Did you know that the laws of the state where real estate or tangible personal property is physically located will govern what happens to out of state property after you die? Most people assume the laws of the state where you live at the time of your death dictate the administration of your estate, but this is not the case. In fact, property located within another state is subjected to a secondary probate process called ancillary probate that takes place in that state.

Ancillary probate is the probate of property in a state other than the state where you live. If, at the time of your death, you own real estate or other property in your name alone, a probate will be necessary in each state where the property is owned and/or located. This is necessary to transfer the ownership of the property and clear the title, as well as advise creditors that may be located in the state.

One of the biggest drawbacks of ancillary probate is the added cost of having to administer more than one probate estate, including multiple court fees and accounting fees if the estate is extensive. Another drawback of ancillary probate can occur if a person dies without a valid Will. Because the intestacy laws, the laws which dictate the distribution of property for a deceased with no will, differ from state to state, it is possible that the heirs of an intestate estate could be different in the state of the primary probate proceeding versus the state of the ancillary probate proceeding.

The best way to minimize the impact of Probate is to work with an estate planning attorney. Spending money today to establish a valid Will, Trust, or other estate planning documents, as well as properly titling assets, can save your estate substantially when it is time for probate proceedings.

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

A living trust is an estate planning tool that is often used as a will substitute. The benefit is that, if done properly, a trust can keep your family completely out of the legal probate process when you pass away.

When you create a trust, you transfer assets such as a home, financial accounts and personal property to the trust. These assets are then managed for your benefit during your lifetime, and either continue to be held and managed or transferred to your beneficiaries when you die.

The creator of the trust, also called the grantor, normally names him or herself as the initial trustee in charge of managing the assets, which allows them to remain in control of the assets during their lifetime. For all practical purposes, nothing changes in the way the grantor manages or controls the assets after they are put in trust, often the only difference is the named owner.

A successor trustee is named within the trust document, usually a family member or friend but sometimes an institution such as a bank, law firm or trust company may take over Trustee duties. This successor trustee then will manage the trust assets for the benefit of the grantor if the grantor becomes disabled and for the named beneficiaries after the grantor dies.

Living trusts have become popular tools in estate planning over the past decade, but how do they benefit an estate plan?

1. Living trusts and avoiding probate

Trusts allow property to avoid probate when you die, as you do not own the property, the trust does. But this benefit may be somewhat overused, as only property held within your name will be subject to probate, not jointly owned property. Thus, the living trust may benefit estates that have a large amount of property in sole ownership.

2. Living trusts and establishing a blueprint

A living trust sets up a ‘blueprint’ of sorts for handling your property should you become incapacitated, as a successor Trustee can take over at that time. You are also able to specify your wishes within the trust documents, right down to how you would like money to be spent.

3. Living trusts and maintaining privacy

Living trusts are normally private documents, while wills become public record when filed in Probate Court, thus many prefer using a living trust as a will substitute to keep a family’s financial affairs private.

A Living Trust attorney can advise you whether it’s within the best interests of your estate plan to create a living trust, as well as other approaches that may benefit your particular needs.

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

Mention estate planning to anyone and most likely they will associate it with avoiding probate. Probate is the legal process of ‘settling’ the estate of a deceased person, and it can take months, even years, for more complex estates. In Colorado, the average estate spends 9-24 months in probate. There are actually three different types of probate proceedings in Colorado:

• A small estate proceeding for estates valued at under $50,000 that have no real property,
• An informal proceeding for uncontested estates, and
• A formal proceeding for contested estates and those with invalid or questionable wills.

So why would this process take a year or more? There are several tasks that take place during probate, and some of them require waiting times, legal notifications and property inventories. For example, in a typical probate proceeding, the following will take place:

• Opening a bank account for the estate so bills can be paid;
• Identifying the deceased’s creditors, locating them and notifying them of the death;
• Identifying heirs and beneficiaries, locating them and notifying them of the death;
• Identifying and inventorying the property that was owned by the deceased;
• Filing a final tax return for the estate and paying any estate taxes that may be owed;
• Paying off creditors;
• Distributing property to heirs according to the state law if there was no will or beneficiaries that are named within a will.

As you can see, these tasks will not only take time, but they are extremely detail oriented. There are a number of documents that must be filed with the probate court, many of which relate to the above tasks. The process is not horrible, but you must be patient. A probate attorney can help you through this process, as well as help you put together an estate plan that will allow your property to avoid probate if you would prefer.

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

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.

Creating a will allows you to distribute your property and possessions, creating an ethical will allows you to pass along much more to future generations – like your cherished memories, your dreams and your values. In today’s fast paced society, values and those one-of-a-kind family stories can be lost in the shuffle of the modern world. An ethical will allows you to pass along those treasured memories, and even hopes and dreams for future generations.

An ethical will certainly does not replace creating a legal will for your estate, in fact it is not a legally binding document, but it is gaining in popularity in estate planning. From handwritten notes to a biographical video, the ethical will can be used not only after passing, but many are choosing to share it during life.

There is no set format for an ethical will, it is as personal as the author, but some of the most popular forms are:

• Writing a family history;
• Autobiographies;
• A statement of family values and beliefs;
• Important lessons of life; and
• Hopes and dreams for future generations.

A valid will is going to take care of your possessions when you pass, the ethical will can offer the personal touch that will ease the pain of your passing on loved ones. Consider adding an ethical will to your estate planning tasks, it can offer valuable insight and life lessons to your family.

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

Creating a will is the cornerstone of estate planning – it distributes your property as well as names a guardian for your children and executor for your estate. If you take these five steps before meeting with an estate attorney and drafting a will, the process will be much smoother.

1. Evaluate your net worth

Make a list of your assets, including your home, vehicles, retirement plans, business interests, jewelry and other personal property. Your net worth also includes the death benefit on all of your life insurance policies. Even though life insurance does not have to pass through probate, it does count as part of your taxable estate. List your liabilities – including your mortgage, vehicle loans, credit card debt and any money owed. Your net worth is the total of your liabilities subtracted from the total value of your assets.

2. Choose a guardian for minor children

This step can stop many parents in their tracks, for it is difficult to imagine their children being raised by someone else. Talk with your selected guardians about your choice and make sure they are willing and able to take on the challenge of raising of your children. You should also name a backup choice should the original choice be unwilling or unable to take on the responsibility.

3. Choose an executor for your estate

An executor is responsible for carrying out your wishes and other administrative duties for your estate. The executor may be a spouse, family member or trusted friend, but it can also be an institution or professional. You should also choose a ‘backup’ executor should your first choice be unwilling or unable to carry out the duties.

4. Determine how you would like your property distributed, as well as any donations you would like to make.

Property is distributed to the named beneficiaries in a will when the debts of the estate are paid off.

5. Contact an estate planning attorney to sit down and determine the best way to carry out your wishes while addressing issues such as estate taxes and avoiding probate.

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.

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.