Commentary and Analysis Regarding Colorado Law

After you sign your will, it may be tempting to put it in a safe place and forget about it.  However, it’s wise to revisit your will, and your entire estate plan, from time-to-time.  The following are just some of the reasons why updates to your estate plan may be appropriate.

1. Change in Family Circumstances. There can be a variety of changes in family circumstances that warrant revisiting your estate plan, such as births, deaths, marriage and divorce. Even if there is not a dramatic change in family circumstances, you may have named certain individuals as your fiduciaries (such as agent under your power of attorney or personal representative under your will), and as time passes these individuals get older, possibly move away, or may no longer be the best choice to serve in these roles. 
2. Children Reaching Adulthood. If you sign a will while your children are young, it’s important to revisit your planning when your children reach adulthood. For example, if your plan calls for assets to be held in trust, it may now be appropriate to consider leaving the assets outright to your children.  Conversely, if your assets will pass outright to your children under your current plan, you may determine that the assets should instead be held in trust.  You may want to leave assets in trust due to concerns that your children will not prudently manage their inheritance, or you may just want to take advantage of the protections offered by trusts.  If properly structured, leaving assets in trust for a child can provide some protection against the child’s creditors and some protection against claims by the child’s spouse.
3. Financial Changes. A well-considered estate plan will be crafted with your assets in mind. The overall value of your assets is important, as well as the types of assets that you have.  As your assets change, it may be advisable to also make adjustments to your estate plan.  For example, if your assets increase in value then it may be advantageous for your estate plan to include planning to reduce or eliminate estate tax at your death.  On the other hand, if your assets go down in value, you may be able to simplify your estate plan.  When appropriate, simplifying your estate plan can reduce costs that would be incurred later to implement a plan that no longer fits your needs.
4. Updating Beneficiary Designations.  It’s important to periodically check your beneficiary designations to make sure they coordinate with your estate plan.  When you signed your will, you hopefully checked the beneficiary designations for your assets and made any necessary updates.  As time goes by, and new assets are acquired, you may forget to name beneficiaries consistent with your estate plan.
5. Law Changes. The law is constantly evolving. Over the past decade, there have been significant changes to federal estate tax law and also to state law.  Your estate plan may not be the optimal plan for you in light of these changes.  For example, the laws applicable to how retirement assets are distributed following death have changed significantly since 2019. Also, the estate tax laws have changed over the years.  Your will may include estate tax planning as a cornerstone of the plan.  Depending upon the value of your estate, it may make sense to eliminate that tax planning and thereby simplify your plan and as a result, simplify administration of your estate.
6. Move to Another State. Most states recognize a will as valid if it was validly executed in another state. However, a will executed in one state may not contain a plan that is optimal in another state.  Accordingly, it may be appropriate to update all or some of your estate planning documents after you make a move. 

Signing a will is a good step in leaving a thoughtful estate plan for your family.  To ensure that your property passes as you intend, and as smoothly as possible, you should dust off your will, and other estate planning documents, at least every 3 to 5 years, and consider whether any updates are needed.  The estate planning attorneys at Lyons Gaddis can assist you in reviewing and updating your estate plan.

For many people, their retirement assets, such as IRAs and 401(k) Plans are their most valuable assets.  Therefore, it is particularly important to plan carefully for what will happen to these assets at death.  Doing so is tricky because most of these plans, with the exception of Roth IRAs and Roth 401(k) Plans, are subject to income tax as withdrawals are made from them.  Also, the rules regarding distributions from these plans are rigid.  The following are a few examples of issues to consider:

Surviving Spouse: When retirement assets are left to a surviving spouse, the surviving spouse has a variety of options.  One option is to rollover the retirement plan into the spouse’s own IRA.  The surviving spouse then has all the opportunities that the spouse would have if the assets had originally been contributed to the IRA by the surviving spouse.  The surviving spouse can withdraw all of the assets and also can leave the assets to whomever he or she chooses.  This may be appropriate in many cases, but not always.  For example, if each spouse has children from a prior marriage, they may want to leave the retirement plans held by the first spouse to die in trust for the surviving spouse so that he or she receives distributions from the plan during life, but the balance is designated to pass upon the surviving spouse’s death to the children of the first spouse to die.  The trust needs to be carefully crafted with the retirement asset rules in mind.

