Planning for how your assets will be handled after you’re gone is an important step. Understanding Colorado’s estate planning laws helps make sure your intentions are respected.
No matter the size of your estate, taking action now can prevent future legal issues for your loved ones. This guide provides practical advice on estate planning in Colorado, helping you create a plan that fits your individual circumstances.
Table of Contents
Understanding Estate Planning
Estate planning is the process of organizing how your estate, which includes all of your assets, property, and personal belongings, will be managed and distributed after you pass away or if you’re unable to make decisions for yourself. It’s about making thoughtful decisions to protect your family and the legacy you want to leave behind.
By planning ahead, you can simplify legal processes and potentially reduce taxes, and provide clear instructions on how your affairs should be handled. Below, we’ll take a closer look at the foundational paperwork that’s involved.
Wills and Trusts
Wills and trusts are two of the most important tools in estate planning. A will is that document that describes and outlines how you want your assets to be transferred after your passing. It also allows you to name guardians for any minor children. Nearly everyone should have a will, but only some estates need to establish a trust.
In Colorado, a will is legally valid if it follows specific guidelines. One way to validate the will is by having two witnesses who were present for the signing, who either saw the testator (the person who has written and signed the will) confirm their signature or acknowledge the will. Alternatively, the testator can validate the will in front of a notary public or another authorized individual.1
A trust allows you to transfer your assets to a trustee, who manages them for your beneficiaries. Trusts come in many forms and are used for a variety of estate planning purposes like saving on taxes and avoiding probate, the legal process of settling an estate that can often be time-consuming and expensive. Please refer to the ‘Utilizing Trusts for Asset Protection’ section below for more information.
Powers of Attorney, Advance Directives, and Beneficiary Designations
A power of attorney (POA) is a legal document that permits you to appoint a person you trust to make decisions on your behalf if you are unable to do so yourself. This can include managing your finances, paying bills, or making decisions related to your healthcare. A durable POA remains effective even if you lose the ability to make decisions, ensuring that your chosen representative can continue to act in your best interest without interruption.
An advance directive for healthcare, also known as a living will, is another important part of estate planning. This document specifies your preferences for medical care in circumstances where you cannot state your wishes. It covers decisions about treatments like resuscitation and end-of-life care. While a Healthcare POA allows someone to make healthcare decisions for you, an Advance Directive provides clear guidance on the types of medical care you want, helping to make sure your medical treatment aligns with your values.
Beneficiary designations are used to name who will receive certain assets, such as life insurance or retirement accounts, after your death. Keeping these designations up to date is important because they can take precedence over what is written in your will.
Estate Planning Considerations
When organizing your estate, it’s important to understand the legal factors that could affect how your assets are managed and transferred after your passing. By being aware of these elements, you can make decisions that truly reflect your wishes. Let’s go over some important considerations.
Understanding Estate Taxes In Colorado
Although Colorado doesn’t have a state estate tax, federal estate taxes may still apply depending on the value of your estate. With federal estate tax rates as high as 40%, this can significantly impact what is passed on to your heirs.
There are ways to reduce the taxable portion of your estate, such as making gifts during your lifetime, setting up trusts, or contributing to charitable organizations. These strategies can help preserve more of your wealth for your beneficiaries.
In 2024, each person has a federal gift and estate tax exemption of $13.61 million, protecting estates below this amount from federal estate taxes.2 For married couples, the portability provision allows the unused portion of one spouse’s estate tax exemption to transfer to the surviving spouse. This can essentially double the tax-free amount they can pass on to their heirs.
However, with the Tax Cuts and Jobs Act set to expire in 2025, this exemption is projected to decrease to $5.49 million, adjusted for inflation, in 2026. As a result, more estates may become subject to federal taxes.3 Proactively conversing with your estate attorney on this topic could help protect your assets.
What are Colorado’s Intestate Succession Rules?
In Colorado, if a person dies without a will, the state’s intestate succession laws determine how the estate is divided. Here’s a breakdown of how assets are distributed based on surviving relatives:4
- If only a spouse survives, with no children or parents, the spouse receives the entire estate.
- When both a spouse and children from that marriage are left behind, and the spouse has no other children, the entire estate goes to the spouse.
- If a spouse and children from a previous relationship survive, the spouse receives the first $150,000 of the estate and half of the remaining balance. The rest is inherited by the children.
- If there are children from the current marriage and the spouse has children from another relationship, the spouse receives the first $225,000 of the estate plus half of what’s left. The remainder is divided among the children.
- If the deceased leaves a spouse and surviving parents, the spouse inherits the first $300,000 of the estate, plus three-quarters of the remaining assets. The parents inherit the rest.
