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Another Reason for a Trust – Multiple Beneficiaries

There are many reasons to use a trust to avoid probate rather than simple beneficiary designations.  I often use them if the beneficiaries are minors or need someone else to control the money.  Trusts can also be used to simplify real estate or just have one person in charge when someone passes.  But recently, I’ve encountered a few clients where I’m recommending a trust for another reason: multiple beneficiaries on different assets.

If you have one person as a beneficiary on your retirement money, another on your life insurance, and another on your investment accounts there can be problems.

First, you aren’t guaranteeing any of these beneficiaries money, let along a specific amount of money.  For instance, if you are 65, most of your money probably is in your retirement account.  So, you may think that beneficiary would be getting a substantial amount of money.  However, if you live another twenty years, that money will transition slowly from your retirement account to other assets, such as your investment account.  As this happens, if that investment beneficiary is different than your retirement beneficiary, your investment beneficiary may be getting much more than you originally planned and the retirement beneficiary may get much less.

And that is if you’re in charge of the money.  If you think of it, you may be able to adjust beneficiaries to account for that discrepancy.  But think of how much worse it is if by the time this is happening, you’re no longer capable and your power of attorney is making decisions for you.

In that case, your power of attorney must think about where to pull money to pay bills and expenses.  If they don’t know or don’t understand the nuances of what beneficiary is on which account and how much you would like that beneficiary to get, there is no way they can follow through on your plan.  This means they would really just be figuring out the best way to take care of you.  Then, unknowingly, they could be pulling money from an account and a beneficiary you don’t want them to touch!

Or the asset listing a beneficiary may not even exist by the time you pass.  A life insurance policy may lapse, or a home may be sold.  If those were the only assets designated to a beneficiary, then the beneficiary would end up with nothing.

A much simpler way to provide for multiple beneficiaries, would be a trust.  Within a trust you can turn the amounts you want beneficiaries receive into percentages.  This ensures that any money left will be divided amongst all your loved ones and no one will be accidentally disinherited.

In addition, a trust would allow someone you trust to focus on the best financial decision for you without having to worry about beneficiaries.  This would allow them to make better decisions and save them the worry of a beneficiary suing them for pulling money from an account that benefited the beneficiary.

Trusts have many other benefits as well, but with complicated plans, like multiple beneficiaries, a trust can make things a lot more simple.

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My Parent Passed Away Without a Will – Burkhardt Law Firm

Last month we talked about the legal process about what happens if you do not have a will.  But what do you actually do when you lose a parent and they passed without a will?  How do you gain access to their assets and determine who should get them?

The first step is gathering a list of your parent’s assets, financial statements, and tax records.  Financial statements often indicate ownership of the account.  If an account has a joint owner listed or has a POD, payable on death, then that asset will transfer to the person named and will not need to be probated.  If you locate their car title it may also list a joint owner or a TOD, transfer on death.  Again, if a joint owner or TOD was listed, this asset would avoid probate and can be transferred without the probate court and without a will.

If all of the assets you locate have a joint owner or a beneficiary designation, you will not need to go through probate.  However, if you find assets that did not have a joint owner or a beneficiary designation, you may petition the court to open a probate estate to handle those assets.  In that situation the beneficiaries would be determined by the state intestate law of the state where your parent died or owned property.

If you will have to probate assets and you have siblings, you may want to try to agree on the person you want to be “in charge” of your parent’s estate. That person would be the one to hire an attorney and petition the court to open a probate estate.  You will want to hire an attorney that practices in the county and state where your parent died or where they owned property.  The attorney will be able to assist you in getting the court to appoint you as personal representative or administrator of the estate. Your attorney will be able to determine which probate process will be needed based on the circumstances. Keep in mind, that in some counties, only an attorney may file a petition with the probate court.

To open a probate case, you will need the full legal name, address, date of birth, and social security number of each of the heirs. Your attorney will also need to know what assets are to be probated and the value of those assets.  A copy of the death certificate will also be required when your attorney files the petition.  If you have all this information gathered when you meet with your attorney, it will help get the process started sooner. Once your attorney has met with you to determine which probate process is appropriate, they will be able to walk you through the rest of the probate process and let you know what to expect.

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What Happens Without a Will – Intestate Law and Probate

If all of your assets have beneficiary designations, you may be able to avoid the long process of probate.  However, if any assets do not have beneficiary designations, a probate process may be necessary.  If you have a will, you will have more control over how probate works.  You will be able to let the judge know who should get any assets that remain without beneficiary designations.  Without a will to tell the judge who you want your assets to go to, the judge will apply the state intestate laws to determine who will get the assets.

