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Burkhardt Law

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Not Just One – Using One Beneficiary, Instead of Multiple

In the past month, I’ve talk to two different clients who have listed one person as a beneficiary on an asset when the asset is meant to go to multiple people or another person entirely.  If you have done this, please stop reading, and go change it right now!

Now the most common place I see this is for minor children.  Parents will put the person who is supposed to use the money for the child as the beneficiary on life insurance.  Now, I really dislike this for two major reasons.  First, that person is the legal owner of the money and does not have a legal obligation to use it for the child.  Well, if you trust that person enough with the money, hopefully that’s a non-issue.  But even if that’s not an issue, what happens if that person inherits the money then dies?  Chances are it will not go back to the children, but rather a spouse or that person’s children.  Just best to avoid by planning properly for minor children.

The other time I see people do this is for real estate.  They want to avoid a beneficiary deed where all the beneficiaries (and their spouses) must sign and make decisions together; instead they put one person on the beneficiary deed and tell them their wishes.  But the problem is that person has no legal obligation to share the money as instructed.  Further, while there may not be a tax consequence, there are likely extra tax returns that should be filed (which probably won’t be).  In the end, it causes a bigger mess than just creating a proper estate plan with a trust.

Finally, the biggest asset this is a problem with is traditional retirement money.  Instead of listing all the beneficiaries on an IRA, I had a client only list one sibling and ask them to share that money among all eight siblings.  Again, this person has no legal obligation to share, which makes me wary, but even more importantly there is likely to be a tax problem here.  Traditional retirement money has not had income tax taken out of it yet and so when the account is liquidated, income tax is paid at that time.  So, if a person inherits the retirement money, then liquidates it to divide it, that person will be paying a lump sum of taxes.  Instead, by listing all intended beneficiaries, each beneficiary will have the option to retain the retirement money as an inherited IRA, and only pay taxes in small amounts each year.  A much more tax efficient option.

So, if you have set up your plan listing one person instead of all the intended beneficiaries, you might want to reconsider your plan and even start thinking about a trust.

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A New Year’s Resolution – Don’t Wait to Plan

A New Year’s Resolution – Don’t Wait

We have had the wonderful privilege of being extremely busy since I have returned from maternity leave.  I feel extremely lucky and blessed that my clients and those who refer me trust me enough that we had a great 2018 and are looking forward to a full and eventful 2019.  So, thank you to all who read this for your continued faith and trust in me.

However, I do have a bit of a request.  As we enter 2019, if you hear someone talking about a will or power of attorney, any estate plan, with the phrase “We’ve been meaning to do that…” or anything similar, please interrupt.  Now, estate planning is my business, so of course, it’s a bit self-serving.  But that really isn’t the reason.  I’ve had many acquaintances over the years who haven’t used me for one reason or another, and I understand when that happens.  A person can be too close.  But even when I’ve been told a potential client has had their plan done elsewhere, I thank them for getting it done.  Because it can be too late to plan.

I’ve helped a lot of families form a plan to avoid probate, but this year we’ve also helped many loved ones grieving sort through when a plan wasn’t in place.  And I’ll be honest, I prefer the planning in advance.  Many times, probate is simple, a few months, everyone getting along, and a magic court order that gives easy access.  I try to help it work this way any opportunity I can.  That, of course, isn’t all the time.  If there are people who need access to funds immediately, families that are more complicated, or just small assets spread everywhere, it can make probate a nightmare.  Unfortunately, I also have had to tell many families that with the amount of work (and legal fees) involved, probate just wouldn’t be worth it.

There’s also the call I get on a regular basis, where a loved one wants to help get a person a power of attorney, but there’s a question of capacity.  Sometimes, we’re able to proceed, but more often then not, it’s too late.  In that situation, the only way to access accounts would be to go to the court and petition for a conservatorship.

I hate those calls where I am the one breaking the news that court is the only way and often not a practical way because of the legal fees.  It’s terrible for me, and I’m not the one dealing with the situation.  So, do me a favor this year, and if you hear anyone making a resolution to get their estate plan encourage them not to wait!

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Trust versus Beneficiary Designations

At least three times a week I am asked the difference between a will and a trust.  There are a few differences, but first I always like to point out that a will requires probate to be effective.  So, when planning for a client, I don’t often like to compare a will and trust, but rather a trust and beneficiary designations.

You can use both beneficiary designations and a trust to avoid probate, but the main reason a people choose a trust is control.  To me, control is the best reason to plan with a trust.  Legally, a trust is an entity that separates the control of assets from the use or benefit of those assets.

