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Asset Protection- Irrevocable Trusts and Marital Agreements

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Asset Protection- Irrevocable Trusts and Marital Agreements a Brief Overview

 

When I tell people that I am an estate planning attorney, they often ask about trust planning and wonder if they "need a trust." If a person is engaged in a high risk activity, where they risk having creditor's come after them I explore irrevocable trusts and marital agreements with them as a way to protect their assets.  

  Irrevocable trusts can provide asset protection by protecting the assets in the trust from the liabilities of trust beneficiaries and the trust creator (or settlor).  Assets placed in an irrevocable trust are protected from the liabilities of the beneficiaries if the beneficiaries do not have a certain and defined interest in the trust (the beneficiaries interest is contingent on a future event or subject to the discretion of the trustee); or the trust agreement includes a spendthrift provision which prevents creditors from making claims against the beneficiaries’ interest in the trust and prevents the beneficiaries from transferring or pledging their interests.  If the trust language includes these provisions, the only time assets would become subject to the beneficiaries' creditors is after the assets are distributed from the trust to the beneficiary.  As long as the trust assets are retained in the trust they are protected and can continue to provide for and benefit the beneficiaries beyond the reach of their creditors.

The irrevocable nature of a trust can also limit the reach of the trust settlor's creditors.  Since the trust is “irrevocable” the settlor cannot change his mind and either terminate the trust or take back the trust assets.  Upon transfer into the trust, the settlor has no power or authority to change the terms of the trust, use the trust assets or derive any benefit from the trust except as provided in the trust agreement.  As a result, in the absence of fraud, generally the creditors of a settlor cannot reach an asset within an irrevocable trust.   However, if the settlor retains any interest in the trust or the power to change the trust terms or dispositions, the settlor’s creditors may be able to reach the trust assets to the extent of the settlor’s retained power or interest.

 Off-Shore Trusts

Sounding quite glamorous and mysterious, off-shore trusts are trusts established outside the United States in a foreign jurisdiction.  These trusts attempt to provide the settlor asset protection, while still allowing the settlor control of the trust and the benefit of the trust assets.  Often the asset protection is derived from the fact that it is a difficult undertaking for a creditor to not only obtain a judgment against the settlor’s assets in a foreign jurisdiction but then also to collect against those assets.  In fact, some foreign jurisdictions implemented laws to make this process difficult for creditors to thereby encourage settlors to establish trusts in their jurisdictions (i.e., the Bahamas and the Cook Islands).  However, some of the same aspects that make these trusts unattractive to creditors also create risk for the settlor, as the assets are located in a foreign country and are subject to foreign laws and regulations.  The viability of off-shore trusts has been further eroded by increased reporting requirements for offshore trusts and holdings since 9/11 and recent court rulings such as the Anderson case, wherein the court held that the debtors could be jailed for failing to make assets held in an offshore trust available to the Anderson’s creditors. 

 

Self-Settled Spendthrift Trusts

A self-settled spendthrift trusts (“SSST”) is a form of irrevocable trust that offers greater creditor protection to the settlor while not requiring the settlor to give up absolute control and benefit from the trust assets.  Under a SSST, the settlor can be a beneficiary of the trust and can retain certain controls and authorities within the trust, such as the ability to direct investments or change the trust beneficiaries.  Once an asset is transferred to the trust, a creditor of the settlor has a limited period of time within which to challenge the transfer as an attempt to avoid a debt and assert a claim against the asset.  If the creditor does not make a claim within the proscribed time period, the asset is protected.  Even if the settlor later incurs a debt to the creditor, the creditor cannot reach the asset if the claim is not asserted within the proscribed time period.  The SSST is now authorized in Alaska, Delaware and Nevada.   

Marital Agreements:  Separation of Assets Between Spouses

A final technique asset protection technique that may be considered is the separation of assets and potential liabilities between spouses.  It may be possible to isolate the risks of one spouse (i.e., liabilities through a job or profession) to only that spouse’s separate assets, thereby gaining asset protection for the other spouse’s separate assets.  To achieve this separation, a written agreement between the spouses (a pre- or post-nuptial agreement) that clearly defines the separate property of each spouse is required.  Maintaining the separation of assets requires diligent management of assets and resources during the marriage to ensure that no marital property is created.  This technique would also only be effective to the extent that in the event of a creditor claim, the debtor spouse can show that the liability was incurred by the one spouse individually and not through a marital undertaking.  This type of asset protection planning also has additional ramifications.  In the event of divorce, the marital agreement would apply.  In addition, this technique could have estate tax consequences.  Careful planning is suggested when using this strategy.