Without a will under Missouri law, the surviving spouse will receive everything if there are no surviving children of the person who passed.  If there are surviving children and all of them are also children of the surviving spouse, the surviving spouse will get the first $20,000 in value of the estate, plus ½ of the balance.  The children then get the remaining half. If there are any children who are not also the children of the surviving spouse, then the spouse will inherit ½ of the estate and the children will receive the other 1/2.  If there is no surviving spouse, then assets would be distributed equally among decedent’s children or their descendants.  If there are no descendants, then to the father and mother. If no parents survive, then to brothers and sisters or their descendants in equal parts. If there is no spouse, no descendants, father, mother, brother, sister, or their descendants, then to the grandparents, uncles, and aunts, or their descendants. If no blood relatives can be found, then the property goes to the state.

Without a will, a relative who is estranged could receive benefit from your estate.  In a will, you can specifically disinherit a relative if you choose to do so.  You may also choose to leave assets to a close friend, a favorite charitable organization, or your partner whom you are not legally married to.  Those people would not inherit from your estate without a will because they are not a spouse or blood relative.

Another reason to avoid intestate laws is the added time it could take to probate the estate.  Our firm has had experience probating an estate where the surviving relatives were cousins, some of them even being as distant as cousins twice removed.  And there were over 25 of them!  When an estate passes to relatives this distant, the relative may not even know the decedent.  This can often make it harder to get everyone to sign documents that would speed up the process.  It could lead to the need for a hearing that will cost even more money and time!

A will can tell the judge who you want to get your assets.  A will can waive bond to save some of the costs associated with the probate process and you can also request independent administration that can help speed up the process.  A will helps put you more in control of who gets your assets and how the probate process will work.  If you want the control of what happens to your assets when you die, you should contact an estate planning attorney who can help your loved ones avoid a long and expensive probate process.

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Who Should I Choose to Make Decisions?

When you are ready to create an estate plan, there are many important decisions to make.  One of the most important decisions you will have to make is who will make medical and financial decisions for you.  And if you have children you will also need to choose someone to act as guardian if something happened to both you and your spouse. It is a tough decision.  And it should be. The person you choose will be able to make very important decisions.  You may choose the same person to make both medical or financial decisions or you might decide to choose one person to make medical decisions and a different person to make your financial decisions.  You will also want to come up with backup options in case the person you choose is unable or unwilling to serve when the time comes.  So, you may be wondering, how can I make such a hard decision? How do I choose who will make my medical and financial decisions when I no longer can?  Here are some things to consider when trying to decide who should be making these decisions on your behalf:

Start by thinking of who possible options are. Think of your relatives who you trust. Maybe it is your spouse, your sister or brother, your adult children, or your favorite cousin.  If family isn’t an option, because they are not a part of your life or if you just don’t trust their decision making, you can always look outside of your family. Some people don’t realize that it doesn’t have to be family.  If you’re more comfortable with your best friend making decisions and they would be willing to do so they could be an option as well.  Maybe you don’t have a family member or friend that would be a good candidate. Another option would be for an independent party to act for you.  Banks, financial companies, and even accountants can take the role of a Trustee.  This option does cost money so may not be the best option for all families.

Now that you have some people in mind, start by asking yourself some of the following questions about each person you are considering:

Do you think they would make the same decisions you would make? And if not, do you trust that they would still follow your wishes.  Maybe they wouldn’t make the same decisions that you would make for yourself, but you still know you can trust them to do what they believe to be in your best interest. That maybe that is enough for you.

Do you think the person is mentally and emotionally capable of making those decisions?

Is their age or physical limitations of concern?

Are they local? With technology today, your decision maker doesn’t necessarily have to live locally but if you have two really good options and one is local and the other is not, you might decide to go with the one who is local for convenience.

Do they make good financial decisions?

Are they responsible?

Are they organized?

Do they have time?

Does the person have expertise in managing finances or the health care field? While it is not necessary for the person to have such expertise, it may help you in your decision making. For example, if your brother is a doctor and your sister is a financial advisor, maybe it makes sense for your brother to make your medical decisions and your sister to make financial decisions.

It is important to speak with an estate planning attorney who will be able to ask questions about your family and individual circumstances to help you make the decision best for you.

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The SECURE Act: Your Retirement and Estate Plan

One of the major places many of my clients save is in retirement accounts.  This may be in a 401k, IRA, 401a, or 403b, among others.  Unless set up as a Roth account, when money is taken out of these accounts, income tax will have to be paid.  Because this is one of the largest tax implications my clients will see in their estate plans, it’s an important subject.

I’m writing about this now because the Setting Every Community Up for Retirement Enhancement Act of 2019, otherwise known as the SECURE ACT, went into effect January 1, 2020.  This act brings many changes for retirement plans and if you have a significant amount of money in retirement accounts, it will affect your estate plan.