For families with minor children, I almost always recommend a trust.  Without a trust, even using beneficiary designations, you cannot avoid probate.  Minors cannot be in control of their own money, so a trust allows a legally responsible adult to make decisions over the assets for the benefit of the children.  It then sets up ages or life events when the children get the money.

Another common reason I recommend trusts are when there is real estate involved.  In Missouri, if a person has their name on real estate, their spouse also must sign off on any real estate transactions even if the spouse is not on the real estate.  So, if a person leaves real estate to someone through a beneficiary deed (the way to put beneficiaries on real estate), everyone on the deed plus their spouses will need to sign for the property when it is inherited.  Often, my clients would rather not involve the spouses or even have all beneficiaries make decision on the property.  Instead, they do a trust where one person makes decisions on the real estate and multiple people have the use or receive the proceeds.

One of the final reasons clients use a trust is to control how the money is paid out.  If a beneficiary is not responsible enough or has an addiction where the money would be harmful if the beneficiary had full access to the money.  In those situations, the trust can allow another person to use the money for the beneficiary or to give out money in regular installments like an allowance.

There are, of course, other reasons I consider trusts.  Family dynamics, contingencies, real estate.  However, when it comes down to it, the reason my clients choose a trust over a will or, more appropriately, beneficiary designations is it gives them control over how the money will be left.

 

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Talk Now – Discuss Your Estate Plan

As the holidays approach, many people gather with their loved ones and take some time out of the year together. As you get together, it is a great time and perhaps a rare opportunity to discuss your estate plan while everyone is together.

Many families never talk about finances before the whole family becomes involved in decision making. And I can understand that money can be a very personal issue. So I respect not sharing all of the details or amounts, but having everyone know the general plan can forestall some arguments. A few of the things I would suggest sharing:

Who’s making decisions – When the times comes for someone to act on your behalf, it’s easier for everyone if they already know who will be making those decisions. They’ll know why the person was selected and they are more likely to honor your wishes. If they don’t like it or are upset with not being chosen it also gives them a chance to object to the right people and avoid blaming the person you’ve chosen.

How the plan works – Your loved ones should know if you have a trust, beneficiary deeds, or just an idea of how your plan works. This will set reasonable expectations for how much people will need to be involved and how long things will take. Part of my job is trying to make sure a client understands how their own plan works, but sometimes trying to explain your own plan can be difficult, so it’s also nice to include your family as you’re planning so things are fresh.

Who to contact ­– Often times clients want me to meet their family, so their family has a contact for questions when they need one. And I’m happy to do so. It also gives me an opportunity to explain the plan if my clients desire. However, the legal side often isn’t extremely urgent when something happens. A person’s financial advisor and CPA really should be the first phone call so tax problems can be avoided by moving money improperly.

Stuff – Personal property, or the stuff inside your home, doesn’t have a title and because of that ownership can be problematic. It’s this stuff that can cause problems. If a person wants something, there is very little, aside from honesty, to prevent them from taking it. However, if everyone involved has clear expectations then there’s more accountability if there are problems.

By taking the time to discuss your estate plan, your loved ones can be a little more prepared for a time that will never be easy. So, what better opportunity to talk than now while everyone is together?

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The Need to Plan – Why Make an Estate Plan?

Every month I try to find a subject about estate planning to clarify and share my insights. After years of writing, it gets a bit harder each month to think of something new. Normally, questions throughout the prior month and weeks give me something to write about. However, this month, there really hasn’t been one subject that’s stood out to me. If anything, it’s been more of a question of why plan at all?

Of course, there are a lot of good reasons, but unfortunately, I’ve been reminded recently that the best reason is you never know. You just never know when you won’t be able to make that plan. Even as I write this, I am waiting for a family member to let me know if I need to rush to the hospital tomorrow for a friend.

I’ve seen children who’ve lost their parents, a wives who’ve lost their husbands, siblings who’ve lost their sisters. No matter the circumstances, the situation is never easy. I’m hopefully that I can help make that hard time a bit easier, but even easier is not having to worry about the law when you’re already mourning or taking care of a loved one. If there’s an emergency, you don’t want to have to find an attorney, you want to be able to act.

You want the right people making decisions. Without the proper documents in place, the court is likely going to choose who can make decisions for you… if anyone does. I’ve gotten many phone calls about someone who is no longer really aware of their surrounds and a loved one wants a power of attorney. At that point, the person can no longer sign a power of attorney and the court must appoint someone. Unfortunately, this is not an easy nor inexpensive process. Often times, the cost prevents a person from going to court and no one is then able to make decisions.

