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Estate Tax Planning in Colorado

Navigate the complexities of estate tax planning in Colorado with this authoritative guide by Duncan Legal, PC. Call us today for more information.

Securing Your Future Generations With Colorado Estate Tax Planning

Estate taxes are taxes imposed by the federal or state government on a deceased (decedent) person’s estate before it is transferred to the rightful beneficiaries. It is one of the three types of taxes usually charged after a person’s death, the other two being gift tax and inheritance tax.

Some states do not charge this tax, but the rates vary in states that do and under federal law. Sometimes, it could be as high as 40 percent of the value of the decedent’s estate. Paying taxes with such high rates could severely deplete the estate and leave the decedent’s beneficiaries with far less than they should have received.

If you intend to leave your assets to your loved ones, you may want to ensure they do not have any issues with Colorado estate taxes when you’re gone. In that case, you need to be proactive and create a solid Colorado estate plan that centers around estate tax reduction.

The estate planning attorney at Duncan Legal, PC, can help you navigate the estate tax planning process to ensure that your beneficiaries receive the bulk of your assets. In the meantime, this guide explains how estate taxes work in Colorado and some common estate tax planning strategies to keep you informed before you begin the process.

Is There an Estate Tax in Colorado?

Currently, there is no state estate tax in Colorado. However, the federal government requires the payment of estate taxes over the estates whose value exceeds the filing threshold specified by the Internal Revenue Service (IRS).

For example, the filing threshold for the estates of people who died in 2023 is $12,920,000. If the value of their estate is beyond this amount, then they(their estate) would need to pay estate tax.

Because of the high filing threshold, most people would not need to pay the tax since their assets may not be up to the specified value. But for those who qualify, payment of estate tax can greatly diminish the estate’s value due to the high federal estate tax rates( between 18% to 40% of the estate).

 If you own a high-value estate, now is the time to begin the estate tax planning process and ensure that the bulk of your estate is secured for the sake of your beneficiaries.

There are a few federal estate tax exemptions that could help you achieve this goal, such as the marital exclusion, which exempts property inherited by a surviving spouse from estate taxes. An estate planning lawyer can help you understand how each federal estate tax exemption works and how to use them to minimize or avoid payment of estate taxes entirely.

Common Estate Tax Planning Strategies in Colorado

If you suspect that your estate exceeds the federal estate tax threshold, there are strategies you could employ to minimize or avoid estate taxes legally. These strategies generally work to reduce your estate’s overall value so that it doesn’t exceed the exemption limit.

Additionally, some of these methods can help you minimize property taxes and achieve a seamless transfer of your assets to your heirs, which could help them avoid the complexities of the probate process.

They include the following:

Setting Up a Limited Liability Company (LLC)

If you own property or financial assets that form part of a business, you could set up a limited liability company and transfer those business assets to the company. An LLC is a separate legal entity. That means property transferred to the company no longer qualifies as yours; as such, it cannot be counted as part of your assets for estate tax purposes. 

There are many legalities associated with setting up an LLC. It is important that you seek the help of a lawyer to execute your plans if you’d like to explore this strategy.

Giving Gifts During Your Lifetime

You can reduce the value of your estate by giving out assets that you may have left in your Last will and testament as gifts to the intended beneficiaries.

 However, you must be strategic with this approach because a federal gift tax is imposed on certain gifts given by individuals and married couples. If the value of gifts given to a person each year exceeds a certain amount ($17000 for individuals and $34,000 for married couples for gifts given in 2023), then you’ll need to pay the tax. But gifts valued below the given figure are exempt from taxation.

So, every year, you can give parts of your estate as gifts to your beneficiaries, provided that the total value of the gifts you give to each person does not exceed the threshold amount for the year.

 Doing this consistently over a period could help reduce the value of your assets, which could, in turn, reduce the amount of estate taxes that would be payable over your estate.

Setting Up a Trust

A trust is a legal arrangement that allows you to transfer your assets to another (the trustee) for the benefit of those you specify in the trust document.

Creating a trust is one of the most effective ways to reduce your taxable estate because once you transfer ownership of the trust assets, they are no longer counted as part of your estate for estate tax or any other purpose. Many wealthy Americans use this technique to shield their assets and ensure they pass seamlessly to their heirs.

There are different types of trust in Colorado, some of which allow you to control the trust assets and Trust Administration process during your lifetime. They include the following:

  • A living trust that allows you to control your assets while you’re alive

  • A dynasty trust that allows you to provide for your descendants and distribute your assets across multiple generations 

  • Charitable trusts that would help you support your favorite charities

  • Disability trusts to help you provide for a loved one with special needs or disabilities.

Choosing the appropriate type of trust for your circumstances could be difficult because of the multiple options available. An Experienced Trust Lawyer can assess your case and help you determine what type of trust would yield the most benefit depending on your unique goals.

Contact Duncan Legal, PC, for Help With Your Estate Tax Planning

The estate tax planning process could be complex Because there are several factors and options to consider. For the best results, it is important to seek professional help from an attorney who can provide top-notch estate planning services and guidance throughout the process.

You can get the guidance you seek at Duncan Legal, P.C. If you let me, I can simplify the estate tax planning process for you and help you decide on the appropriate estate tax planning strategy based on your goals.

So, if you have further questions about estate and gift taxes or want to begin the estate tax planning process, schedule a consultation immediately to get started.

Flat-fee options are available for wills, trusts and probate:

(303) 394-2358