A pour-over will is used with estates that hold the bulk of their property in trust, and it has three important functions. While creating a trust will transfer property to beneficiaries and allow it to avoid probate, you will still need a will for the following:

1. Naming the Executor of your estate.

A pour-over will names an Executor and should also name at least one backup Executor, should the primary choice be unwilling or unable to serve. If you have a properly drafted and funded trust, your Executor is not going to be tasked as much as the Executor of an estate using primarily a will to transfer property, since property within a Trust avoids probate. But an Executor will still have duties, such as filing a tax return for the estate, paying debts and expenses and other administrative tasks.

2. Naming the Guardian for minor children.

Naming a Guardian for your children is one of the primary reasons parents create a will, and this task cannot be handled by creating a trust. As with the Executor, you should also name at least one backup should your original choice not be able to take on the responsibility.

3. Handling the property not currently owned by the trust.

A pour-over will normally directs an Executor to transfer all property into the Trust that is not held within the trust. This will allow the Trust to act as the main document to distribute your property.

Usually, the main assets and property of an estate are held by the Trust, while a pour-over will would cover any smaller property that was not transferred when the Trust was created. If the property covered by the pour-over will is low enough in value, that property may still avoid a lengthy probate proceeding.

If you are considering creating a trust or drafting a will, work with an estate planning attorney to not only ensure that these documents coordinate with each other, but that they meet your family’s specific needs.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

We often hear the terms inheritance taxes and estate taxes used interchangeably, but these are actually two different taxes that can occur when property transfers upon the death of an individual. The most significan difference between inheritance and estate taxes is in how they are assessed – estate taxes are levied upon the value of the entire estate of the deceased, while inheritance taxes are levied only on each beneficiary or heir’s portion of the estate.

Estate Taxes

The term estate tax refers to the federal estate tax assessed on the value of the entire estate. The federal estate tax is front and center in the news for 2010, as it was technically repealed for this year. The year 2011 will see the federal estate tax return with a vengeance, for without Congressional action, estates may be taxed up to a rate of 55%. This tax is paid by the estate, specifically by the Executor of the estate during the probate process, which is the legal process that administers an estate.

Inheritance Taxes

An inheritance tax is assessed only on the value of the beneficiary’s share of the estate, and that beneficiary is normally responsible for that tax burden. The inheritance tax will come into play if the deceased, any beneficiary or any property is located in a state that has an inheritance tax.

There are only ten states in the country that still collect inheritance taxes, they are:

• Indiana;
• Iowa;
• Kentucky;
• Maryland;
• Nebraska;
• New Jersey;
• Oregon;
• Pennsylvania; and
• Tennessee.

While property that is passed to a surviving spouse normally is not taxed, there are several estate planning tools that address both estate and inheritance taxes. As the laws vary by state, it’s important to contact a Colorado estate planning attorney for drafting a will, creating a trust or any aspect of creating an estate plan.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

A recent study in the New England Journal of Medicine found that one in four senior citizens will require someone else to make decisions for them at the end of their lives. How do you ensure that these decisions reflect your wishes, particularly when it comes to medical care?

Estate planning, specifically the drafting of advance medical directives, allows you to keep some control of your medical care when you are unable to express your wishes. Advance medical directives dictate your treatment preferences and give you the opportunity to designate a decision-maker in the event that you become unable to make these decisions on your own behalf.

Two of the most often used advance medical directives used in estate planning are:

• A living will: A living will specifies the types of medical treatments and life-sustaining measures that you do and do not want, for instance, mechanical breathing devices such as respirators or ventilators, feeding tubes or resuscitation.
• A medical power of attorney: A medical power of attorney allows you to name a person to make medical decisions for you if you are unable to communicate them on your own. The person you name to make these decisions is called your health care proxy or agent, and they are to act in your best interests, so it’s important to choose this person carefully.

Advance directives are the legal documents within an estate plan that allow you to convey your decisions regarding end-of-life care and health care ahead of time. Not only do advance medical directives provide a way for you to communicate your wishes to loved ones and health care professionals, but they ease the burden of making these decisions on your family, knowing that your wishes are being carried out.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

You always hope your loved ones will understand and abide by your final wishes, yet the stressful time after losing a loved one can bring hurt feelings and misunderstandings when a will is read. Family members who feel they have inadvertently been overlooked in the will or feel that someone else received more than their fair share of an estate, as well as blended family issues, are often the motivating factors. These issues in and of themselves are not legal, valid reasons for a will contest, but a valid reason for contesting a will often centers around the capacity of the person creating the will.

Lack of Capacity

In order to create a will, a person must have the mental capacity to do so. They must be able to understand the following:

• That a will is being made
• The approximate value and makeup of their assets
• Recognition or identification of close relatives and friends
• The logical distribution of their property according to the first three elements above.

The legal term for this capacity is called ‘testamentary capacity.’

Adults are presumed to have the capacity to make a will, and contesting a will with the lack of capacity reasoning typically revolves around charges that the testator, the term used for the person making the will, lacked the mental capacity to make a will due to dementia, senility or insanity.