Gift and estate tax uncertainty is not new.  Over the past several years, we have seen the amount a person can leave free of estate tax utilizing their estate tax exclusion amount rise from $600,000 in 1997 to $11,580,000 in the year 2020, with several stops in between.  We have had one year of estate tax repeal, in 2010.  In 2012, we were on the brink of the estate tax exclusion amount dropping from $5,120,000 to $1,000,000, but the law was changed at the eleventh hour to prevent that from happening. 

Even the current law contains a provision that will cause the exclusion amount to drop to $5,000,000 plus an inflation adjustment in the year 2026 (resulting in an exclusion amount of approximately $6,000,000). 

Assuming a regime change in Washington, the Biden tax plan proposes monumental changes that will have a massive impact on how many individuals (this means you) have structured their estate plans and finances for decades. Some of the things that should be discussed NOW with your financial consultant:

Lyons Gaddis COVID-19 Alert

This Alert is one in a collection of articles created by Lyons Gaddis in our effort to get important information to our clients regarding the effect of the novel coronavirus (COVID-19) outbreak in the United States.  This Alert focuses on estate planning issues during the current crisis.

Lyons Gaddis COVID-19 Alert

This Alert is one in a collection of articles created by Lyons Gaddis in our effort to get important information to our clients regarding the effect of the novel coronavirus (COVID-19) outbreak in the United States.  This Alert focuses on the new procedures for remote notarization in Colorado.

Decanting and the Art of Change

What is in a name?  There was a time when irrevocable meant just that.  In Colorado (and at least 24 other states); however, an irrevocable trust can now be changed by decanting.  Decanting can describe the gradual pouring of a liquid, typically wine, from one container into another.  Recently, the term “decanting” has taken on a new meaning in the legal profession where it refers to a technique whereby assets are transferred (decanted) from one trust to another trust.  Decanting essentially allows modification of an otherwise irrevocable and unamendable trust.

Frank Lumpkin Jr. loved Georgia football.  As the story goes, one Saturday (over 50 years ago) Mr. Lumpkin walked through downtown Columbus, Georgia with his infant son.  He came upon an Auburn fan and the two ultimately came to blows, with Lumpkin clutching his son’s bassinet in his left hand while he swung at the Auburn fan with his right.

Mr. Lumpkin looked out for his two loves that day – his son and his Georgia Bulldogs.  Unfortunately, he later forgot to take care of his kids when he failed to mention his Georgia football season tickets in his will.  Now, his son, Frank Lumpkin, III, and his daughter, Julia Lumpkin, are embroiled in litigation over their parents’ estate, with ownership of the Georgia tickets as a major sticking point. 

Spot is my neighbor’s dog. There are few people Spot doesn’t want to bite. Because I fostered her as a rescue puppy, I am one of the lucky and very few humans that she loves unconditionally. If anything happened to Spot’s family, she would be welcomed into my home. She knows the way quite well. For a large number of the over 2.7 million animals euthanized in the U.S. every year, there is no home to go to when their owner (or “guardian” in Boulder) dies. Apparently we can partially thank Leona Helmsley, according to an article in the UMKC Law Review, for the establishment of enforceable Pet Trusts in Colorado and 37 other states. Leona left $12 million for the care of her dog, Trouble, in trust. In a legal sense, dogs and cats are personal property and are left to heirs or beneficiaries, who may or may not want to or be able to, care for a relative’s pet. It often takes weeks to resolve issues of personal property, but you can’t just store a pet with the silver until somebody makes a decision. A Pet Trust, however, can take immediate effect upon death to provide for your pet’s care.
Trusts are typically established with designated property for specific people. Some trusts are established for a particular purpose, such as a charitable trust. Pet Trusts are often called “honorary trusts.” This is because the pet can’t enforce the provisions of a trust to take them for a walk or to give a good scratch (although many pet owners might disagree). Colorado Revised Statute § 15-11-901, provides for an enforceable trust for the care of a designated domestic animal or pet and any of the offspring in gestation. It is interesting and unusual that this statute exempts a Pet Trust from the application of the rule against perpetuities (worthy of a separate explanation) and it also specifically allows extrinsic evidence to be admitted in the event a court has to interpret a Pet Trust and determine the intent of the person who transferred property into a trust for the pet’s care. There are several options available to provide for the future care of a pet, such as a simple provision in your will for a designated person to care for your pet and with a designated amount of money. You can also set up a separate trust with a formal trust document and designate property to fund it. You can also obtain a life insurance policy to fund the trust upon your death. So if you don’t have $12 million like Leona Helmsley or a neighbor who also loves your dog, like Spot does, you can still provide for the care of your pet when you’re gone.