If you inherited a retirement account prior to January 1, 2020, you were able to rollover the inherited money into your own Inherited IRA.  However, every year the IRS requires you to take out a small amount of money from the account which you would pay taxes on.  The benefit here is that it is based on your age and could be taken over your lifetime.  Thus “stretching” the money and taking out a smaller amount each year, and ultimately paying less on taxes.

However, under the new law, retirement accounts inherited after January 1, 2020 will now have to distribute entire account within 10 years of the year of death of the owner of the account.  There are some exceptions to this new rule, but the important aspect of this law is that it is a major tax change.  Because it is such a large change, we sent out letters to our clients letting them know about this change.

Even before this law went into effect, we often recommended clients keep retirement money away from trusts, which are taxed at higher rates.  Every client we see gets a personalized recommendation on how to list beneficiaries on retirement accounts.  Now, with this tax change, we are recommending all our trust clients to review how their retirement account beneficiaries are listed.  In addition, for our clients that list their trust as the beneficiary on retirement accounts, we are recommending updating their trusts to account for these changes.

So, do you know how you have your beneficiaries listed on your retirement accounts?

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Estate Planning for your Graduate/Adult Child

If you have a recent high school graduate, likely they recently turned 18 and are now legally an adult.  Unfortunately, due to the pandemic the end of high school may not have turned out as planned as many proms, graduations, and other end of school year events were cancelled.  Pandemic reminded us all just how unexpected life can be.  Many people began thinking about estate planning.  Did you know that once your child turns 18, parents can’t access medical and financial information for their child?  As you spend the summer helping your now adult child prepare for the transition to college and help them with shopping for school supplies, furniture, and clothes for this next chapter in their life, you should add to the to do list, estate planning.

Due to the privacy rules of HIPAA, parents have no legal right to their adult child’s medical records or other health care related information.  If your child is involved in an emergency you don’t want delays in getting information or assisting in making medical decisions.  Your recent graduate  should execute a medical power of attorney and health care directive.  This will allow your child to determine who should make medical decisions if they are unable to make them for themselves.  It would also be good to execute a HIPPA authorization that would allow the child’s health information to be disclosed.  It is also a good idea for your now adult child to execute a financial power of attorney as well giving someone the authority to deal with financial decisions and sign legal documents on their behalf.  You may also have them execute a FERPA release.  The Family Education Rights and Privacy Act can protect your child’s educational records.  Having your child sign a FERPA release could allow for a parent to access information and educational records if needed.

As you begin making summer plans, don’t forget to add a consultation with an estate planning attorney to your agenda for your recent graduate!

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Medical Decisions – the Medical Power of Attorney and Healthcare Directive

It is a good idea to have a Medical Power of Attorney and Healthcare Directive in place for when the time comes that you are unable to make your own medical decisions.
A Medical Power of Attorney allows you to select a person of your choosing to make medical decisions on your behalf when you are not capable. You may hear this person referred to as an agent. You may even select back up agents in case the person you choose in unable or unwilling to act as your agent when the time comes. In addition to other powers, your agent can be given power to consent to, prohibit or withdraw medical treatment. It is important to choose someone that you trust to follow your instructions even if they would not make the same decisions themselves. This document goes hand in hand with a Healthcare Directive where you can make your wishes clear to the person you have chosen to make decisions for you.
In a Healthcare Directive you can make the job of your agent easier because they will know what your wishes are. It may even help reduce conflict between family members when they can see that the other family member was acting on your wishes and not on their own. If there was no reasonable expectation of recovery from a serious illness or condition would you want life-prolonging procedures to be withdrawn? If so, you can make those wishes known through your Healthcare Directive. If a doctor believes that life-prolonging procedure may lead to a significant recovery would you want your doctor to try the treatment for a period of time but withdraw it if does not improve your condition? Again, these wishes can be placed in the Healthcare Directive so that your agent will know how to proceed in such circumstances. Would you want to be given treatment for pain? Do you wish to donate your organs upon your death? These wishes can also be written into your Healthcare Directive.

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Trusts: Do you need a Trust?

Often times people know someone who have a trust and so they think they need one too.  Not every estate plan needs to have a trust.  Every family has different circumstances, so just because your friend has a trust doesn’t necessarily mean that you need a trust.

There are some benefits of having a trust in addition to a will.  Assets held in trust avoid probate.  However, a trust is not the only way to avoid probate.  Proper beneficiary designations on all assets can also avoid probate. Therefore, if you’re only creating a trust because you think you need one to avoid probate, you might reconsider.

However, if you want to control your money after you’re gone, a trust is the easiest way to do so.  If you don’t want your child to receive a big inheritance all at once, a trust can be set up to distribute the inheritance over time, at ages that you decide.  You might choose to leave a certain amount upon the child’ s graduation from college, and then give a certain percentage of the inheritance when they are 25, or 30, or whatever age you feel appropriate.  If there are drug or alcohol abuse issues, a trust can help control how money is spent for a beneficiary.  A trust may help protect assets from a divorce. If you have a child with special needs, a trust is a good tool to provide for your child.