Conclusion

When considering taking steps to protect your assets, it is important to keep in mind that no asset protection technique will shield assets from a creditor if the transfer is made in attempt to defraud or hide assets from a creditor with a potential claim.  In fact, such attempts may only compound the problem by turning a financial liability into a criminal liability.

It is also important to keep in mind that much like an estate plan, an asset protection plan must be carefully considered and tailored to meet each person’s individual circumstances.  With many life-legal planning techniques available and a myriad of ways to apply them, asset protection planning should only be done with the guidance of experienced professionals who can correctly analyze your situation and help you formulate a plan to best meet your needs.

Medical Power of Attorney - Choosing Your Agent

In completing your POAs its important to choose an appropriate agent. Here are five criteria to think about in relation to choosing an agent for your medical power of attorney.

1.  Personal belief:  Since the concept of withholding artificial-life support runs contrary to the teachings of some religions and is a very personal decision, it is helpful to find a healthcare agent who understands your feelings in this regard and whose own beliefs are not contrary to your own.

2. Communication: It is important to choose someone you are comfortable speaking with about your health care wishes and it should be clear to you that not only do they understand them but they will be able to communicate these to your health care providers and family members if necessary.

3. Practical reality:  Its critical that the person you choose is willing to accept responsibility and agree to act as your agent - "ready and able to serve".

4.  Voice:  In choosing an agent be sure that they will be able to speak up and stand firm on your behalf - even if faced with physicians who are advising otherwise or other close family members who disagree.

5.  Availability: Make sure this person is likely to be accessible and capable of serving as your agent well into the future.

 

 

 

 

Pet Trusts in Colorado

Clients often ask me if they can provide for their pets in their estate plans. The answer is yes – Colorado does allow for pet trusts – and many people use these as a means to ensure that their beloved companions are provided for if they are either disabled or upon their death.

My dear sweet Master Luke.

My dear sweet Master Luke.

Pet trusts are extremely useful in a number of situations. For most household pets, pet trusts are used as just-in-case planning, very similar to naming a guardian in your will for minor children. This ensures that your pets are provided for without burdening your loved ones.  For pets with a long lifespan, such as tropical birds, pet trusts may be viewed as a necessity so that pet owners can provide certainty of care for pets that will almost certainly outlive their human companions. 

In general, trusts need certain types of beneficiaries before they will be recognized and upheld by the law. Typically, these types of beneficiaries have been either ascertainable individuals or charities. Therefore, historically, it was difficult to provide for the continuing care of pets after death. In the past, estate planning to care for pets involved leaving assets to a trusted friend or family member with the understanding that they would use the assets to care for the pet. Although this method has certainly worked, there have undoubtedly been times when the pets have not been taken care of in the way that their human counterparts would have expected or the pets have not been cared for at all, with the trusted friend or family member using the assets for self-benefit instead of the benefit of the pet. Finally, the most obvious person to care for a pets physical needs may not be the best choice to manage the assets placed in the trust for the benefit of the pet.  Pet trusts can accommodate this practical reality. 

PET TRUSTS IN COLORADO

Many Colorado estate planners draft their pet trusts to allow pet owners to leave assets for the benefit of their pets as well as to allow the pet owners to designate both a pet guardian to manage the care of the pet and a trustee to manage the assets in the trust and make appropriate distributions to the guardian. Because of this separation of duties, the creator of the pet trust can ensure that the best person is selected to care for the pet and the best person is selected to manage the assets funding the trust for the pet.

