Thursday Q&A: Estate Planning & Elder Law – June 25, 2020

Each week, Estate Planning and Elder Law attorney Bill Henry spends time educating the community about their estate planning options.

Estate Planning & Elder Law Q&A is dedicated to answering your questions. See what Coloradans asked on June 25, 2020. (A transcript of the event is available below.)

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Alright, Bill Henry here from Robinson and Henry, back with another Estate Planning Thursday, where I answer your questions on Estate Planning and Elder Law. So just have a few questions this week. But I thought I would start with kind of a common question I get, or at least I hear out there whenever we as estate planning attorneys talk about estate plan, I think we assume that everybody knows what the heck an estate plan is. So, let’s kind of talk about that briefly. So an estate plan, is really just a collection of documents or tools that you put together to accomplish your goals. And so in Colorado, just like in most states, the way that it works is that you more or less can do whatever you want in your estate plan, meaning you can do whatever you want in your will, give your property to whomever you want. You can decide who’s going to be in charge of your healthcare decisions and things like that. But if you don’t make your own decision, in other words, if you don’t put yourself estate plan together, then the government is going to make those decisions for you. But the law is really set up so you can make your own decisions. Now, what I always say, so what is an estate plan? What’s a core estate plan? Well, that would be, in my view, your will, so your last will and testament. So that’s one document and then you’re gonna have another document, a financial power of attorney. So that is who’s going to make financial decisions for me, if I can’t make my own, generally speaking. And then you’re gonna have a medical power of attorney. So who’s going to make my medical decisions for me, if I’m unable to do so. And then finally, in Colorado, we would add a living will, which is here, we call that an advanced directive for medical and surgical treatment, doesn’t really matter what you wanna call it. But basically it says, If I’m in a persistent vegetative state, do I wanna be on the feeding tube? Do I want artificial nutrition and hydration? So I would say that that in my view, kind of everyone needs at every age. Maybe if you’re just turned 18, you don’t need a will at this point. But pretty quickly, as people start to accumulate assets and of course, as they get married or they have children, then that need for the will becomes immediately apparent. And it really has nothing to do with how big your estate is or how much money you have. It really has to do with, what’s your family dynamics? And do you have any worldly possessions at all? But as you do, then that will becomes important. Likewise, as other documents we mentioned, we’ll have a question today, we’ll talk about a little bit more on powers of attorney but powers of attorney are used during life, not after we pass away. So, those are, would be if all of a sudden I was in a coma, then who is going to take care of me? In other words, who’s gonna make decisions for me, if I can’t make my own medical decisions, for example. So anyway, that’s kind of what an estate plan is. That’s become sort of a core estate plan and then from there, we add another document. So we may add on a beneficiary’s deed, if we’re just trying to avoid probate on a piece of property. Or of course, we could add a trust. So there’s lots of different ways to set up trusts and lots of different types of trusts. But that, you know, a lot of people do add trusts but in terms of what’s a core estate plan, at least those four documents. Again, that was the will, medical power of attorney, general durable power of attorney, a.k.a financial power of attorney, and then an advance directive. Alright, so let’s sort of get in there.

The bank won’t let me use the POA to get into the bank account after they died. What can I do?