Using an experienced estate planning attorney to draft a will can help avoid will contests later on. Often, an estate planning lawyer will ask a series of questions of the testator before they execute the will. These questions often include:

• The testator’s knowledge of the extent of their estate;
• The names and ages of their heirs; and
• The effects of the will and significance of the will.

In the event of a later will contest based on capacity, the estate planning attorney can be called to testify and confirm that the testator had the required capacity to execute the will.

There are several other estate planning tools that may be used to establish capacity when drafting a will, and an estate planning lawyer can work with you to avoid issues that can arise upon your passing.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

An Irrevocable Life Insurance Trust is an irrevocable trust that holds life insurance, and as an irrevocable trust it keeps the proceeds of the policy out of the estate of the grantor. First, let’s review the purpose of a trust, which is an estate planning tool that sets up an entity to hold and manage property or assets. The person setting up a trust is known as a grantor or settlor, the person managing the trust is called a trustee, while the person(s) benefitting from the trust is known as the beneficiary.

With a life insurance trust, the trust is set up specifically to hold and manage the life insurance policy. Normally, when an insured owns a life insurance policy, the proceeds of the policy will be subject to estate tax when he dies; but if the owner of the policy transfers ownership to an irrevocable life insurance trust that follows specific guidelines, the proceeds are free of the estate tax.

There are limitations to an irrevocable life insurance trust, such as:

• An insured person may not serve as the trustee of a life insurance trust;
• A beneficiary may not be changed on the policy;
• The insured may not borrow against the policy. If the trust allows him to borrow against the policy, he will be deemed as benefiting from the policy, and thus the owner of the policy, which then subjects it to estate tax and defeats the purpose of the trust; and
• Once you set up and fund the trust, you cannot get the policy back. If you become uninsurable, you will be committed to this trust as your only life insurance.

While there are several drawbacks, there are also several estate planning benefits, such as:

• A properly structured irrevocable life insurance trust provides liquidity. In an estate that holds an abundance of non-liquid assets, such as real estate, a Life Insurance Trust can help pay a large estate tax bill without selling off assets;
• Beneficiaries may be protected from future creditors by including a spendthrift provision in the trust document and granting discretion to the trustee in making distributions; and
• Premiums on the policy can be paid with gifts to the life insurance trust from the insured and, if the trust is properly drafted, the gifts may qualify for the IRS exclusion from gift tax liability.

Trusts are a powerful estate planning tool, and an estate planning lawyer can help you determine if an irrevocable life insurance trust meets your needs.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

Guardianship may enter the life of a senior citizen when they are found to be lacking the ability, or capacity as it is known in legal terminology, to manage their own affairs. A court may be needed to intervene and appoint a Guardian to serve as a substitute decision maker for a person.

There are two types of guardians that may be appointed by a court to make decisions:

• A guardian of the person who has the authority to make personal decisions for the protected person, including decisions regarding health care and living situations; and
• A guardian of the estate who has the authority to manage the protected person’s money and other property.

One person may be appointed as both the guardian of the person and the guardian of the estate.

A guardianship attorney is able to assist in many aspects of the guardianship process, which is a paperwork intensive, court process. Their duties can include:

• Initiating hearings to determine competence;
• Setting up trusts for an adult family member with special needs;
• Annual reporting and accounting of assets and expenses; and
• Being the guardian of the protected person.

Guardianships are often the last choice in helping a loved one who may be impaired due to age or illness. In fact, many estate planning tools are set up to avoid the need for guardianship proceedings. But if the time does come for this intervention, a guardianship attorney helps guide families through protective proceedings.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

It is estimated that approximately 7 million Americans care for a senior relative long distance. Not only do they face the emotional burdens of trying to care for a family member who lives elsewhere, but they face financial burdens as well. Some tips for dealing with this challenge:

1. Assess your parents’ needs.

Observe your parents and their environment when you visit. Look for unopened bills and letters on the counter, or other things that are out of the ordinary, such as food in the refrigerator that is well past the expiration date. Assess your parent’s mobility as well.

2. Look for changes from normal patterns.

You can also enlist the support of friends and neighbors who can contact you if they notice anything unusual.

3. Talk with your parents.

If you think that your parents could benefit from additional assistance, talk with them in a way that does not threaten their independence. You may be able to put together a plan that consists of family and friends willing to help. You might be able to arrange for grocery deliveries from the store or for someone to periodically clean the house. Make sure they know you want to help them stay in their home and independent.

4. Have an incapacity plan in place.

If your parents need assistance managing their financial affairs, a durable power of attorney can be used to appoint someone to take over these tasks, although many institutions require you to sign a new POA annually. A living trust is another estate planning tool that is used to manage property in the event of incapacitation.

5. Hire help.

If your parents require more assistance to be able to stay in their home, then you may have to hire in home caregivers to provide additional help. Home health aides may be needed if medical monitoring is appropriate, while personal care aides can assist with cooking, light housekeeping, and bathing.

