Estate planning in Colorado involves understanding the specific state laws that affect wills, trusts and property transfers. Colorado residents should be aware that the state follows the Uniform Probate Code, which can simplify the probate process. Additionally, the Colorado estate tax laws and regulations about living wills and healthcare directives might differ from other states, making local expertise invaluable.
A financial advisor with estate planning expertise can be a valuable resource as you make a plan for how your assets should be managed and distributed when you die. Find a fiduciary advisor today.
Understanding Probate in Colorado
Probate is a legal procedure overseen by the court that involves verifying the will and managing the estate of a deceased individual. In Colorado, this process guarantees that the deceased’s assets are allocated appropriately based on their documented wishes or, in the absence of a will, in accordance with state regulations.
The executor of the deceased’s estate plays an important role in the probate process. This individual is responsible for collecting the deceased’s assets, paying any debts and taxes, and distributing the remaining property to the rightful heirs. In Colorado, probate cases are typically handled by the district court in the county where the deceased lived. If there was no executor named for the estate, the court will appoint a personal representative to oversee the process.
Colorado offers different probate procedures based on the size and complexity of the estate. Smaller estates, valued at $82,000 or less in 2024, may forgo probate entirely with the filing of a small estate affidavit for collection of personal property.
In cases of uncontested estates, where there is a valid will and no disputes among beneficiaries, the process is straightforward. The executor or court-appointed personal representative collects assets, pays debts, and distributes the remaining property to the beneficiaries. The timeline for uncontested probate is generally quicker, often completing within six to nine months.
Contested estates, on the other hand, involve disputes that can significantly prolong the process. These disputes may arise from disagreements over the validity of the will, the distribution of assets or the appointment of the personal representative. In such cases, the court may need to resolve these issues, which can lead to a more complex and lengthy probate process, sometimes extending beyond a year.
Wills in Colorado
A well-drafted will can ensure that your assets are distributed according to your wishes and prevent potential disputes among heirs. Here’s a breakdown of three legal requirements for a valid will in Colorado:
- Age and capacity: The testator (the person making the will) must be at least 18 years old and of sound mind. This means they must understand the nature of their assets and the implications of their decisions.
- Written document: The will must be in writing. While oral wills (nuncupative wills) are not recognized, handwritten wills (holographic wills) are valid if the material portions are in the testator’s handwriting and signed by them.
- Witnesses: The will must be signed by the testator and witnessed by at least two individuals who are not beneficiaries. These witnesses must sign the will in the presence of the testator. Holographic wills, however, do not need to be signed in front of witnesses.
Trusts in Colorado
Trusts are legal arrangements allowing a trustee to hold assets on behalf of beneficiaries. In Colorado, trusts are governed by specific state laws that dictate their creation, management and administration. Colorado recognizes various types of trusts, including revocable and irrevocable trusts. Revocable trusts can be altered or terminated by the grantor during their lifetime, offering flexibility. Irrevocable trusts, once established, cannot be modified easily, providing more robust asset protection and potential tax benefits.
To create a trust in Colorado, the grantor must draft a trust document that includes the trust’s terms, appoint a trustee and identify the beneficiaries. The trust document should clearly outline the trustee’s duties and the beneficiaries’ rights. Colorado law requires the trustee to act in the beneficiaries’ best interests, maintaining a fiduciary duty throughout the trust’s duration.
Trusts offer several benefits, including avoiding probate, maintaining privacy and potentially reducing estate taxes. By avoiding probate, trusts can expedite the distribution of assets to beneficiaries. Additionally, trusts can provide clear instructions for managing assets if the grantor becomes incapacitated.
Power of Attorney
A power of attorney (POA) is a legal document that grants someone the authority to act on your behalf in financial or legal matters. Unless stated otherwise, POAs are automatically durable in Colorado, which means they remain in effect if you become incapacitated. Medical POA specifically grants the agent authority to make healthcare decisions on behalf of the principal if they are unable to do so themselves.
Meanwhile, a limited power of attorney grants the agent authority to perform specific tasks or make decisions in specific situations. For example, a principal might grant a limited POA to sell a particular property or handle a single financial transaction. Once the task is completed, the POA expires.
A springing power of attorney, on the other hand, becomes effective only upon the occurrence of a specified event, typically the principal’s incapacitation. This type of POA provides flexibility, as it only grants authority to the agent when it is truly needed. The document must clearly outline the conditions that trigger its activation.
Establishing a POA in Colorado requires the principal to complete a statutory form, which must be signed and, in some cases, notarized. This legal document authorizes the agent to act as specified by the principal’s directives.
Advance Healthcare Directives
Advance health care directives, also known as living wills, outline your preferences for medical treatment if you become terminally ill or incapacitated. Colorado residents can also create a CPR directive to indicate whether they wish to receive cardiopulmonary resuscitation in an emergency. It’s important to fill out these documents accurately and have them notarized or witnessed as required by Colorado law.
Does Colorado Tax Estates?
Colorado does not impose its own estate tax, although estates in Colorado may still be subject to the federal estate tax. This means that regardless of the size of the estate, Colorado does not impose a separate tax on the property and assets left behind.
Heirs in Colorado are generally not responsible for paying taxes on the assets they inherit. Instead, any applicable taxes are typically handled by the estate itself before the distribution of assets. This includes potential federal estate taxes, which are paid by the estate rather than by the individual heirs. However, if the inherited assets generate income, such as rental income or dividends, the heir will be responsible for paying income taxes on that revenue.
While Colorado does not levy an estate tax, it’s important to consider federal estate tax implications. Estates exceeding the federal exemption limit of $13.61 million in 2024 are taxed at rates that can reach up to 40%.
Bottom Line
Estate planning in Colorado requires a clear understanding of state-specific laws affecting wills, trusts and property transfers. While the state does not impose an estate tax, federal estate taxes may still apply. Key components of estate planning include creating valid wills and trusts, appointing powers of attorney and establishing advance healthcare directives.
Estate Planning Tips
- Strategically giving away assets and property to family members, friends and others while you’re still alive can reduce or eliminate your potential estate tax burden. The IRS allow you to gift up to $18,000 per recipient to as many people as you like in 2024. Gifts that exceed this annual exclusion then count against your lifetime gift tax exemption, which stands at $13.61 million in 2024. Once that exemption limit is used up, you or your estate will pay federal taxes on subsequent gifts and bequests.
- Some financial advisors, like those with the accredited estate planner (AEP) designation, specialize in estate planning. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Photo credit: ©iStock.com/milehightraveler, ©iStock.com/DMP, ©iStock.com/rarrarorro