Many people wonder whether they need a will, a trust, or both. This leads to the common question: Wills vs. Trusts in Colorado: Which One Do You Really Need? The truth is, almost everyone can benefit from having an estate plan. This plan should include one or both of these essential documents. Whether your estate is modest or significant, a will or a trust ensures that your legacy is carried out according to your wishes. Moreover, it ensures that your loved ones are protected from avoidable legal and financial stress.
An effective estate plan gives you control, prevents unnecessary court involvement, and provides peace of mind. Here’s what you need to know about Wills vs. Trusts in Colorado: which one do you really need?
What Does a Will or Trust Do?
A last will and testament (Will) lets you name who inherits your property, who will care for your minor children, and who will administer your estate. However, wills must go through probate, which is a public court process. This process can be time-consuming and costly when considering Wills vs. Trusts in Colorado.
A revocable living trust, on the other hand, allows you to transfer ownership of your property into the trust during your lifetime. It avoids probate, maintains privacy, and allows for faster and more efficient distribution of assets. It also gives you the ability to plan for incapacity.
How Do Wills and Trusts Handle Digital Assets?
Today, most people have a digital footprint—think photos in the cloud, social media accounts, online banking, or even cryptocurrency. If you don’t plan for these accounts, your loved ones may not be able to access sentimental memories. They also may miss out on critical financial resources.
An estate plan that includes provisions for digital assets ensures that accounts are not lost, locked, or forgotten. It allows you to choose who can access or manage your online presence after death or incapacity.
Can Estate Planning Help Protect Against Medicaid Estate Recovery?
Yes. If you receive long-term care through Medicaid, the state may try to recover those costs from your estate after you pass away. In some cases, this could mean your loved ones are forced to sell a family home to reimburse the government. When planning, consider this aspect carefully.
A properly designed trust can help you preserve assets. It also avoids or minimizes Medicaid estate recovery. This is especially important if you anticipate needing long-term care but want to pass on your home or savings to family.
Do Beneficiaries Pay Taxes on Inherited Retirement Accounts?
It depends. Inherited retirement accounts (IRAs, 401(k)s, etc.) may be subject to income tax when distributed. This is especially true under new laws that require non-spouse beneficiaries to withdraw the funds within 10 years.
Without a plan, beneficiaries may end up in a higher tax bracket, reducing the value of their inheritance. By incorporating retirement assets into your estate plan, you can strategically reduce income tax exposure for your loved ones.
How Does Estate Planning Protect My Legacy and Loved Ones?
Creating a will or trust helps you protect not just your assets, but also your family’s well-being and long-term financial stability.
With proper planning, you can:
- Provide for both a spouse and children from a prior marriage
- Prevent your children’s inheritance from being lost to divorce, lawsuits, or creditors
- Reduce the risk of poor financial decisions by young or inexperienced beneficiaries
- Ensure sentimental items and personal property go to the right people
You can also use your plan to pass on family values, support charities, or even create incentives. For example, you can set aside funds for education, travel, or milestones like marriage. In fact, studies show that 70 percent of family wealth is depleted within the two following generations. Moreover, 90 percent is depleted within three generations.1 With thoughtful planning, you can avoid becoming part of that statistic.
Why Can’t I Just Tell My Family What I Want?
While open conversations are important, verbal wishes are not legally binding. Only a signed and properly executed will or trust ensures that your goals are carried out under Colorado law. Without these documents, your estate may be distributed according to the state’s default laws—regardless of what you said during your lifetime.
Take Control of Your Legacy Today
Whether you’re just starting to think about estate planning or need to update an existing plan, don’t leave your loved ones unprotected. In the dilemma of Wills vs. Trusts in Colorado: Which One Do You Really Need?, a well-crafted will or trust provides clarity, reduces conflict, and gives you peace of mind.
Contact us today to schedule a consultation. Begin creating an estate plan that reflects your goals, values, and love for your family.
- How real is the third-generation curse, and how can financial advisors tackle it? CFA Institute (Feb. 6, 2025), https://www.cfainstitute.org/insights/articles/third-generation-wealth-curse-advisor-solutions. ↩︎