SPECIFICS OF THE COLORADO PET TRUST

Under Colorado law, pet trusts operate in the following manner:

  • Assets can be placed in trust for the benefit of a pet.
  • The trust can be written so that if the pet is pregnant at the time the trust goes into effect, the trust will remain in force to provide care for the offspring of the pet.
  • The trust will remain in effect until there is no living animal covered by it, unless an earlier termination is provided for in the trust itself.
  • The trustee is not allowed to use any portion of the principal or income of the pet trust for the trustee’s benefit or in any way that is not for the benefit of the animals covered by the trust.
  • The creator of the trust has complete freedom to designate where any assets left in the trust upon its termination should go.
  • The appropriate use of the trust funds can be enforced by a trust protector designated in the trust instrument, by any person having custody of an animal for which care is provided by the trust, by any beneficiary designated by the trust creator to receive assets at the termination of the trust, or, if none of the above, by an individual appointed by a court if someone makes an application to the court to review the use of the funds.
  • If there is ever a situation in which a pet trust comes into effect but there is no trustee able or willing to serve, a court has the authority to designate a trustee and make other orders and determinations so that the intent of the creator of the pet trust will be carried out.

WHEN TO SET UP A PET TRUST

  • Pet trusts can be set up at death, at disability, or immediately upon signing a trust instrument.
  • Pet trusts are typically set up in a last will so that upon the death of the creator of the will, the pet trust is established and funded.
  • However, pet trusts can also be established in a revocable living trust so that upon the disability of the creator of the revocable living trust, a pet trust will be established to provide for continuity of care of the pet or pets.
  • Additionally, at any other time, any individual can set up a stand-alone pet trust to establish a trustee and fund a trust for the benefit of a pet.

 

Estate Planning and Personal Effects

Who gets mom's wedding ring?! When clients hire me to create their estate planning documents, we have a thorough conversation about their assets, how they are held, and to whom they want them to go to. This conversation is focused primarily on the large assets, such as the family home, retirement accounts, insurance policies, other properties and investment accounts. Part of the initial estate planning process is to really look at these and then clearly designate beneficiaries.

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Inevitably during this discussion, the client’s personal effects come up. In Colorado, personal effects, such as grandmother’s antique ring, grandfather’s favorite chair, mom’s jewelry, dad’s watch, etc., can be designated in a separate Memorandum of Personal Effects that is incorporated into the Will by reference. This allows my clients to keep a running inventory of bequests and beneficiaries for personal times that can be changed over time.

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I provide this memorandum as part of the estate planning notebook I create for my clients. The Memorandum, referenced in the Will, is binding and it simply has to be dated and signed. This allows the personal representative or family members peace of mind and ease. It avoids the stress and conflict of having to figure out who gets what. An analogy I recently read about in the New York Times is that without this Memorandum, its like waking up to a house full of kids on Christmas morning and having no name tags on any of the wrapped gifts – chaos!  To read this article click here.

The article, references a workbook called Who Gets Grandma’s Yellow Pie Plate, by Marlene Stum. She says that the process starts with recognizing that dividing up a loved ones’ belongings is laden with emotions and can be a real mine field for family members and friends. The workbook helps sort out the process by helping people:

  • Determine what you want to accomplish, decide what's fair to your family.
  • Understand belongings have different meanings to different individuals.
  • Consider distribution options and consequences
  • Agree to manage conflicts if they arise.

To learn more about this workbook, click here.

In representing my probate clients, I have seen sibling relationships torn apart because they don’t agree about how to divide up the personal property of the deceased.   My clients that are appointed as personal representatives really struggle, during a time of personal grieving, to try to figure out how to divvy up personal effects fairly, without hurt feelings.

All of this can be avoided with an estate plan that provides for a Memorandum of Personal Effects. I advise my clients to use this Memorandum as a living, breathing document that they can continue to add to and change as time goes by. So when a loved one expresses a sentimental attachment to a certain item, my client can simply add that to their Memorandum and know that that beneficiary will receive that heirloom.

Important Documents Locator and Contacts

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225-dome-top

Clients always ask me how to store their estate planning documents and other important papers once their estate plan is done.   I always recommend that they fill out the attached Important Document Locator and Contact Sheet as a part of this process so that family members and friends know who to contact and where to locate important records if necessary.   I also recommend that they store their estate planning documents as follows:

Originals.  Your original Will should be kept in a safe place, preferably in a fireproof safe or safe deposit box. Your original powers of attorney can be kept in your reference notebook.   If you have revised or updated your documents, any old/former documents—including any copies—should be shredded.