- If there is no spouse or children, but parents are alive, the parents inherit everything.
- If only siblings survive, and there are no spouses, children, or parents, the entire estate goes to the siblings.
How Does Probate Work In Colorado?
In Colorado, probate handles the transfer of assets from a deceased individual to their designated heirs or beneficiaries. The probate process can range from simple to complex, depending on the estate.
Small estates, valued at under $50,000 with no real property, can often avoid court proceedings by using an affidavit. If a will exists and no disputes are anticipated, an informal probate process occurs, where court involvement is minimal. However, when there are disagreements or the will is ambiguous, a formal probate process is needed, requiring more active court participation to address and resolve issues.5
Some assets, like jointly owned property or those with named beneficiaries, typically pass directly to the recipient and do not go through probate. Colorado law requires that a decedent’s will be filed with the district court within ten days of their death, even if a probate case is not expected to follow.5
Please Note: While probate is necessary in many cases, it can be time-consuming and costly. There’s also not a guarantee that assets will be given to the desired persons. This is another reason why it can be worth taking the time to create trusts and other legal mechanisms that allow assets to be transferred directly to beneficiaries, avoiding the probate process altogether.
Building The Right Estate Plan
Before addressing legal matters, gaining a clear view of your financial situation is an important first step. Begin by creating a detailed list of what you own and what you owe—this includes assets like real estate, investments, personal property, and any outstanding debts. This thorough inventory provides a solid base for your estate planning.
After that, set specific goals for your estate plan. Think about what you aim to accomplish, such as caring for loved ones, supporting charities, or protecting your financial legacy. Defining these objectives will help shape a plan that aligns with your personal needs and desires.
Important Legal Considerations
When creating an estate plan, it’s important to work closely with professionals who have a deep understanding of estate planning laws. Consider the following key points:
Prepare for Possible Health Emergencies: Planning for a situation where you might be unable to make decisions is an important part of estate planning. Setting up powers of attorney and advance directives will allow your preferences to be followed if you’re unable to manage your affairs.
Work with a Colorado Estate Planning Attorney: Since estate planning laws differ by state, it’s important to seek advice from a Colorado-based attorney. They can guide you through local regulations and make sure your documents meet state requirements.
Update Your Estate Plan Regularly: Life changes like marriage, divorce, having a baby, or changes in your financial situation can impact your estate plan. Regular reviews and updates will help keep your plan aligned with your current circumstances and wishes.
Understand the Probate Process: Probate can be lengthy and complex. Thoughtful estate planning can help simplify or even bypass probate, making things easier for your beneficiaries.
Shielding Your Wealth from Liability
Liability risks can pose significant threats to the estate you’ve worked hard to build. To mitigate these risks, it’s wise to consider high-limit liability insurance, like an umbrella policy, which offers an additional layer of protection.
This type of coverage can safeguard your assets against unforeseen events such as lawsuits or substantial claims, providing peace of mind that your estate is better protected.Incorporating this type of insurance into your estate plan helps ensure that potential financial challenges won’t erode the wealth you’ve accumulated.
Utilizing Trusts for Asset Protection
Trusts are powerful tools that can provide significant protection for your estate. Different types of trusts serve various purposes, and selecting the right ones can help secure your assets while allowing for smooth management and distribution. Here are some of the commonly used trusts in estate planning:
Revocable Living Trust: A revocable living trust allows you to retain control over your assets throughout your life as you can change or revoke the trust whenever you see fit. This type of trust is often utilized to bypass probate. As a result assets are transferred to your chosen beneficiaries more efficiently and privately. When you pass away, the assets in the trust are distributed according to your instructions without needing court involvement.
Irrevocable Trust: Unlike a revocable trust, an irrevocable trust is designed not to be changed or revoked once it’s established. This trust is typically used to shield assets from creditors or remove them from your taxable estate, as assets in an irrevocable trust are no longer legally yours.
Special Needs Trust: A special needs trust is crafted to provide financial support for a disabled beneficiary without risking their eligibility for government assistance. This trust allows you to meet the needs of your loved one while maintaining their access to important services and programs.
Charitable Remainder Trust: This trust enables you to donate your assets to a charity while continuing to receive income from those assets during your lifetime. After you pass away, the remaining assets go to the charitable organization. Charitable remainder trusts offer potential tax advantages and a way to support the causes you care about.
Please Note: These are just a few examples of common trusts, but there are many other options available. Collaborating with both a financial advisor and an estate planning attorney can help you identify the trusts that best fit your specific circumstances.
