When Should I Consider Getting a Trust in Colorado?

For many people, trusts may seem like they’re only for children with billions of dollars set aside for their futures. Estate planning attorney Klaralee Charlton encounters this misconception often. “You don’t need to have any particular wealth level to do a trust,” says Charlton, of 3i Law in Denver.

There are many reasons why an everyday person might consider having a trust to disperse their assets upon death. However, it’s important to clear up several other misconceptions that pertain to Colorado.

To learn more about the benefits of a trust and explore other estate planning options, reach out to an estate planning lawyer who handles trusts.

Misconceptions About Trusts

Unless you’re wealthy, most of the revocable trusts used in estate planning won’t help you avoid taxes. However, they won’t be a detriment, either.

Another common misconception is that clients need a trust to avoid going through an expensive and prolonged probate process. It’s true that trusts are a mechanism to avoid probate. However, Colorado is one of several states with a Uniform Probate Code, which streamlines the process, making it less expensive and more efficient.

“We’re lucky in Colorado that more people can go with a will-based plan to effectuate their goals versus feeling that they have to have a trust because of that probate process,” Charlton says. To help her clients understand what’s best for their circumstances, Charlton explains the difference as simply “wills say who gets what. Trusts can say who gets what, when, and how.”

When a Trust Is Imperative

Along with avoiding probate, there are several benefits to having a revocable trust. “For older people who may need help managing their assets, the trust can be a better vehicle than powers of attorney, which can get abused,” says Shelly Merritt, an attorney at Berg Hill Greenleaf & Ruscitti in Boulder. While it is still possible for trustees to steal money, there are more safeguards with a trust than with a power of attorney, she adds.

A trust also offers protection for individuals, such as those with disabilities, who are reliant on public benefits that are means-tested. Inheriting even a nominal sum might disqualify a loved one from programs such as Medicaid or housing vouchers.

“Even if it’s a small amount that you’ve inherited, you really need to isolate those assets with a very specific type of trust that has specific language to ensure that they can still keep their public benefits but also have this safety net,” Charlton says.

If children are still minors, a trust can ensure they receive the assets in multiple distributions over time, rather than as a lump sum at the age of majority. In addition, trusts for minors will avoid the necessity of a court-appointed conservator to manage the assets until the child reaches the age of majority.

“For someone with a few million dollars—which in Colorado it’s easy to have that with just a house—and, with larger estates, we often make these trusts last for the child’s lifetime, because it will protect the assets from what I call ‘creditors and predators,’ such as if they get in a car accident and get sued, go bankrupt or get divorced,” says Merritt.

Similarly, clients may choose to have assets pass upon death to a trust for their spouse as a safeguard against the spouse remarrying and leaving the assets to a new spouse. They want the spouse to be taken care of, but they want to make sure their children end up with any remaining assets the spouse does not need during the spouse’s lifetime, Merritt says.

A trust can also be useful for second marriages later in life, she adds, when people want to take care of their spouse but want to ensure any remaining assets will go to their children rather than the second spouse’s children.

Choose the Right Trustee

How you set up your trust can make a difference in how effective it is. “It depends on who the trustee is,” Merritt says. Often, clients name their child as trustee so they have control, but the child doesn’t always abide by the terms of the trust.

“The trust can be ‘pierced’ and the assets reached by creditors if the child is serving as trustee and doesn’t abide by the terms of the trust,” she adds. “In order to have any protection from creditors, the child must be limited to making distributions to himself or herself for ‘health, education, maintenance and support.’ If the child can just reach in and pull assets out of the trust for any reason, so can a creditor or a divorcing spouse.”

For a trustee, Merritt says, “You need someone who is responsible and somewhat financially savvy. A family member may not charge much, if anything, to run the trust, but if they don’t know the rules, they might mess up.”

An alternative is to name a corporate trustee, like a trust company or a bank with a trust department, which will charge a fee, but is more experienced in managing trusts.

Get Legal Advice for Peace of Mind

Whether you’re doing a will or a trust, Merritt advises calling an attorney who specializes in estate planning. “You don’t want to go to a general practitioner for estate planning just like you wouldn’t go to a family doctor for brain surgery.”

Visit the Super Lawyers directory to find a trusts lawyer in your area. Learn more about what a trust offers, the difference between a revocable and irrevocable trust, estate tax exemptions, and other legal documents included in an estate plan.