Reference Set.  If I did your estate plan, you have been provided with a reference set of your documents in an estate planning binder, creating complete set for your records.  The copy of the will in this binder is not signed—you have only one valid, executed will, which you should keep pursuant to #1, above.  If you decide to provide anyone with a copy of your will, be sure to copy the unsigned, reference will and not the original, signed will.

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Copies for Agent.  You should provide your agents with copies of your executed Powers of Attorney, both General and Medical.  This will enable them to have the documents and act upon them without the necessity of obtaining copies once a disability or other unfortunate circumstance occurs.  They should also be told about your complete estate planning binder (if you have one) and where it is located.

Copies for Physicians.  You should also provide your physicians with copies of your executed Medical Power of Attorney and Living Will.  They will then be able to keep these important documents in your files so that your agents will not have to search for them in the event of illness or accident.

Copies for Home.  For clients living alone, especially aged clients, I recommend that copies of your Medical Powers and Living Will be kept in a readily accessible location such as your refrigerator or freezer in the kitchen, along with a note on the refrigerator door indicating that the documents may be found inside. First responders are taught to check the refrigerator door for important medical and pharmacological information.  Finding the Medical Power of Attorney and Living Will along with other such information will make their treatment decisions easier, and better insure that your dignity is protected.

Fill out the Important Document Locator and Important Contact Information forms that follow. Keep them in a safe but obvious place such as the inside of a desk drawer or kitchen cabinet near the telephone.   This will help your family members and friends in the event of an emergency and also might result in you feeling more organized and in control of your life!

Important Documents Locator and Contacts

DOCUMENT

LOCATION

NOTES

Durable Power of Attorney

Medical Power of Attorney

Original Last Will and/or Trust Documents

Living Will/MOST declaration

Property Deeds

CD Certificates

Personal Banking Accounts

Promissory Notes

Automobile Registrations

Birth, Marriage and Death Certificates

Medical Insurance

Passports

Retirement/Pension Accounts

Life Insurance Accounts

Credit Card Accounts

Stock and Bond Certificates

Long-term care insurance

Safety deposit box information/key

Internet accounts  and passwords information

IMPORTANT CONTACTS

NAME

TELEPHONE NUMBER/EMAIL

Agent for health care power of attorney

Agent for general durable power of attorney

Person named as personal representative in will

Attorney

Accountant

Insurance Providers

HomeAutoLife InsuranceLong-term Care 

Primary Care Physician

AdultsChildren

Personal friend/housesitterfamiliar with home

Veterinarian

Child care provider

Children’s school contact

Children’s local guardian

Children’s preferred babysitter

If you have a hard time printing these sheets I am happy to email you a copy either as a PDF or as a word document that you can customize to suit your needs.  Just send me an email and let me know.

Medical Power of Attorney: Your Agent and You!

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family-mulitigenerational

Medical power of attorney:  When choosing an agent for your medical power of attorney for health care its important to select someone who will respect your wishes for the care and control of your body should something happen to you. They need to have a good idea of what your feelings and beliefs are in this deeply personal area. Here are some areas to explore with your agent about you:

Lifestyle: How essential are these in terms of your quality of life?

1. Being able to eat and drink 2. Being able to enjoy entertainment, movies, TV, reading, listening to music 3. Physical movement and being able to get outdoors 4. Attending outside activities such as church or other programs 5. Avoiding pain and discomfort 6. Being with loved ones 7. Being self‐sufficient and able to communicate

8.  Spirituality.   How much of your comfort and support comes from your spiritual practices such as personal pray, meditation, or interaction with a spiritual or religious community?

9.  Last days.   What are your wishes in regards to the last days of your life? For instance, quiet meditation, lots of friends, or close family members only.

By getting your powers of attorney in place and conveying your wishes to your agent your wishes will be honored and your loved ones spared confusion and last minute guess work.

Tibetan couple in Dharamasala, India
Tibetan couple in Dharamasala, India

Disclaimer -- Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.

Can I provide for my pets in my estate plan?

Clients often ask me if they can provide for their pets in their estate plans. The answer is yes – Colorado does allow for Pet Trusts – and many people use these as a means to ensure that their beloved companions (dogs, cats, horses, exotic birds etc.) are provided for if they are either disabled or upon their death.

