provide tax planning and normally runs between $250 to $300 for each Will.

A third kind of Will called a tax Will is for a couple whose combined net worth is above $1,000,000 and normally costs between $450 to $550 for each Will, even though these Wills could save hundreds of thousands of dollars in estate taxes.

Yes, the tax exemption amount will increase from $1,000,000 this year to $1.5 million next year and eventually estate taxes will be totally eliminated in 2010. But in 2011 estate taxes reappear with the exemption dropping back to $650,000 (some planners contend the amount will be $1,000,000 as it is this year).

It is possible to hand write a Will or buy a form, purchase a computer program, or even copy a neighbor's document, but for whatever reason (ego, aversion to spending money, hatred of lawyers, etc.) why risk jeopardizing your goals and wishes just to save a few dollars? I can share with you that often I not only have to repair these self-done Wills, but also have to witness families spending extra time and generating extra expense to straighten out estates.

If a person insists on doing his/her own Will, then the best money that can be spent is to pay an attorney to review and critique the document. The law has too many technicalities and life has too many variables to assume that what is written will stand up, especially if challenged.

An out-of-state Will, if properly executed in that state, is enforceable in Colorado and vice a versa. But each state does things a bit differently and also has certain provisions available that another state may not. Additionally, some Will clauses that are enforceable in one state will be invalid in another state as against public policy. Thus, for all of the foregoing reasons, after moving to a new state, the existing estate documents need to be reviewed. In Colorado, one example of a clause that would not be enforced is one that disinherits anyone challenging the validity of the Will.

You do not have to postpone seeing an attorney for fear of having to do a lot of work. Normally assets are not listed in the document because that would date the Will since items are continuously bought and sold. Anyway, being too specific as to assets mentioned in the Will is a pitfall. Do not be embarrassed if you have not done anything. A lawyer will be happy to help and will not be judgmental.

Even if a person writes a Will that is enforceable, often property ownership designed to plug into the Will is overlooked. Beneficiary and payable-on-death designations, along with joint tenancy, take priority over the Will. Thus, writing a Will also must include property ownership designed to make the overall plan work.

Yes, a living trust is an alternative to a Will in Colorado but is not mandatory as in many states. The next column will explain the advantages and disadvantages of doing a living trust as opposed to a Will.

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