Common Estate Planning Misunderstandings

Certain questions come up in almost every Colorado estate planning consultation. Below are a few clarifications based upon mistaken beliefs we see. These are general rules. There are exceptions to the general rules.

A power of attorney terminates at death. It is a violation of Colorado law for an agent to use a power of attorney after the death of the principal. In that same vein, using a credit card after the death of the cardholder is also a violation of law. It does not matter that the expense is related to the cardholder or the death of the cardholder.

A bequest in a will does not override a beneficiary designation. When a financial account is opened, there is an option to name a payable on death beneficiary at the death of the account holder. A beneficiary designation usually controls. A provision in a will does not override the beneficiary designation on file with the financial institution. If the beneficiary predeceases the account holder, the backup or default beneficiary designation still controls.

Jointly owned financial accounts are presumed to be the property of the surviving joint account owner. Financial institutions prefer accounts to be held jointly as opposed to being held individually with an agent under the power of attorney exercising control. When accounts are held jointly, the presumption is the survivor owns the account. Often, that is not the intent. Most families work through this and distribute the account according to the decedent’s wishes. However, some don’t. While the jointly owned account may have initially been for convenience, at some point the co-owner feels like they earned the money caring for the parent or the parent says they want the co-owner to have the money for taking care of them. And then, there is a dispute.

Real property held by spouses does not always pass to the survivor. In Colorado, real property held as joint tenants with the right of survivorship automatically passes to the survivor. If a couple is married, a title company usually conveys the real property in joint tenancy and makes that specific notation on the deed. Sometimes, the deed is silent. When silent, the presumption is tenants in common and not joint tenants.

In Colorado, a will has no force or effect until probated. Just because the will identifies the beneficiaries does not mean the beneficiaries can take the asset. The will must be submitted to the probate court. The probate court enters an order identifying the person in charge of the probate estate (the Personal Representative). The Personal Representative collects the probate property, pays the bills, and then sometime later makes distributions to the beneficiaries named in the will.

All of these issues are avoided with a properly funded trust. At the trust maker’s death, the successor trustee’s powers continue. Property held in the trust is distributed according to the trust terms even if a beneficiary designation is improperly in place. The accounts are owned by the trust and not jointly with another. Real property is held by the trust and not directly in the decedent’s name. The key is the trust must be properly funded.