So, what kind of led me to that whole discussion was our first question, which is, the bank won’t let me use my power of attorney to get into the account after, after this person died. So in other words, this question, the questioner was the agent under the power of attorney and so somebody else granted them the authority to act on their behalf and now that person died, so we call that the principal. But anyway, the person that signed the power of attorney that was probably a financial power of attorney, we assume, signed the power of attorney and said, okay, I want you to be my agent. I want you to take, be able to make decisions for me. So the question is, now that that principal the person that signed the power of attorney that granted the authority is is not alive, why is it that I can’t get into the bank account? Or why is the bank refusing to give me access to the account? Well, the answer quite simply, is that powers of attorney are revoked upon death. So if you sign a power of attorney and then you die, doesn’t matter who you put down, your agent are no longer valid at that point after death, we look to the will if there is one or I say, well, we look to who is named the personal representative under the will and probably a little better way to say that, is who the court ultimately appoints as the personal representative in the probate estate, that’s now the person that’s going to have the authority to go into the bank account. So again, if you don’t have a trust out there and somebody’s name is on title to a bank account and now all of a sudden, you need to get into that bank account, nobody else was listed and the name of the bank account was not the name of the trust, well, we’re gonna have to open up a probate or in some cases, you don’t open a probate but at least we’ll have to look to see who was the personal representative under the estate after the person died. And that’s the person that could, couldn’t get into the bank account. So that was a very long-winded way to say, that a power of attorney cannot be used after death. And you have to look to the will and the probate process to see who has the authority to get into the bank account.

Does a trust always avoid probate?

Alright, next question is on the trust. Does a trust avoid probate? And the classical your answer there is it depends. Well, what does it depend on? If we have a trust, the question is, do we fund the trust? So let me give an example with a piece of property. So, let’s say someone creates a trust and they have this document that says trust on it and they have a piece of property, say it’s their house. The question of whether or not the house has to go through probate, assuming they’re the only one on the title really has to do with whether or not that house was put into the trust. In other words, was the title of the house changed from the individual over into the name of the trust? Now I and then I say has to go through probate, I use that loosely because there’s many circumstances in Colorado where even if the property is not in the trust, it still doesn’t need to go through probate. For our purposes, assume that the house would have to go through probate, if unless it was put into the trust. When we say put into the trust, what we’re talking about with real estate is some sort of deed, so it could be a bargain and sale deed or a quitclaim deed but somehow that property gets put into the trust. I always like to point out whenever we’re talking about putting property into trust, that we have to be concerned about title. So, have we broken the title insurance in such a way that now we’re not gonna be covered under our title insurance or homeowners insurance that would be very bad result of all this and imagine you had a lot of hail damage, you put your house into a trust and next thing you know the insurance company is trying to deny the claim because you no longer own as an individual now your trust owns it.

How do I keep my property with my blood relatives?

Alright, next question is, how do I keep my property with my children? So, really what we’re talking about here is, how do I keep my property after I die with my blood relatives? In other words, I want it to be kept in the line so to speak. So I only want this property that I’m going to give this money to that I’m gonna give to my children or to their, their children, my grandchildren, I wanna keep it in the family. How do I do that? So we would use oftentimes what would be referred to as a dynasty trust or dynastic trust. And all we’re doing is saying that this property is going to be held in trust when outside of my family. So my children are only allowed to give the property to their descendants. And if they have no descendants, they’re only allowed to give this property to my descendants, we go back up a level. So if we take an example, if we have have parents and they’ve got two sons. And we’ll call them, I don’t know. Let’s call them Bob and Jim. And Bob predeceases his parents well, and Bob has no children. Then where’s that money gonna go? Well, we want it to go back over to Jim. Likewise, even if Bob was alive after his parents died, so his trust now has money in it, then Bob dies, but he has no kids, that money must go over to Jim. So great question. It’s all about keeping the property in the family. It’s definitely doable. You have no obligation to give to for example, your children spouses or their creditors. So with some good planning, you can really accomplish that goal. I get that one all the time.

Will my trust protect me from my creditors?

