Colorado Living Trust
A Colorado Living Trust (also known as a Colorado Revocable Living Trust or just a Colorado Trust) has become a growing alternative to the traditional Colorado Last Will and Testament (“Colorado Will”) as a way to pass property on when one dies due to its flexibility and tremendous benefits while one is both alive and upon his or her passing.
In addition to providing for the disposition of one’s property, like a Colorado Will, a Colorado Living Trust also provides the following benefits:
• Allows smooth transition of management upon incapacitation and death;
• Provides care of disabled and handicapped children and grandchildren;
• Can avoid Colorado probate proceedings and any other state you may own real property;
• Can reduce settlement expenses in comparison to a probate proceeding involving Colorado Wills;
• For married couples, minimizes and potentially eliminates estate taxes;
• For beneficiaries, a Colorado Trust can keep assets out of their own estates which can further limit estate taxes; and
• Offers asset protection instead of distributing the assets outright.
What is a Colorado Living Trust
In essence, a Colorado Living Trust is simply a document that consists of one’s plan for the management and disbursement of his or her assets that springs into action upon his/her incapacity or upon his/her passing.
Similar to a Colorado Will, Colorado Trusts are “revocable,” meaning that they can be modified or eliminated at any time while one is competent to do so. A Colorado Living Trust is established by a written agreement or declaration which appoints a “trustee” to administer the property, and which gives detailed instructions on how the property is to be managed and eventually distributed.
Who Can Establish a Colorado Living Trust
Any competent adult eighteen years and older can establish a Colorado Living Trust.
When Does a Colorado Living Trust Take Effect
A Colorado Trust takes effect immediately upon its execution. However, until it is funded, there are no assets to control or distribute.
How is a Colorado Revocable Living Trust Properly Executed
Unlike Colorado Wills, a Colorado Living Trust does not require any witnesses. Due to the importance of the document, a Colorado Trust should be executed in the presence of a notary public.
Can a Colorado Living Trust Be Changed or Revoked
A Colorado Living Trust can be changed or revoked at any time as long as the Settlor of the Colorado Trust is competent at the time of the change or revocation.
Who Can Be a Trustee
In Colorado, any competent adult age eighteen or older can be the trustee, including the person setting up the trust. A Colorado bank or trust company is also an option to designate as a trustee.
You can appoint more than one trustee, can delegate different duties to each trustee, and can retain the power to remove the trustee and appoint a new one. Appointing an alternate trustee is essential if you are the first trustee and the trust will carry on after you die or become incapacitated.
Differences Between a Colorado Living Trust and a Colorado Will
Both a Colorado Living Trust and a Colorado Will are documents that can be changed or revoked at any time and act as a vehicle to transfer one’s assets upon his/her passing. First, we will examine the differences how the documents affects one while he/she is alive and upon his/her passing.
During one’s lifetime, a Colorado Will offers very little benefit except to know that one has his/her affairs in order. The reason is Colorado Wills do not come into effect until one passes away. A Colorado Living Trust, however, comes into effect once it is executed and funded. It can circumvent the need for a potentially expensive and public court procedure called a Conservatorship. Instead of a court overseeing the management and disbursement of your assets and who will be in control of your financial affairs, your Colorado Trust handles these private matters with no court intervention.
The differences between a Colorado Living Trust and a Colorado Will upon one’s passing are also great. First, since a living trust document is not a public document, it offers privacy of your of personal assets and affairs. Second, if the Colorado Revocable Living Trust was funded properly, the settlement can avoid the need for a Colorado probate court proceeding, can be more efficient, less time consuming and the legal fees can be substantially reduced. Third, if one has real property in more than their resident state, a probate court proceeding can also be avoided in every state the real property is located. Fourth, it allows you as the settler of the Colorado Trust a greater degree of control on how and when disbursements are made. Fifth, it can prevent a certain amount of funds from ever being subject to an Estate Tax or a Generation Skipping Transfer Tax. Finally, and arguably most importantly, it can offer your heirs the best form of asset protection available, if drafted properly.
Can a Settlor Transfer Property Into and Out of a Colorado Living Trust While He or She Is Alive
While the Settlor is alive, he or she can transfer their property into and out of his or her Colorado Revocable Living Trust as needed during his/her lifetime. Once the property is titled in the Revocable Living Trust, they can still make gifts as he/she pleases as well as distributions to themselves for whatever they desire.