If you have young children a trust can help provide for them and can avoid probate for a conservatorship.  A minor can’t just be given all the assets, so by creating a trust, a trustee will be able to distribute money for the child until they are old enough to handle the money themselves.

It generally costs more to set up a trust.  If your circumstances warrant having a trust the extra cost shouldn’t deter you.  However, if there isn’t as much of a reason to control the assets, and you properly title all assets with beneficiaries, the cost maybe an unnecessary expense.

It is a good idea to speak with an attorney who can ask questions about your family circumstances to help you determine whether or not a trust would be needed to meet your needs and wishes.  They will be able to help you understand the pros and cons of implementing different estate planning tools.

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What Next? After Executing Your Estate Plan

Congratulations on getting your things in order.  The process of estate planning is often one many people avoid because they just don’t want to think about it.  You have been responsible and met with an attorney to prepare your estate plan and have signed and finalized all your documents.  You may think you’re done and not think about it again.  However, there are still some things you should consider after executing your documents.

If during the process of creating your estate plan, you didn’t speak with your family about your plan, now would be a good time.  If you speak to them now, there are less likely to be family disputes because everyone is aware of your intentions. It is also good for the family to know there is a plan, so they know to look for it if needed.

When you receive the original documents from your attorney, you should place them somewhere safe.  A good idea is a fire-safe if you have one.  Be sure that someone you know and trust knows how to get into that safe.  A will must be admitted to the Probate court within one year of death.  If no one knows you had an estate plan or where to access the will, it will be as if you never created a will and your assets could pass through intestate law.  This could mean the people you intended to inherit may not.

You have placed your documents somewhere safe and spoken to your family. What’s next? I would strongly recommend keeping track of how your assets are titled including any beneficiaries.  If you purchase a new car you will want to remember to add beneficiaries to your title using a transfer on death designation or TOD.  If you purchase a new home, open new bank accounts, get new life insurance, open a new retirement account, etc., you will want to remember to add beneficiaries to those assets so they can avoid going through probate.

If you have any major life changes, divorce, death, etc., it is always a good idea to review your plan with an attorney to make your sure documents don’t need any updates based on those changes.  It is always a good idea even without any of those major life changes to review your plan at least every five years.

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But Chances Are So Small – Estate Planning – Burkhardt Law Firm

The number one reason I hear for why people they don’t think they need an estate plan is: “Well, my spouse is named as a co-owner on everything I own or is a beneficiary on everything I own and the chances of us dying at the same time is small.”  Well, even if you are right and you and your spouse don’t pass at the same time and your beneficiary designations avoid probate, there are reasons why you still need an estate plan.

Things can fall through the cracks, and you may forget to put a beneficiary designation on a new asset, or there may be other unforeseeable assets that don’t have a beneficiary designation and will therefore go through Probate.  A will is a good way in those circumstances to be able to tell the Probate court what to do with those assets.  A will can waive bond and ask for independent administration which can reduce the cost and time if assets have to go through Probate.

A good estate plan does not only plan for death, it is also a plan for when you are living but incapacitated.  An estate plan may include both a medical power of attorney/heath care directive and a financial power of attorney.  These documents are utilized while you are still alive.

If you have retirement accounts, your spouse cannot be an owner of your account.  They can be a beneficiary, but that beneficiary designation does not give them any rights to access your account or funds from the account until you have passed away. If you to need to access money from your retirement account and are not capable of making financial decisions the only way to do that is through a financial power of attorney.  A financial power of attorney will allow someone of your choosing to make financial decisions and access funds when you are not capable.  If you do no not have a financial power of attorney, there may be a delay and added cost if someone has to go through the court system for conservatorship in order to access the funds. This is just one of many reasons a financial power of attorney is an important document to make part of your estate plan.

The other document utilized as part of an estate plan during your life is the medical power of attorney/heath care directive.  If you are not capable of making medical decisions for yourself a medical power of attorney will allow a person of your choosing to make medical decisions on your behalf.  Do you have specific wishes for end of life? Would you want treatments like feeding tubes to be removed if the doctor did not believe you would have significant recovery?  It is important to make your wishes known and this can be done through a medical power of attorney/heath care directive.

Even if you are not concerned about assets passing through Probate, I strongly suggest considering an estate plan so that you can have access to funds when needed through a financial power of attorney and to make your end of life wishes known through a medical power of attorney/heath care directive.

Burkhardt Law Firm

Phone: (314) 518-1581
Email: mburkhardt@burkhardtlaw.com
Address:
2333 Grissom Dr., Suite 107
St. Louis, MO 63146