Pet Trusts are extremely useful in a number of situations. For most household pets, Pet Trusts are used as just-in-case planning, very similar to naming a guardian in your Will for minor children. For pets with a very long lifespan, such as many types of tropical birds, Pet Trusts may be viewed as a necessity so that pet owners can provide certainty of care for pets that will almost certainly outlive their human companions. Pet Trusts are also useful to provide continuity of care for pets in the event of the disability of a human companion.

In general, trusts need certain types of beneficiaries before they will be recognized and upheld by the law. Typically, these types of beneficiaries have been either ascertainable individuals or charities. Therefore, historically, it was difficult to provide for the continuing care of pets after death. In the past, estate planning to care for pets involved leaving assets to a trusted friend or family member with the understanding that they would use the assets to care for the pet. Although this method has certainly worked, there have undoubtedly been times when the pets have not been taken care of in the way that their human counterparts would have expected or the pets have not been cared for at all, with the trusted friend or family member using the assets for self-benefit instead of the benefit of the pet. Finally, the most obvious choice of an individual to care for a pets physical needs may not be the best choice of an individual to manage the assets placed in the trust for the benefit of the pet.

Several states now have legislation that specifically authorizes the establishment of trusts to benefit pets and other animals. Colorado law, reflected in Colorado Revised Statues Section 15-11-901, allows a pet owner to put aside assets and ensure that the assets are used for the benefit of the pet.

My best friend, Luke.

My best friend, Luke.

PET TRUSTS IN COLORADO

Many Colorado estate planners draft their Pet Trusts to allow pet owners to leave assets for the benefit of their pets as well as to allow the pet owners to designate both a Pet Guardian to manage the care of the pet and a Trustee to manage the assets in the trust and make appropriate distributions to the guardian. Because of this separation of duties, the creator of the Pet Trust can ensure that the best person is selected to care for the pet and the best person is selected to manage the assets funding the trust for the pet.

SPECIFICS OF THE COLORADO PET TRUST

Under Colorado law, Pet Trusts operate in the following manner:

  • Assets can be placed in trust for the benefit of a pet.
  • The trust can be written so that if the pet is pregnant at the time the trust goes into effect, the trust will remain in force to provide care for the offspring of the pet.
  • The trust will remain in effect until there is no living animal covered by it, unless an earlier termination is provided for in the trust itself.
  • The trustee is not allowed to use any portion of the principal or income of the Pet Trust for the trustee’s benefit or in any way that is not for the benefit of the animals covered by the trust.
  • The creator of the trust has complete freedom to designate where any assets left in the trust upon its termination should go.
  • The appropriate use of the trust funds can be enforced by a Trust Protector designated in the trust instrument, by any person having custody of an animal for which care is provided by the trust, by any beneficiary designated by the trust creator to receive assets at the termination of the trust, or, if none of the above, by an individual appointed by a court if someone makes an application to the court to review the use of the funds.
  • If there is ever a situation in which a Pet Trust comes into effect but there is no trustee able or willing to serve, a court has the authority to designate a trustee and make other orders and determinations so that the intent of the creator of the pet trust will be carried out.

WHEN TO SET UP A PET TRUST

  • Pet Trusts can be set up at death, at disability, or immediately upon signing a trust instrument.
  • Pet Trusts are typically set up in a Last Will so that upon the death of the creator of the Will, the Pet Trust is established and funded.
  • However, Pet Trusts can also be established in a Revocable Living Trust so that upon the disability of the creator of the Revocable Living Trust, a Pet Trust will be established to provide for continuity of care of the pet or pets.
  • Additionally, at any other time, any individual can set up a stand-alone Pet Trust to establish a Trustee and fund a trust for the benefit of a pet.

Copyright Tanya R. Shimer LLC.  All Rights Reserved.

Colorado Law and Pre- and Postnuptial Agreements.

What is a Marital Agreement? Pre- and postnuptial agreements (marital agreements) are important tools for couples to manage their assets and avoid conflict, both before and during their marriage and as part of the process of separating if the marriage ends. Prenuptial agreements are contracts executed prior to marriage and post-nuptial agreements are contracts made between the spouses during the marriage, that allow the parties to agree to and delineate the division of assets should a legal separation, divorce or death occur. These agreements are legally binding contracts which can protect both parties by creating a plan that if conscionable will be enforceable and predictable – thereby taking the potential conflict out of the difficult process of separating.

