Estate planning in 2012

2012 is an important year for people planning their estates. Changes in the law are coming at us fast and furious from both the Colorado legislature and from Congress. For example, $5,000,000 is exempt from federal gift and estate taxes. For a married couple up to $10,000,000 can be exempt. For wealthy clients this is an important opportunity especially with the use of irrevocable trusts to hold property.

            For persons with much smaller estates, a way to provide for young children and other loved ones is through an irrevocable life insurance trust. This can be structured to be beyond the reach of the estate and gift taxes. A large nest egg to provide for minor or grown children can be set aside using this technique. The rules are very tricky and require specialized knowledge which

requite a lawyer specializing in estate and tax planning.

            There have been substantial changes to Colorado laws with regard to living wills, advance directives, financial powers of attorney, and medical powers of attorney. We are finding that many people who have previously set up living trusts to avoid probate, failed to actually put their property into the trust, and thus did not avoid probate. Colorado has a simplified probate system, but it’s still a shame that for persons who spent extra money to avoid probate with the living trust, they did not follow through. It means that a checkup with a qualified estate planning lawyer would be in order.

            Another area of interest to wealthier clients is the use of an Alaska trust (available for Colorado residents.) Up to $10,000,000 can be set aside tax-free, which has greater protection against creditors, may well have protection in the event of a divorce, avoids the rule against perpetuities, and removes property from the taxable estate with the possibility of retrieval of funds if needed by the grantor. This is unique since most trusts contain a provision giving the grantor income or corpus, and can cause the entire trust to be included in the grantor’s taxable estate at death. Letter rulings from the IRS indicate that if this technique is used properly, the funds can remain available to the grantor on a discretionary basis with an independent trustee determining distributions to the beneficiaries which can include the grantor.

William H. Kain holds a Juris Doctorate and a post-doctorate degree LLM in Elder Law and Estate Planning. He practices law at the firm of Kain & Burke, PC.

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