Phone: (719) 471-9410
University of Colorado at Colorado Springs (B.A., 1973)
University of Denver (J.D., 1976)
A fundamental question which most people must decide in the course of estate planning is whether they should create living trusts or rely upon wills. Generally, simpler estate planning situations are better addressed in wills. Trusts are more expensive to prepare, and they involve transfers of assets to the trusts which give rise to more complications and expenses. We generally discourage creation of trusts when we are dealing with estate planning for modest estates of “traditional families” – that is, married couples with children of a single marriage, when both spouses intend to make the same gifts to the same people after the death of the last surviving spouse.
The main exception to this arrangement for “traditional families” arises when the estate plan involves larger, potentially taxable estates, or estates that involve complex business interests. Federal estate tax laws currently exempt estates of less than about $5,000,000 in assets (about $10,000,000 for married couples), but for estates of more than about $3,000,000 there could be potential estate tax issues and trusts may be appropriate to address tax concerns. The main tax advantage of trusts for large estates is that when each spouse holds about half of the total assets in a separate trust, the family can avoid concentration of wealth in the surviving spouse which could trigger estate tax liability.
Estate planning counselors also need to be aware of state inheritance tax issues where assets are located in different jurisdictions. These taxes may also be minimized by dividing assets between the spouses’ trusts. Estates with business interests can be very complicated and are usually dealt with better using detailed trust arrangements which are established when the trust is created, to avoid postponing such arrangements until a probate estate is created pursuant to the terms of a will.
Many families today are more complicated that the “traditional family.” For families whose estates are not large enough to give rise to estate tax concerns, trusts may still be important to address the interests of stepchildren and other relatives, if the spouses want to divide assets between different sets of offspring or different families. One major problem with wills is that, even if the wills provide for different distributions to different people, the wills can be changed at any time. There is always danger of undue influence upon or instability of the surviving spouse which might affect a decision to tear up a will and change distribution arrangements. The only way to assure people that their separate arrangements will be carried out is to place assets into separate trusts with which address the different distribution plans among stepchildren or other relatives. These trusts will be enforceable when each spouse dies, and everyone will be protected.
Here are some other, and I believe less important, considerations in making the choice between wills and trusts. (1) Trust arrangements are confidential, and do not require public filings and judicial intervention in probate courts. (2) Trusts are often used for no other reason than to “avoid probate.” This is usually not a sufficient justification, unless one resides in a jurisdiction where probate is extremely expensive. In Colorado, where we practice, probate for uncomplicated estates is not very costly. (3) Trusts can be modified without a cumbersome procedure. When wills are changed, a codicil must be prepared and executed before witnesses. This can be inconvenient and expensive. Trusts can usually be amended with a written and notarized statement.
There are many other decisions which must be addressed in preparing a complete estate plan. Questions about powers of attorney, advance directives (living wills), beneficiary deeds, and other kinds of property transfers made in the course of estate planning, will be addressed in future installments which will appear in this web site.
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