Will my trust protect me from my creditors? Wow, that is a complicated question. Very complicated, because it really depends on what type of trust we’ve set up. And what the terms of that trusts are. So and what it, what I mean by what type trust, was it an irrevocable trust? When was the money put into the irrevocable trust? What are your rights to get at that money? Generally, for most people in most trusts, they do not protect their creditors from their money in their trust. So if we have what we call a first-party trust, in other words a trust where I take my money and I put it in to this trust, I can’t all of a sudden say, sorry, creditors, you can’t get that money anymore. Because I, if I can get the money, generally speaking my creditors can get the money as well. So, that’s why revocable trusts give us pretty minimal asset protection. So again, I create this revocable trust, I put my money into it, I can get it anytime I want. I can revoke the trust anytime I want. Well, it’s probably not reasonable to think therefore, if I get sued, my creditors can’t get that money, whenever I have full and unfettered access to it. I didn’t really give up anything. Now change, you could change that a little bit. Imagine I put this money into an irrevocable trust. I have no right at all to get to this money, this money is only for, say, my children and I’m not even the trustee over the trust. So I’ve no, it’s almost like I gifted the money to the trust, I have no rights to the money, I’m never going to access it, there’s no way I could get it. Well then after a period of time, depending on the creditor situation at the time of the transfer, assuming there, there’s no known creditors, whenever we did this. When I say creditors, like, let’s say you have a credit card company that’s gonna sue you. So we didn’t know about anybody that we’re gonna have a beef with or we didn’t have anybody that that we’re gonna owe money to and we put this money into the trust. Well, in that case, if I’ve got no right to do it after a period of time, depending on the law that that trust is under or should say the law that the lawsuit is brought under, then that can be completely protected from the creditors. That’s not of course what most people are after, most people are saying I wanna put my money in the trust, be able to get to my money and then at the same time not have my creditors access that money. There are a few trusts out there. International asset protection trusts, some domestic asset protection trusts that theoretically do that. But I can tell you 99.9% of the people do not have those types of trusts. Creditors, they have revocable trusts creditors like the credit card companies or anybody else they owe money to can get into that money. That is completely different. However, whenever we’re talking about giving money to our children, or to somebody else. So now all of a sudden, I’m giving money to my children. I’ve really changed all the rules, because again it’s not my kids money and if instead I’m just trying to protect my money from my kids creditors or to protect my kids from their own creditors, well, that changes everything because I can set the rules on my trust, however I want. And I can say, hey, creditors or my kids so if they owe money to their credit card company or they didn’t pay their bills or they get sued, you creditor can’t get into the my children’s trust. They’re complicated. There’s rules around when the creditor can or cannot. It depends on state law. There’s a lot of different factors into it. But generally speaking, it is completely available to you to be able to do. So, if you are concerned with protecting, say your kids from their creditors, their ex-spouses, you know, other potential predators, so to speak, that are gonna try to get their money, well, then in that case, you absolutely can get a lot more asset protection whenever you’re giving money to your kids and trying to protect your kids from your kids creditor. So a little bit different there. But really good question on creditor protection.

Can my children contest a trust I leave for my second wife? If so, what can I do to reduce this from happening?

Alright, here’s another one. I deal with this in various forms all the time. So, can my children contest the trust that I leave for my second wife? What can I do to reduce this, so that way it doesn’t happen as much? So very common in today’s day and age and it comes up either we could have a blended family. So for example, somebody gets divorced and then they get remarried. And now we’ve got a second spouse but we have biological children that are not the second spouse’s. They are the stepchildren of the spouse or here the wife. Or alternatively, I’ve had many cases where the wife or the husband has passed and now they’re getting remarried again. And once again the concern is, well, I’ve left this money for my spouse, I don’t want my children again, some big dispute with my, my second wife, or my second husband, what can I do about that? So the first thing is, anytime you do a will or trust then there’s always or could always be in, it’s almost always recommended that you put in a no-contest clause or an interim clause. And all that’s really saying is that, hey, kids, if you try to contest this, you get nothing under this will. If you’ve completely written your kids out of the will, there’s not much that doesn’t really help you much because they are not gonna get anything anyway, they really have nothing to lose. And even though that those those provisions are in there, they can potentially still contest it. So, what can you do? So you definitely wanna put it in the no-contest clause. You also just need to make it very clear as to what you want to have happen because you have no obligation to give anything to your children. You do have an obligation to give to your spouse under Colorado law, unless they waive it in a premarital agreement or a marital agreement. So your kids have no right to inherit. So as long as they can’t contest somehow that there was undue influence or forgery or some other untoward actions, then they’ve got no basis. So going to an attorney in those cases can be very helpful to ensure that all the formalities are met and you don’t make a mistake on the way. Putting the property into a trust is a great approach as well. You can give money to your kids. So if that’s a concern, go out buy life insurance, if it’s available to you and give your kids some money upon your death. So that way, both your spouse and your children get money. Again, the no-contest clause. So it’s really just good solid planning and fundamentals, just to ensure that what you want to have happen, will happen. You can still contest the trust. Just because it’s in the trust does not mean all of a sudden somehow it’s totally, there’s no way for the kids to contest it, they still can. It is a little bit harder because the notice requirements are just not as strict.

