When you die, will your money go to intended beneficiaries and/or uses?
What is probate?
- Probate is the legal process that transfers title of assets from the decedent to his or her heirs. Your estate may or may not have to go through probate depending on how your assets were owned when you died.
- In Colorado, there are three types of probate: Small estates under $50,000; uncontested estates; contested estates; and invalid or questionable wills.
An estate plan
A good estate plan provides both financial and personal benefits.
- Financial benefits will address the preservation and growth of your assets both while you are alive and for your beneficiaries after your death, and should include legal strategies to minimize tax liabilities upon your death.
- Personal benefits can include the preparation of documents such as powers of attorney and advanced medical directives that allow you to document and control decisions with regard to who should speak for you and who should care for you when you are unable to and who should be responsible for managing your finances.
Source: Colorado Bar Association
This is the second part in a three-part series about end-of-life planning. The third part will focus on the emotional side of making end-of-life plans. The first part focused on the importance of wills and other legal documents.
If you don’t have a joint bank account or a payable-on-death designee, your money is likely to get tied up with your estate after you die. This can be harmful to your family if they need access to cash to pay the mortgage or other debts.
Mary Ryerson, executive vice president at Alpine Bank in Aspen, has watched grieving families struggle with financial stress. She said one of the easiest ways to avoid this is to set up a payable-on-death beneficiary.
“Those funds can be transferred quickly. When someone doesn’t have that set up, depending on the size of their estate, things can get tied up for a while,” she said. “You still have to pay bills, eat, pay for funeral expenses and other things.”
Ryerson is part of a team, organized by Pathfinders Executive Director Allison Daily, that is aiming to help community members create end-of-life plans. The team includes professionals in financial planning, estate law and psychology. Daily said there have been some unexpected deaths in the community that have left spouses and family members unequipped for the financial aftermath. Pathfinders recognized a need to help people make these plans before it’s too late.
“If your spouse dies, you don’t want to cancel the credit cards right away. It’s stuff like this — who’s responsible for what debt — that we need to talk about as a community,” Daily said. “We’re hoping to give people some control with this information.”
Making sure all accounts and policies are properly titled
Getting your financial act together is about feeling empowered and feeling that you and your family members have choices, according to Danielle Howard, a certified financial planner in Basalt who is part of the Pathfinders team.
“We’re all going to pass away; we need to be proactive about planning ahead of time,” she said. “With financial planning, I look at it from a holistic perspective, digging into titling, taxes, investments, business, insurances and cash flow — it’s an incredibly comprehensive, robust process.”
But that doesn’t mean it has to be complicated, she added.
“It doesn’t matter how much you have — what matters is what you want to accomplish with it,” she said. “It’s about creating awareness of the assets you have and how to utilize them, and about making things as smooth as possible in an unfortunate circumstance.”
One important area is life insurance. Some people purchase policies and forget about them, but it’s critical to make sure the beneficiary designations and ownership is set up correctly, Howard said.
“That will provide much quicker access to funds,” she said.
Determine the intention of investment and bank accounts
“You will want to have a discussion with an attorney to ensure that some of your bigger assets are titled properly,” she said. “And if you own a business (especially with multiple owners), it’s important to do this planning for the business as well as your family.”
Regardless of your wealth — or lack thereof — it’s important to set up your accounts properly so they are aligned with your wishes. If you can’t afford to talk to a professional advisor, the Pathfinders team can help.
These experts can help determine all the legalities of an estate, such as whether any accounts or policies taken out before marriage exclude a spouse. If you haven’t gotten around to changing the titling of those accounts, there could be a sister or stepchild showing up to collect funds you never intended them to inherit.
“I’m amazed at how often it’s contentious,” Ryerson said.
The estates of descendents without a will can turn into chaos. Sally Potvin, a former CPA on the Pathfinders team who has continued to volunteer her time to help community members navigate the financial complexities of end-of-life planning, is working with one case for which a judge is trying to determine heirs from a list of 165 relatives.
“It can get crazy,” she said. “To save your relatives, as a gift to them, put it in writing so they don’t have to be harrassed. They have no idea that people might be coming out of the woodwork. So much of this is money-driven when it shouldn’t be.”
Through both personal and professional experience, Potvin helps people organize their finances and prepare for unintended consequences.
“To make it easy on your family, make a list of everything,” Potvin said. “Let them know what you want to have done.”
For couples with children younger than 18, this includes setting up guardianship for your children, said Aspen Estate/Trust attorney Jeanne Doremus, who is part of the Pathfinders team. Furthermore, if your parents are still living and you are married with no children with an estate of at least $200,000 in assets, your parents have a legal right to the amount above $200,000. It is important to title your assets properly, if you want your asset to go 100 percent to your spouse.
Create a “no decision” zone
Howard said she gets questions from clients asking whether they should pay off the mortgage or other debts immediately after a death.
“No, don’t do anything,” Howard said. “You need to assess what you have, where it’s at and how it can be utilized for cash flow needs now or down the road. Give yourself some time. Figure out the immediate needs, but you want to be very careful about what bills you pay and whose names they are in because you may or may not be responsible.”
Under Colorado law, there is a legal designation of priority of creditors. If you are unsure if you have enough assets to pay all of the debts, you should not pay any debts until you can determine what debts have priority over other debts. You may need to have someone guide you through that analysis, Doremus said.
The funeral home files for a death certificate and also communicates that death to the Social Security administration, taking one thing off survivors’ plates. However, what if you had a joint credit card account with the deceased person?
“So many online checklists say you should call everyone immediately when someone dies, but If you are using a credit card with your name on it, but from an account opened under the name of the decedent, the credit card company may close your account leaving you without access to credit,” Potvin said. “My dad died on July 1 and Social Security had already sent him a check. They ended up taking it back after he died — imagine if he hadn’t kept much money in that bank account? We could have ended up bouncing checks.”
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Many members of the community wrote to laud the former Skico executive and city councilman for his friendship, dedication to family and community-minded spirit over more than two decades in Aspen.