Planning for Long-Term Care Costs
Long-term care can be a major financial weight, and preparing for these costs can be an important step in protecting your estate. By considering various options and strategies, you can keep your estate intact and around to be passed on to your beneficiaries. Here are some key strategies to consider:
Long-Term Care Insurance: Long-term care insurance helps cover the costs associated with extended care. You’ll be protected whether you’re in a nursing home, assisted living facility, or staying at your own home. Purchasing this insurance can protect your estate from being quickly depleted by these high costs, allowing more of your assets to be preserved for your heirs.
Medicaid Planning: Medicaid planning involves strategies to qualify for Medicaid benefits, which can help cover the expenses associated with long-term care, while still protecting your assets. This may include transferring assets or setting up specific types of trusts to meet eligibility requirements without exhausting your estate.
Setting Aside Dedicated Funds: Allocating specific funds for long-term care ensures that you are financially prepared for future healthcare needs. By setting aside these funds now, you can reduce the financial burden on your estate and ensure that your care needs are met without compromising your beneficiaries’ inheritance.
Preparing For a Smooth Business Transition
For business owners, preparing for what lies ahead is key to keeping your company’s value intact and its operations running smoothly. A well-crafted succession plan clearly outlines how ownership will change hands, whether it’s passed down to a family member, shared with a partner, or sold to an outside buyer. This approach helps protect the business’s value and keeps things on track during the transition.
Starting early with your succession planning and revisiting it regularly allows for adjustments as your business or personal circumstances change. Taking this proactive step offers comfort, knowing that your business is set to flourish under new management.
Proper Titling and Beneficiary Designations
Making sure your assets are titled correctly and that your beneficiary designations are current is a simple yet important part of estate planning. These actions allow your assets to be passed directly to your heirs without unnecessary legal hurdles, ensuring your wishes are respected and your assets are distributed according to your plans.
Asset Diversification
Spreading your investments across different asset classes is a smart way to lower risk and maintain the value of your estate. Diversification helps cushion against market ups and downs, providing stability regardless of economic changes. By carefully managing your investment portfolio, you build a strong foundation for the wealth you plan to pass on to future generations.
Taking Care of Those Who Depend on You
Estate planning involves more than just deciding who gets your belongings—it’s about making sure the people who rely on you are supported. Whether it’s your children, a family member with special needs, or aging parents, your estate plan can be designed to meet their specific needs, giving you confidence that they’ll be cared for.
Protecting Your Family
Selecting a guardian for your young children is one of the most important choices you’ll make. This decision will determine who steps in to care for them if something happens to you, helping to maintain their well-being according to your wishes. For family members with special needs, setting up a special needs trust can be immensely helpful.
This trust provides financial support while preserving their access to government benefits, so they continue receiving necessary care. Life insurance is also a valuable tool for protecting your family’s financial future. The payout can cover living expenses, education, and other costs, easing the burden on your loved ones if you’re no longer there.
Including Giving in Your Estate Plan
A meaningful part of estate planning is deciding how to support the causes you care about. Charitable giving offers a way to create a legacy, gain tax benefits, and contribute to organizations or individuals that share your values. Here are some options for including charitable giving in your estate plan:
Direct Payments for Education or Medical Expenses: You can directly pay schools or healthcare providers for someone in need. These payments are not subject to gift tax and allow you to make a direct impact.
Donor-Advised Funds: Creating a donor-advised fund lets you make charitable contributions, claim a tax deduction immediately, and recommend grants from the fund over time to support the causes you care about.
Charitable Trusts: Charitable remainder trusts and charitable lead trusts allow you to support charities while also providing income to you or your beneficiaries. These trusts can be tailored to suit your financial and charitable goals.
Lifetime Gift Exclusion: The lifetime gift exclusion enables you to give a substantial amount of money or assets over your lifetime without incurring gift taxes. This can help you reduce the size of your estate while supporting those you care about or causes you believe in.
Annual Gift Exclusions: The annual gift exclusion lets you give a certain amount each year to any number of individuals without affecting your lifetime gift exclusion. This method helps reduce your taxable estate while offering financial support to family members or others.
Please Note: For 2024, the annual gift tax exclusion is capped at $18,000. However, as noted above, it’s important to remember that this lifetime exemption (currently $13.61 million) will be returning to around $5 million per individual at the start of 2026 due to the sunsetting Tax Cut and Jobs Act legislation.6
Common Estate Planning Mistakes
Below are some frequent mistakes that occur in estate planning. By recognizing these common errors, you can sidestep potential complications and make certain your plan functions as you intend.
Having No Will or Trust in Place: One all too common mistake in estate planning is neglecting to create a will or trust. If these documents are not in place, the distribution of your assets might be left to Colorado’s default rules, which may not align with your personal wishes. Drafting a will or trust helps direct your assets according to your intentions and can reduce the likelihood of family disagreements.