Every couple should consider a marital agreement as a potential tool to enable them to plan for the future, protect their assets and avoid conflict. Couples who do not have a marital agreement are subject to the provisions of the Colorado Uniform Dissolution of Marriage Act, which will determine their rights in the case of separation or divorce; and the Colorado Probate Code, which will determine the rights of the surviving spouse and other heirs, upon death if proper estate planning has not been completed.

How Colorado Law Works for Couples without a Marital Agreement Individuals that are married and living in Colorado have statutory rights if the marriage terminates by divorce. Colorado law defines two types of property that can exist during the marriage. Separate property is the property owned prior to the marriage, and all property received by gift or inheritance during the marriage. Marital property includes all property earned by either spouse during the marriage, including deferred compensation; and all income and appreciation on separate property, whether realized or not - regardless of how the property is titled. When a couple divorces in Colorado, each party keeps his or her separate property - if it was kept separate during the marriage and not co-mingled with marital property. If the parties cannot reach an agreement about the division of property during a divorce, the court is directed to divide the marital property in the proportion that it deems just after considering all relevant factors.

In addition to dividing marital property, a divorce court can award maintenance if it finds that one of the parties lacks sufficient income or property to provide for his or her reasonable needs. The amount and length of a maintenance order is determined by the court’s just determination after considering all relevant factors. Colorado courts have been unpredictable in awarding maintenance and thus it could have a significant financial impact on both parties. Why Should Couples Consider Marital Agreements Marital agreements can be used to define the parties’ rights in regards to the appreciation of separate property and all marital property accrued during the marriage. Couples who have children from previous marriages are able to provide for these children and protect their inheritance in the event of a divorce from a subsequent spouse. If one of the spouses owns a business, a marital agreement can ensure that the new spouse does not become entangled in the company should a separation occur. Marital agreements identify, define, and resolve legitimate issues related to the couples’ finances, estate plans and business interests – while the parties are free of the emotional turmoil created during a separation process. Advantages of premarital agreements for both parties include: Avoiding litigation costs Protecting against fears of family members such as children from previous marriages Protecting family assets Protecting business assets Protecting against creditors Predetermined and thus predictable disposition of property

Contents of a Colorado Prenuptial Agreement A marital agreement may address the following issues: 1. Spousal Maintenance: whether it is waived, set at a predetermined amount, based on years of marriage, etc. 2. Division of property and debts: whether assets acquired after the marriage are kept separate; whether future appreciation on existing assets are separate property; how to apportion pension funds, retirement benefits or other intangible assets. 3. Inheritance: a spouse may agree to waive his or ability to take an elective share of the estate thereby protecting children from a previous marriages’ legacy. 4. Rights and obligations under insurance policies, employee benefit plans, and other assets such as these. 5. Waiver of Rights Upon Death: a common provision in prenuptial or postnuptial agreements designed to prevent probate laws or prior wills from trumping the terms of the prenuptial or postnuptial agreement. 6. Alternative Dispute Resolution: a provision requiring the complaining party to mediate or arbitrate any dispute and preventing him or her from filing a costly lawsuit. 7. Attorney’s fees: who pays for attorney’s fees if the parties are unable to abide by the terms of the agreement. If the parties have children during the marriage, a marital agreement cannot legally bind either party to agreements made regarding child support, physical custody, parenting time and decision-making authority. The parties may agree on proposed terms for these issues but these terms would be subject to the court’s later approval.

What does a Marital Agreement do? A marital agreement allows the engaged or married couple to negotiate around Colorado law in order to define separate property and marital property. By means of a marital agreement you can define separate property to include all income from and appreciation on your separate property. You can also protect your earned income by defining that as separate property, so that assets purchased or investments made with your earned income will remain your separate property upon divorce. Thus, by altering the definitions of separate property and marital property from those provided by statute, you can protect not only the core of your separate property which you amassed prior to your marriage, but also the earnings from and appreciation on that property. If you wish to restrict your spouse's rights upon divorce to your earned income, including retirement benefits, you can do that as well. Spouses can waive their rights to maintenance payments in a marital agreement or they can agree to a certain amount of maintenance to be paid to the less wealthy spouse in the event of a divorce. However, if at the time of a divorce, the court determines that the spousal maintenance terms in the agreement are unconscionable, the court can render that portion of the prenuptial null and void.