Can One Transfer Their Home, Which Still Has a Mortgage, Into Their Revocable Living Trust
Simply put, the answer is yes. There is a federal law which precludes lenders from exercising any due on sale clause on one’s principal residence to their Colorado Living Trust. It is advisable to get your lender’s consent before you fund your home into your Living Trust if you have a mortgage lien against it.
Will My Colorado Living Trust Protect Me From My Creditors
A Colorado Living Trust does not provide any asset protection from one’s creditors. Accordingly, one cannot create a Colorado Living Trust to prevent a creditor from having access to his or her assets. If drafted properly, subtrusts created upon the Settlor’s passing for his or her beneficiaries offer tremendous asset protection.
Does a Copy of One’s Colorado Living Trust Need to be Recorded with the Courts
No. A Colorado Living Trust is a private document that does not need to be recorded with any court. Once a Colorado Trust becomes irrevocable and is worth more than $500.00, Colorado law requires a Trust Registration Statement to be filed in the District Court in the county the Trust is administered.
What is Probate
Simply put, probate is the legal process for transferring your property when you die. More specifically, it is a court procedure that involves validation of one’s Last Will and Testament, appointment of a personal representative, collection of assets, notification and payment to creditors, and transfer of property to the beneficiaries under one’s will.
Why Should One Want to Avoid Probate
While Colorado probate can be relatively simple, it is still a public process that allows others to know of some of your most private and personal matters. A Colorado probate proceeding must last at least six months but is more likely to take twelve to eighteen months to finalize. The legal fees for a Colorado probate procedure can also run upwards of five percent of the value of one’s estate.
A Colorado Living Trust avoids the probate process because you collect your assets and transfer them to your Trust before you die. As long as you do not have any real estate or assets totaling $50,000 in your name, you can avoid the time and legal expense associated with probate.
If One Has a Colorado Living Trust, Is a Last Will and Testament Necessary
If one’s Colorado Living Trust is properly funded, a Last Will and Testament to dispose of one’s assets is not necessary. However, if minor children or special needs children are involved, the Last Will and Testament designates who will be those individual’s Guardian. As part of your Colorado estate planning package, a Pour-over Last Will and Testament is included to transfer any property that may not have been funded in the Trust as well as to handle your children’s affairs and to designate who your Personal Representative will be if it is necessary to open probate.
What Types of Property Should Not Be Transferred Into a Colorado Living Trust
An IRA, 401(k) plan or Keogh plan, wherever invested, must remain in the owner’s name and Social Security number. Between husband and wife, the Surviving Spouse is usually named the primary beneficiary and the Trust may be named the contingent beneficiary. Please realize that any change of a beneficiary designation of a retirement plan could have important income tax consequences; therefore, you should consult with your tax advisor prior to making any change.
Establishing a Colorado Trust
You should take two steps. First, sign the Colorado Trust. Then, legally transfer all assets to be titled into the Living Trust to the trustee. Deeds, stock transfers, new bank accounts, and other legal documents may be necessary. Assets not formally transferred to the trustee will probably not be considered part of the trust and might still be subject to probate.
Income Taxes
By itself, a Colorado Living Trust does not avoid or reduce any of Settlor’s income taxes. During the Settlor’s life, a Colorado Living Trust does not require its own income tax return to be filed. Instead, all income is reported on the Settlor’s individual income tax return.
Estate Taxes
A Colorado Living Trust can include standard provisions for saving estate taxes and generation skipping transfer (GST) taxes. Each Settlor of a Colorado Living Trust can exclude up to a certain amount (In 2009, the amount is $3.5 million) that will not be subject to either an estate or a GST tax. If drafted properly, a Colorado Trust can help ensure the first $3.5 million in assets will never be subject to an estate or GST tax in any of your heir’s estates.
How Long Does a Colorado Living Trust Last
A Colorado Living Trust last only as long as the Settlor. At the death of the Settlor, a Colorado Living Trust’s terms can provide for the outright disbursement of assets, for the assets to remain in trust, or a hybrid of the two. For assets that remain in trust, Colorado law allows for trusts to continue for the benefit of the Settlor’s heirs for over 1,000 years. Trusts that provide for multiple generations are known as dynasty trusts and can offer a tremendous amount a tax and asset protection benefits.
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