Colorado Trusts

Colorado Trusts

The history of trusts goes back centuries. Hundreds of years ago, Franciscan monks were required to take a vow of poverty. So, if anyone wanted to donate money to them, they would have to donate the property to another person who would then own that property and provide for the Franciscan monks so that they could live a decent life and could support their churches.

Another point when trust history began to evolve was in England during the Crusades of the 12th century. At that time, a number of English monks traveled to the fight in this religious war in the Middle East. In doing so, these monks had to leave their farms and homesteads behind, which raised a question about who would take care of these farms while the knights were away.

So, the legal trust relationship was set up, so that even though the knights would continue to own the land, someone else could take possession of the land and make decisions regarding the operation and maintenance of the farm and other normal decisions that a knight would have made himself if he were there to do so.

The Colorado Uniform Trust Code

Over the years, the problem that most states, like Colorado, have had with trusts is a lack of detailed law dealing with their governance. Because of this lack of clear rules, The Uniform Laws Commission created the Uniform Trust Code as a basis for states to either clarify existing trust law or create new trust laws where none existed.

The Uniform Trust Code, commonly known as the UTC, is one of many model laws or uniform laws in the US. Together with common law, the UTC is one of the primary sources of trust law in the country.

The UTC is a model law, so it is not exactly law. As a model law, it is essentially a proposal that each state has to choose to adopt or not. However, the UTC has gained a considerable amount of support and currently, it has been adopted by 33 states, including Colorado.

Bear in mind, each of these 33 states can have different trust laws. But, because they each have practically the same version of the UTC, their trust laws are virtually the same.

So, by and large, the Colorado Uniform Trust Code (which was adopted in 2018) and the uniform trust codes of the other 32 states who have adopted the UTC are the same.

Who Uses Trusts?

Trusts are used by those who want:

  • More control over what happens to their estate when they die;
  • To plan for the management of their estate in the event they become incapacitated;
  • To save their loved ones the time and expense of having to probate their estate; and
  • To minimize gift and estate taxes

Assume your 18-year-old daughter asked you for $20,000. Even if you have the money to spare, would you give it to her? Without any questions? Most parents would want to know that the money would be put to good use, and not squandered on parties, alcohol, or drugs.

Whenever you leave money to your loved ones in your will, you are giving away a lump sum of cash with no strings or conditions attached. If you are concerned about how that money will be spent, creating a trust to distribute the money will allow you to control how it is used, even after you are no longer here.

How Trusts Work

Rather than giving the funds to your loved ones directly, you set up a trust and appoint someone, called a trustee, to oversee the trust. Nobody but the trustee will have access to the funds. Furthermore, the trustee will only be allowed to distribute the funds to your loved ones according to specific guidelines that YOU established when you created the trust.

This will protect your hard earned money and ensure that it is used the way you would want. It will also shield the assets your loved ones inherit from creditor's claims, bankruptcy, and divorce proceedings.

Moreover, while your last will and testament will only have an effect over the assets in your estate after you die, a trust can also dictate how your assets are used and managed when you are alive but incapacitated. In addition, the assets can be used to fund whatever care you need.

What's more, a will has to be probated before any distributions from your estate can be made, but a trust doesn't have to go through probate, saving your loved ones time and money. And lastly, holding title to assets in the name of a trust is a very effective way of minimizing federal estate taxes so that your loved ones inherit as much as possible after your final taxes are paid.

Revocable vs. Irrevocable Trusts

Though trusts can be set up to fulfill a variety of different estate planning purposes, including asset protection, qualifying for Medicaid, and providing for children and loved ones with special needs, they can all be separated into two basic types:

  1. Revocable; and
  2. Irrevocable

Revocable Trusts

A revocable trust is one that can be revoked or amended during your lifetime and allows for the management of your assets during three phases:

  1. While you are alive and well;
  2. When you are alive but incapacitated; and
  3. After you die

The main and most direct advantage to using a revocable trust, however, is that it can enable your estate to avoid probate when used correctly and in concert with other probate avoidance procedures.

Irrevocable Trusts

Another kind of trust is an irrevocable trust and, as the name implies, is one that you cannot revoke or amend once it is established. Irrevocable trusts are not as common as revocable trusts, but can be just as advantageous to your overall estate plan.

The main advantages of an irrevocable living trust are twofold. First, there can be a measurable estate tax savings for some higher value estates. This is because the trust assets are not counted as part of your taxable estate, thus allowing you to potentially avoid any estate taxes.

Secondly, once you place assets into an irrevocable trust, technically you no longer own or control those assets. This means that these assets will also be out of your creditor’s reach.

To learn more about revocable and irrevocable trusts in Colorado, as well as, how they can be used to help you achieve your estate planning goals, contact an experienced Colorado estate planning attorney to arrange a free, no-obligation consultation.