An elder law attorney is well versed in the challenges faced by senior citizens and their families. Having plans in place is your best bet to allow your loved ones to maintain their dignity, as well as lessening the burden on their caregivers.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

Many people think that estate planning is for the elderly and wealthy. You may feel a plan is not necessary because you are too young or you do not have enough assets. But any adult can benefit from estate planning. While you may not need to create a trust or even avoid probate, there are plenty of reasons to being estate planning now:

1. Loss of Capacity. What if you become incapacitated and unable to manage your own affairs? Without a plan, a court will select a person to manage your affairs through intrusive and expensive guardianship or conservatorship proceedings. With a plan, you can use a durable power of attorney to make that choice on your own.
2. Minor Children. A will is the cornerstone of estate planning, and it names a guardian for minor children. Without a will, a Probate Court will make the decision.
3. Dying Without a Will. Without estate planning, your assets will pass to your heirs according to your state’s intestate laws. Your family members will receive your assets without your input. With a plan, you decide who gets your assets.
4. Blended Families. What if your family is the result of multiple marriages? Without a plan, children from different marriages may not be treated as you would want, in fact your own children may be disinherited. With a plan, you determine what goes to your current spouse and to any children from a prior marriage.
5. Keeping Assets in the Family. Without a plan, your child’s spouse may wind up with your money if your child dies prematurely. If your child divorces his or her current spouse, many of your assets could go to that spouse. With a plan, you can set up a trust that ensures that your assets will stay in your family and pass to your grandchildren.
6. Financial Security. Will your spouse and children be able to survive financially without you? Without a plan, and an income replacement, your family may be unable to maintain its current standard of living. With a plan, estate planning tools such as life insurance can mean that your family will enjoy financial security.
7. Retirement Accounts. Do you have a retirement account? Without a plan, the designated beneficiary of your retirement account funds may not reflect your current wishes. With a plan, you can choose the beneficiary and an estate planning attorney can make sure it coordinates with all aspects within your estate plan.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

You often come across the terms ‘fiduciary’ and ‘fiduciary duties’ in the course of estate planning – but do you know exactly what these terms mean?

Fiduciary

A fiduciary is an individual, a business or even an association that holds assets or power for another party with the legal authority and duty to make decisions regarding finances and matters on their behalf. A fiduciary is expected to act with good faith and honesty and is normally chosen with the premise that they have more knowledge and expertise about the particular matters being handled. Typical fiduciaries that are encountered are:

• Attorneys;
• Financial advisors;
• Real estate agents;
• Bankers;
• Stockbrokers;
• Estate executors; and
• Guardians.

A fiduciary is always expected to act in the best interest of the person to whom they are providing services or care.

Fiduciary Duties

A fiduciary duty is an obligation to act in the best interest of another party, and as such, a fiduciary is held to a higher standard of both trust and conduct than a ‘regular’ person. While it seems that a fiduciary relationship is based primarily on trust between the two parties, there is also a legal obligation involved when a relationship involves trust, confidence and reliance on the fiduciaries’ expertise. In fact, in a fiduciary relationship, laws forbid the fiduciary from acting in any adverse or contrary manner to the interests of the client, or from acting for their own benefit.

Certain relationships in the estate planning process are regarded as fiduciary, these include:

• Attorney and client;
• Trustee and beneficiary;
• Executors and the heirs or beneficiaries of a decedent’s estate; and
• Conservators and the protected person.

The term fiduciary comes from the Latin term ‘fiducia’, which means trust. Fiduciary duties not only involve trust, but they are taken further to an obligation that is taken very seriously not only by estate planning attorneys, but by many in the legal, business and financial sectors.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.

Choosing an Executor to handle your estate is difficult, it is tempting to name a spouse or family member – but do you know the responsibilities and duties of an Executor?

An Executor (known in Colorado as a Personal Representative) is named within a will to administer an estate, and they will be tasked with several responsibilities during the probate process, which is the legal process that takes place in Probate Court that handles the administration of a deceased’s estate. So what will the Executor’s duties be? There is a long list, but the basics include:

• Compiling an inventory of assets and bills;
• Opening a bank account and getting creditors paid;
• Obtaining a federal tax identification number for the estate and preparing the estate’s tax return;
• Ensuring all legal paperwork is filed correctly and according to state deadlines;
• Locating potential heirs, beneficiaries and creditors; and
• Distributing the assets of the estate in accordance with the terms of the will.

This process may take months, or even years to complete, and unfortunately, the process also coincides with a time of grief for loved ones. But an Executor does not have to do this alone, a Probate Attorney is able to assist them with the various administrative and legal tasks that take place in probate. In fact, a probate attorney may perform nearly all of the functions of the executor, although the Executor may still have to sign off on court documents, and the fees for the Probate Attorney can be paid from the estate.

Choosing an Executor who can handle these tasks is going to be difficult, and it is best to discuss your choice with the person you choose. It is also important to give a second choice within your will, should the first choice be unwilling or unable to serve in that capacity.

Executor duties can be time consuming and difficult, make sure to speak with an estate planning attorney to discuss estate administration options.

The Hammond Law Group is a member of the American Academy of Estate Planning Attorneys.