There are many legal strategies involved in estate planning, including wills, revocable living trusts, irrevocable trusts, durable powers of attorney, and health care documents. New clients often say that they do not have an estate plan. Most people are surprised to learn that they actually do have a plan. In the absence of legal planning otherwise, their estate will be distributed after death according to Colorado's laws of intestacy. Of course, this may not be the plan they would have chosen. A properly drafted estate plan will replace the terms of the State’s estate plan with your own.
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Your last will and testament is just one part of a comprehensive estate plan. If a person dies without a Will they are said to have died "intestate" and state laws will determine how and to whom the person's assets will be distributed. Some things you should know about wills:
Trusts: Revocable Living Trusts, Irrevocable Trusts, Testamentary Trusts, Special Needs Trusts, etc.
Trusts come in many "flavors": they can be simple or complex, and serve a variety of legal, personal, investment or tax planning purposes. At the most basic level, a trust is a legal entity with at least three parties involved: the trust-maker (the “Grantor”), the trustee (trust manager), and the trust beneficiary. Oftentimes, all three parties are represented by one person or a married couple. In the case of a revocable living trust, for example, a person may create a trust (the trust-maker) and name themselves the current trustees (trust managers) who manage the trust assets for their own benefit (trust beneficiary).
Depending on the situation, there may be many advantages to establishing a trust, including avoiding probate court. In most cases, assets owned in a revocable living trust will pass to the trust beneficiaries (or heirs) immediately upon the death of the trust-maker(s) with no probate required. Certain trusts also may result in tax advantages both for the trust-maker and the beneficiary. Or they may be used to protect property from creditors, or simply to provide for someone else to manage and invest property for the trust-maker(s) and the named beneficiaries. If well drafted, another advantage of trusts is their continuing effectiveness even if the trust-maker dies or becomes incapacitated.
A power of attorney is a legal document giving another person (the attorney-in-fact) the legal right (powers) to do certain things for you. What those powers are depends on the terms of the document. A power of attorney may be very broad or very limited and specific. All powers of attorney terminate upon the death of the maker. When the intent is to designate a back-up decision-maker in the event of incapacity, then a durable power of attorney should be used. Durable Powers of Attorney should be frequently updated because banks and other financial institutions may hesitate to honor a power of attorney that is more than a year old. In Colorado, a “Statutory Durable Power of Attorney” is the most common tool used to designate a person to manage your finances and property in the event of inability or incapacity.
Similar to a general power of attorney described above, a Medical Durable Power of Attorney gives another person (the medical agent) the powers to make medical decisions for you. The Medical Durable Power of Attorney gives your back-up decision-maker broad authority to make all care decisions for you, including choosing medical providers, selecting a medical or long term care facility, consenting to medical care and procedures, authorizing pain relief, and more.
Medical Durable Powers of Attorney and Advance Directives work together to both designate a decision-maker and provide the decision-maker with guidance of your particular medical wishes.
An advance directive memorializes your personal choices for end-of-life medical care, procedures and interventions. This document can either be a mandate for your doctors (requiring certain procedures be taken or withheld at the end of your life if you cannot communicate), or it can be your preferences (leaving the final decision to your agent under a Medical Durable Power of Attorney). This document is powerful in that it states your wishes and can alleviate the guilt or emotional stress of your Medical Agent.