Finally, a marital agreement can allow couples to determine what rights a surviving spouse will have upon the first spouse's death. For example, in many marital agreements, each spouse waives his or her right to reject the terms of the others' will and elect to take up to half of the estate outright (depending on the length of the marriage). Such a waiver ensures that the estate plan of the first spouse to die will be honored by the surviving spouse.

Why Couples Choose to Alter Spousal Rights Provided by Law. Couples choose to alter their statutory rights for a number of reasons. Some people simply wish to have certainty as to property rights and maintenance payments upon a potential divorce. By entering into a marital agreement, they eliminate much of the financial uncertainty associated with a divorce. A fairly negotiated marital agreement can provide some assurance to the wealthier spouse as to the extent of the financial impact of a divorce and provide the less wealthy spouse with some guarantee to his or her entitlement to property distribution and maintenance.

People who have children from a previous marriage may wish to protect their assets for these children's benefit. A marital agreement that addresses the rights of a surviving spouse can protect the deceased spouse's estate for the benefit of children from a previous marriage as well.

Sometimes parents encourage their adult children to enter into a marital agreement in order to protect assets owned by the child that were accumulated by previous generations. Usually, a wealthy family wants to ensure that assets that have been gifted to adult children do not become vulnerable to the spouse in a divorce situation.

Enforceability of a Marital Agreement. Colorado adopted the Colorado Marital Agreement Act in 1986. This statute allows the waiver of statutory property and maintenance rights of spouses either before or during a marriage. Thus, the general statutory rule is that marital agreements are valid and binding contracts. However, one party can have the agreement voided if he or she did not sign it voluntarily or if the other party did not provide a fair and reasonable disclosure of his or her property and financial obligations.

When one spouse challenges the validity of a prenuptial, the court will look at several factors to determine whether the agreement should be enforced. The two most important factors the court considers are the adequacy of the financial disclosure and whether either party was under duress when signing the agreement. Full and complete disclosure of all assets is required prior to the signing of the prenuptial agreement because a party cannot knowingly waive rights unless he or she has sufficient information about the potential value of those rights. Duress is reviewed as a question of fact and the court may consider factors such as the timing of the agreement (i.e., was the spouse forced to sign it right before the wedding, etc.) and whether each spouse had independent counsel. It is extremely important that both parties have their own legal adviser during the preparation and execution of a marital agreement.

© 2012 Tanya Shimer All Rights Reserved.

Estate Planning Basics: What should be covered in any estate plan

Tibetan couple in Dharamasala, India
Tibetan couple in Dharamasala, India

Foundational Planning – the Basics

The foundation of all estate plans contains:

Last Will or a Revocable Living Trust,

a Financial Power of Attorney,

a Medical Power of Attorney, and

a Living Will.

The combination of these documents allows you to designate how your assets and health will be managed if you ever become disabled.  Further, the Last Will or Revocable Living Trust provides for the distribution of your assets upon your death – to the individuals or organizations you choose and in the manner you decide.

The foundational planning of the Inca in Peru.
The foundational planning of the Inca in Peru.

A good estate plan with careful planning should allow you to:

During life:

--Manage and enjoy your assets as completely as possible

--Transfer assets to the next generation while minimizing transfer tax upon the transfer or at death.

--Meet your charitable or religious contribution goals

If you become disabled:

--Have at least one primary and one alternate financial decision maker legally recognized and ready to assist you.

--Have at least one primary and one alternate medical decision maker legally recognized and ready to assist you

Upon death:

--Designate who will receive your assets at your death

--Specify how those individuals will receive your assets

--Designate a guardian and trustee for your minor children

--Minimize any transfer taxes

--Ideally and with careful planning, replace any value lost to taxes

Why do I need a will?

Wills are important.  A will ensures that whatever personal belongings and assets you  have will go to family or beneficiaries you designate. Without a will, the court makes these decisions.

