Estate planning can feel overwhelming, but it doesn’t have to be. Whether you’re wondering how to simplify your assets, minimize probate, or understand the purpose of a trust, the key is having clear, effective tools in place. Wills and trusts aren’t just for the ultra-wealthy, they’re essential for anyone who wants to protect their loved ones and ensure their wishes are honored.
In this Q&A, we break down some common questions about creating wills and trusts as part of comprehensive estate planning. From what makes an estate “simple” to how often you should review your plan, we hope these answers will help you take confident steps toward a secure future.
Q: What is a small estate and why does it matter?
A: In Colorado, having a small estate matters because it streamlines the process of distributing assets after death, even without a will. Smaller estates with a value of less than $86,000 may qualify for a “small estate affidavit,” allowing assets to transfer directly to beneficiaries without probate. This can save both time and money for your loved ones.
Q: When do I only need a will, rather than a trust?
A: If you have a “simple estate”, then I would recommend a will, without a trust. The key to a simple estate is not the monetary amount but how assets are held. For example:
- A home worth $600,000 that’s fully paid off and a $500,000 retirement account with a named beneficiary would be considered a simple estate. These assets are straightforward to manage and pass outside of probate.
- Conversely, an estate with half that monetary value but two properties (one held in an LLC, the other not) and scattered accounts without beneficiaries is more complex due to the administrative intricacies.
The key factors are how assets are titled, whether there are out-of-state properties, business interests, or special-needs beneficiaries, and whether proper planning minimizes probate involvement.
Q: How can I simplify my estate to minimize probate?
A: There are effective ways to minimize what goes through probate:
- Beneficiary designations: Ensure all financial accounts (bank, retirement, investment) have a named beneficiary or are set to Pay on Death (POD) or Transfer on Death (TOD).
- Beneficiary deed for real estate: This flexible tool transfers property ownership directly to a beneficiary upon death and avoids probate.
- Small estate affidavit: In Colorado, estates with personal property valued under $86,000 can use a simplified affidavit process for transfer.
- Have a simple will: Even if you avoid probate through other mechanisms, a will ensures that any assets unintentionally left out are distributed according to your wishes.
Q: What happens if I have a trust that’s never been funded?
A: If a trust is unfunded, it cannot function as intended. Here’s what to do:
- Review the trust: Consult an attorney to determine its purpose and whether it aligns with your current goals.
- Fund the trust: Transfer assets into the trust if it still serves your needs.
- Consider termination: If the trust no longer serves a purpose (e.g., beneficiaries have passed away or your circumstances have changed), it may be better to terminate it.
Q: How do I manage a trust if I’m the trustee?
A: As a trustee, your duties depend on the trust’s terms and assets. Key responsibilities include:
- Asset management: Prudently invest and manage trust assets for the benefit of beneficiaries.
- Property maintenance: If the trust owns real estate, ensure that it’s maintained and secured.
- Fiduciary duty: Act in the best interests of the beneficiaries. This includes providing regular accountings and complying with applicable laws.
Managing a trust is a legal and ethical responsibility, so you should seek professional guidance if needed.
Q: How often should I review my will or trust?
A: You should review your estate planning documents every 3–5 years or sooner if significant life changes occur, such as:
- Marriage, divorce, or the death of a beneficiary.
- Birth of new family members or changes in financial circumstances.
- Relocation to a different state with different estate laws.
Keep Powers of Attorney (medical and financial) updated to avoid complications in case of incapacity.
Q: Can wills or trusts help me avoid taxes?
A: Estate planning primarily simplifies asset transfer and minimizes administrative burdens, but tax avoidance depends on your situation:
- Colorado estate tax: There is no state estate tax in Colorado.
- Federal estate tax: Most estates are exempt, with thresholds of $12 million for individuals and $24 million for couples in 2024 (though these limits may decrease or increase in the future).
- Medicaid concerns: Medicaid planning is separate and addresses protecting assets from long-term care costs, which may involve specific strategies beyond standard estate planning.
Estate planning isn’t just about managing wealth, it’s about peace of mind. With careful planning and the right tools, you can create a streamlined plan that protects your family and ensures your wishes are honored.