Are there any drawbacks to using an irrevocable trust to use for living expenses later?

Next question. Are there any drawbacks using irrevocable trust for living expenses later? I’m not exactly sure what we’re trying to drive at. So I guess I’ll just talk about irrevocable trusts in general. So when we put our property into an irrevocable trust, we have to really think about why are we doing that? If it is, if what we’re talking about living expenses later, what we’re really talking about is if I become disabled, I need somebody else to manage my property for me. Well, that can be done in a revocable trust and that if that was our only goal, that would probably be the preferred approach. On the other hand, if we’re saying, well, I want to be able to use irrevocable trust for some sort of Medicaid planning. Well, now we’re, we may have some issues if you have access to the money itself because that will cause that money to be included or I should say as a countable asset for whenever we’re calculating whether Medicaid would be available. So, long term care planning, we’re kind of required different type of trust. And if we’re talking about straight up tax planning for estate tax, we first off we need a very large state. The current estate tax is about 11.5 million per individual, so married couples, you’re over 22 million, now that does set in 20 25 back to about 5.5 million. So maybe we’re talking about some sort of taxes. But here again, the question had to do with living expenses later. So I have to assume that we’re either talking about Medicaid and Medicaid, you won’t be able to actually use the trust directly, the funds from the trust directly for your expenses, if we’re trying to avoid Medicaid without them being included. Or perhaps maybe even more likely, we’re talking about if I become disabled, I want it to be easy for someone to manage my affairs for me, pay things on my behalf and in that case, most likely, you know, revocable trust maybe something that you would want to consider?

If I have another child, would it be wise to change my trust?

Alright, and let’s see here, it looks like our final question. If I have another child, should I change my trust? So, I assume then we’ve had some unlikely this question comes up all the time whenever I have clients that are pregnant or intend or planning to become pregnant. Like, oh should I just wait off doing all my estate planning? The answer to that is a resounding no. Because the way an attorney is going to draft your estate plan, whether it’s a will or a trust, if you want to include after-born children or children that are born after the date that you signed the trust, it’s very easy to do. And most likely, if you already have a trust or you already have a will, they’re already included. All it says is something effective, this includes my children, which includes my current children, they’re alive plus any children that are subsequently born or adopted by me. So likely it’s included, you could check your documents to see. Having said that, of course people do like to update their documents because, hey, I have a new child, I want them listed specifically just like their siblings, if there’s other kids, I want them listed specifically. And there’s not a problem with that. So it’s a very easy update, if that’s all that’s really being done. There would be a codicil to a will or an amendment to a trust or the same thing. It’s just amending the documents, right? A codicil goes with the will then amend it with the trust. We’re just adding something on or changing a provision in the document. And of course, you could have the entire thing restated as well.

So great questions today. As always, if you have additional questions on anything related to Estate Planning and Elder Law, I invite your questions. I enjoy answering them, they come up all the time and I can tell you if you’ve got the question, so does somebody else. Many questions that I get on this are things that I hear all the time in one variation or another. So again, have a great weekend and I will talk to you next Thursday of course. If I can find out how I turn off the camera, always the hardest part of all of this. So, we will soon leave it at that. But as you can tell all these tabs open, I lost it, found it, alright. Have a great weekend.