ESTATE PLANNINGPlan For Today, Tomorrow, And 20 Years From Now

If you don’t have a good estate plan and estate planning documents, then Uncle Sam or some other unintended beneficiary could be the happiest when you die. Estate planning is a way you may designate who will receive your estate, avoid unnecessary taxes and expense, as well as protect assets for your intended beneficiaries if appropriate trusts are established. Proper estate planning may save your family money in court costs and family fighting.

About Estate Planning

Estate planning does not have to cost a fortune and it puts you in control of the division of assets, providing control from the grave for the disposition of your assets, besides saving dollars that you want to go to your family. The most important part of estate planning may be the creation of wills and estates or a living trust. If you die intestate, i.e. without a will, your state (and the IRS) have a plan on how to dispose of your property. The state’s scheme uses blood relationships to determine who gets the assets of the estate, and their estate planning may not be in line with your plans. While you might have, for example, a specific person in mind for a treasured item or amount of money you know they’d love and cherish, the state’s plan might give it to someone else entirely. Estate planning solves this. Your state’s plan could pass your estate to unintended family members and bypass those perhaps more deserving.

Also, if you have dependent children, proper estate planning will allow you to select your chosen guardians for them if something should happen to you and your spouse. It will also allow you to select the person who will manage your children’s money until they reach a certain age. You also name an executor (or executrix if female) in your will, or trustee in your living trust, as part of the estate planning procedure. This person is in charge of distributing the property. It is a best practice to name an alternate in the event that the primary person is unable to do the job. You can use a spouse for this or a trusted child (if over the age of majority). You may also change any part of your will or trust, including your designated person, at any time during your lifetime.

Estate Planning, Where to start

For those starting on the road to estate planning, you’ll need an estate planning checklist. The first item on the list is a listing of all your assets. You need to identify the type of ownership for estate planning of all the assets on the list. For married couples, for instance, you can own property in joint tenancy with rights of survivorship (JTWROS). Here, the joint owner receives the property when you pass. Most married people own their homes and other large items together this way. Another type of joint ownership for married couples is tenancy by the entirety. Not all states allow this type of ownership. The final type of joint ownership is tenancy in common where each person owns a specific percentage of the property and can sell their percentage. A married couple might use this form if one person owned a greater interest in a particular property. Holding property in some kind of joint tenancy between married couples is acceptable estate planning in many cases, but is almost never acceptable in other cases. Good estate planning tells us that parents should almost never hold property as joint tenant with a son or daughter because that son or daughter’s asset protection problems (e.g. a divorce or lawsuit) can come back to haunt the parent. A divorcing son in law may claim that the joint tenancy property with the daughter is really part of the marital estate, or a litigant may make a claim on the parent’s assets.

Of course, for all property, you need to keep track of the owner and all beneficiaries of each property in your estate planning. List all the life insurance policies, for example, on your life or those you own. You also need to list the beneficiary of the policies for your estate planning checklist, the cash value, face value and ownership of each policy. (Since life insurance owned by you will become a part of your estate, life insurance can end up becoming estate taxed). List all other assets you own such as real property, automobiles, personal property, antiques, bank products such as checking accounts, CDs or savings accounts, brokerage accounts and other liquid assets. Again, if a joint owner is your child or a person other than your spouse, review first with an attorney about removing that person off the account, for the estate planning related reasons stated above. (It is important to consult an attorney due to tax and other legal considerations before doing the removal). Last, you can use a POD designation for bank products, meaning payable upon death or TOD for investment accounts, meaning transfer upon death, to transfer assets at death. For smaller estates, this could be a useful way to transfer your property at death, but does not provide asset protection for your beneficiaries and in some cases you can end up disinheriting certain relatives such as grandchildren (click here for immediate free estate planning consultation). One advantage, however, to PODs and TODs is that there is no ownership to the beneficiary until you die, so a child’s divorce or other asset protection problems cannot make a claim on your assets. You can also change the designation at any time. This is a good estate planning technique. The benefit of using these designations is that the asset doesn’t pass through your estate, meaning it doesn’t go through probate and releases immediately to the POD or TOD. Don’t forget to list the name of the institution that holds the asset and the account number.

Estate Planning, Checklist

Additional items to list on your estate planning checklist are pension plans, annuities, IRAs and other retirement plans. While these items aren’t included in your will unless you name your estate as your beneficiary, they are part of your estate and will increase the value of your estate. With these types of accounts you name a beneficiary. Unlike probating an asset, there is usually little delay in the recipient receiving the asset.

The Living Trust

Probate is the process of going to court and obtaining the court’s blessing on transferring your property to your beneficiaries. With a probate comes a possible public court record of assets and beneficiaries. Many people don’t want to go through that process and instead of a will, do a living trust, an important element of estate planning. A living trust may also be known as a revocable trust or revocable living trust. A living trust is like a will except that property titled in the trust avoids the probate process. While you are alive, you may change the terms of the trust and who gets your estate. You pay no additional taxes with a trust nor file any additional tax returns. With a properly funded living trust, asset transfers to your beneficiaries are private and out of public view. No probate is involved. As a part of estate planning, like a will, trusts may also be used to minimize federal and state estate taxes, but unlike a will may avoid probate. Often people with special needs children use trusts to make certain that there is adequate money available for their benefit. If your adult child is a special needs child, make certain that you work closely with an attorney so that your gift doesn’t make them ineligible for Medicaid or other benefits necessary for their care. One reason for listing all the items on your estate planning checklist and considering the estate planning and trusts is to avoid unnecessary estate tax. Estate tax or state inheritance tax is a portion of the money, after certain exclusions, subject to taxation. While the federal exclusion is quite high, currently $5 million per person, many states have much lower limits. The federal estate tax includes life insurance policies but with planning life insurance can be removed from the estate with the use of a special kind of trust such as an irrevocable life insurance trust.


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    Please note: Our law firm is located in Denver, Colorado. James Morgan, attorney, also has a Masters in Tax Law from Denver University and is a Certified Financial Planner.
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