If you have children, a will ensures that your wishes regarding your children will be clear.  You will be able to designate a guardian for your children's daily care.   By completing a will, you will also be able to name a trustee who will be responsible for taking care of your financial resources for your children until they are adults.

Depending on the size of your estate, careful estate planning in a will can create significant tax benefits.  If you have a will and other foundational estate planning documents taken care of you will also avoid subjecting your family and loved ones to confusion and anxiety at a difficult because your wishes will have already been made clear to them.

What does a will allow me to do?

In your will, you can name:

Your beneficiaries. You may name beneficiaries (family members, friends, spouse, domestic partner or charitable organizations, for example) to receive your assets according to the instructions in your will. You may list specific gifts, such as jewelry or a certain sum of money, to certain beneficiaries, and you should direct what should be done with all remaining assets (any assets that your will does not dispose of by specific gift).

A guardian and trustee for your minor children. You may nominate a person to be responsible for your child’s personal care if you and your spouse die before the child turns 18. You may also name a trustee—who may or may not be the same person—to be responsible for managing any assets given to the child, until he or she is 18 years old or older, depending on your wishes.

A personal representative. You may nominate a person or institution to collect and manage your assets, pay any debts, expenses and taxes that might be due, and then distribute your assets to your beneficiaries according to the instructions in your will. Your personal representative serves a very important role and has significant responsibilities. It can be a time-consuming job. You should choose your personal representative carefully.

Asset protection/tax planning. A properly designed estate plan should:

-- protect your assets, your person, and your business from a possible future disability;

--protect your assets from liability during and after your life;

--distribute your assets tax efficiently at your death; and

--ensure that assets left to young beneficiaries are left inside of a structure such as a trust that will provide management and protection of these assets for them.

Special needs planning.  Planning for a family member with special needs is often a difficult endeavor for families and is especially important for families with significant assets.  Many planning techniques are available to ensure that a loved one with special needs is provided for without jeopardizing their ability to receive the public benefits they need and to protect them from fraud.

© 2012 Tanya Shimer All Rights Reserved.

Once my estate plan is done, what do I do with my documents to ensure safe keeping?

Its important to store your legal documents I a safe place where your representatives can find them.

Its important to store your legal documents I a safe place where your representatives can find them.

Many clients have asked how to care for their estate planning documents once they are completed, I suggest the following:

1. Originals. The originals are very important. They should remain in your care and control, and neither I nor anyone else should be entrusted with them. Your original signed will should be kept in a safe place, preferably in a fireproof safe or safe deposit box. Your original powers of attorney can be kept in your reference notebook. In addition, any old/former documents—including any copies—should be destroyed. Many clients ask whether copies of former estate planning documents should be retained “just in case.” The answer is no. All such documents should be destroyed to avoid any confusion as to their validity.  Use your best judgment in storing and protecting these documents.

2. Reference Set. If I did your estate plan, you have been provided with a reference set of your documents in your binder. These are yours to be read and to which you may refer with any questions or concerns. The unsigned copy of your will in this binder is not to be signed or presented as a valid document—you have only one valid, executed will. If you decide to provide anyone with a copy of your will, be sure to copy the unsigned, reference will and not the original, signed will. With the quality of today’s copiers, I do not wish to be presented with a document purporting to be an original and have any questions as to whether or not it is the original or a copy.

3. Copies for Agent. You should provide your agents with copies of your executed Powers of Attorney, both General and Medical. This will enable them to have the documents and act upon them without the necessity of obtaining copies once a disability or other unfortunate circumstance occurs.

4. Copies for Physicians. You should also provide your physicians with copies of your executed Medical Power of Attorney and Living Will. They will then be able to keep these important documents in your files so that your agents will not have to search for them in the event of illness or accident.

5. Copies for Home. For clients living alone, especially aged clients, I recommend that copies of your Medical Powers and Living Will be kept in a readily accessible location such as your refrigerator or freezer in the kitchen, along with a note on the refrigerator door indicating that the documents may be found inside. First responders are taught to check the refrigerator door for important medical and pharmacological information. Finding the Medical Power of Attorney and Living Will along with other such information will make their treatment decisions easier, and better insure that your dignity is protected.

© 2012 Tanya Shimer All Rights Reserved.