Overlooking Health Directives: Many people forget to include health directives, such as a living will or a medical power of attorney, in their estate planning. These documents are especially important, as they provide clear instructions about your medical care preferences in situations where you can’t communicate your wishes. Without them, your family may face difficult decisions without knowing what you would have wanted.
Failing to Make Beneficiary Updates: It’s not uncommon to miss updating the beneficiaries on your financial accounts, including life insurance, retirement funds, and other assets. If these designations aren’t kept current, your assets could end up going to unintended individuals. Reviewing and revising your beneficiary designations regularly is key to keeping your estate plan up-to-date.
Ignoring Potential Tax Issues: Colorado’s tax laws, including estate and inheritance taxes, as well as capital gains taxes on inherited property, can significantly affect your estate. Overlooking these potential tax obligations could reduce the value of what you pass on to your heirs. Working with a tax professional can help you develop strategies to minimize the tax impact on your estate.
Failing to Regularly Update Your Estate Plan: Major life changes, like getting married, divorced, having children, or acquiring new assets, often require updates to your estate plan. If you don’t revisit and adjust your plan after these events, it may no longer accurately reflect your wishes.
Colorado Estate Planning Professionals
These experts can help you navigate legal complexities and make sure your intentions are accurately reflected in your plan.
Accountants: Tax professionals are instrumental in estate planning, as they identify strategies to reduce tax liabilities, helping to preserve your wealth. They analyze your financial situation to uncover methods that can significantly decrease the taxes your estate might owe, allowing more of your assets to be passed on to your heirs.
Estate Planning Attorneys: Attorneys specializing in estate planning are essential for drafting and finalizing legal documents like wills, trusts, and powers of attorney, all while complying with Colorado’s legal requirements. Their expertise in state laws helps prevent disputes and potential legal challenges in the future.
Financial Advisors: Financial advisors play a key role in aligning your estate plan with your overall financial goals. They provide advice on managing and distributing your assets, considering your investments, retirement accounts, and insurance policies. Their goal is to create a seamless plan that addresses your current needs and supports your long-term objectives.
Please Note: Our financial advisory team is here to work alongside your existing attorneys and tax professionals, creating a coordinated and effective estate plan. If you’re in need of these experts, we can connect you with trusted professionals in our network who share our commitment to personalized service.
We Help With Colorado Estate Planning
An estate plan can play a significant role in protecting your legacy and making sure your loved ones are cared for. In Colorado, state laws shape how your assets will be managed and distributed, making it all the more important to create a thoughtful plan. Planning ahead can ease the legal and financial challenges your family might face, while also honoring your personal wishes.
When considering your estate plan, several important factors should be kept in mind. One major aspect is safeguarding your assets, ensuring that what you’ve built over the years is preserved and passed on according to your preferences.
Another key component of estate planning is looking after your family’s future. This goes beyond simply dividing up your assets. It also includes making arrangements for the care of minor children, establishing medical directives in case of incapacity, and ensuring that your loved ones are provided for in a way that aligns with your values and goals.
Our financial advisory team is here to assist you in navigating these complexities. We take a holistic approach, connecting your estate planning goals with your broader financial strategy. This approach helps to create a plan that not only meets legal requirements but also supports your overall financial well-being.
Whether you’re just beginning to think about estate planning or need to review an existing plan, we’re ready to offer personalized support. By working closely with experienced estate planning attorneys, we help create a plan that covers everything, from asset protection to securing your family’s future. If you’re ready to take the next step in protecting your legacy, contact us today.
Sources:
- https://law.justia.com/codes/colorado/2022/title-15/article-11/part-5/section-15-11-502/#:~:text=Subsection%20(a)(3)%20requires,B)%20acknowledged%20by%20the%20testator
- https://www.ml.com/articles/estate-gift-tax-exemption-sunset.html
- https://www.schwab.com/learn/story/estate-tax-and-lifetime-gifting
- https://www.nolo.com/legal-encyclopedia/intestate-succession-colorado.html
- https://www.denbar.org/Public/Public-Legal-Information/Probate-in-Colorado
- https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024
Emily is an advisor at Colorado Capital Management, bringing eight-plus years of significant industry experience from both brokerage and investment advisory firms. As a Chartered SRI Counselor™, Emily has a strong background and keen interest in sustainable investing and enjoys helping clients understand the merits of this approach.
Editor’s Note: This blog post is for informational purposes only and does not constitute financial, legal, or tax advice. Readers are encouraged to consult with a qualified professional regarding their individual circumstances. Please refer to our firm’s website for full disclosures and important information: CCM Website Disclaimer