No matter your reason or reasons, the need to make a plan is an important one and shouldn’t wait until the plan isn’t yours to make.

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Why I Don’t Like Wills (But Still Sometimes Recommend Them)

One of my pet peeves is hearing about how because there was a problem with a will a person’s assets went through probate. I hate this sentiment, because it wasn’t a problem with the will, it was a problem with the person’s understanding of wills!

A will is essentially instructions to the court on how to handle the estate of a person who has passed. It is meant to go through probate. It is the only way for the court to verify the will is legally valid, the last created will, and give notice to those who are required to have it under the will. So a will is really a very poor legal document to rely on to transfer assets upon a person’s death.

Now, that being said, I still often times recommend creating a will. But I make very clear to my clients, the will is a back-up to whatever other legal device we are using to transfer assets upon death. Should an asset need to go through probate, wills allow a person to decide where assets should go and change intestate law. This includes leaving money to non-family or charities, as well as, disinheriting the intestate heirs.

A will can also reduce fees in a few different ways. First, it can reduce the signature requirements of all the heirs or people involved in the process, thus reducing legal fees. Secondly, a will can waive bond, which is another place that can cause additional fees. Finally, it can specify the Personal Representative (or Executor) and reduce potential legal fees if all of the beneficiaries of the will do not agree on who the Personal Representative should be.

And finally, for parents of minor children, a will is the only way to state their wishes for guardianship.

So for all these reasons, sometimes wills are necessary. However, I still don’t like them, hope to never need them, and rarely rely on them.

 

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Back to School: Powers of Attorney for the “Adult” Student

My children aren’t even of school age and I’m being bombarded with back to school information. And if you have a child under the age of 22, you probably know in Missouri there’s no sales tax this upcoming weekend (Aug 3rd to 5th) on back-to-school purchases. It’s already that time of year when parents are preparing to send their children back to the classroom. But if your children are heading off to college, decorating and supplying a dorm room might not be the only thing you need to think about.

According to federal laws, once a child turns 18, parents no longer have the ability to make decisions or even access information about the child. So, for those parents, I strongly recommend financial and medical powers of attorneys.

Properly executed powers of attorneys will give parents access to their children’s medical records and also information from the school that the child may not otherwise disclose.

So as you prepare to send your children back to school this year, if your children are college bound, perhaps consider asking them to execute a power of attorney.

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I Don’t Know: Finding a Good Attorney

For many of my clients I am the only attorney they have (and hopefully will ever have) had. But sometime life can require a good attorney and it’s important to know what you want.

As my professors drilled into me, law school teaches you to think like an attorney. It does not teach you the law. That means we come out of law school really knowing very little about what the law says. I am licensed to practice almost any time of law. That being said, I do not and I do not recommend an attorney who practices a large variety of law.

I focus on estate planning. And I say “focus on” very specifically because ethically attorneys are not allowed to claim expertise or a specialty unless they have extra certifications (i.e. certified Elder Law attorneys). I have focused on and helped hundreds of families with estate planning over the last 6 years. That practical experience helps me fit all of my clients with what I consider the best plan for them.

I feel very comfortable in my knowledge basis and am confident in the legal advice I provide. However, I also do not hesitate to say “I don’t know.” There are many types of law I have no practical experience with (patent law being one of them). Elder law is also a very specific and difficult type of law and one that is can cause problems quickly. As such, I don’t attempt it. When I have clients with elder law questions, I am very quick to refer to an attorney who is Elder Law Certified.

In my opinion, any time you have to hire a professional, especially an attorney, it’s best to find one who has years of experience with your questions. But it’s also just as important to find a professional who will say “I don’t know.”

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Don’t Forget…. To Title Your Assets!

I meet with most of my estate planning clients three times and in each of those meetings I (try to) emphasize that an estate plan is truly controlled by how assets are titled. Of course the legal documents are important, I wouldn’t have a job if they weren’t. But the documents I create don’t mean anything unless we know how the assets are titled.

This is because it is really how an asset is titled that determines where the asset goes and if it will have to go through probate.

If there is a co-owner with a right of survivorship (this is generally called Joint Tenants with Right of Survivorship or JTWROS), then the property passes to the co-owner. This is also where trusts fall. In order for the trust to control, the title must be in the name of the trust and the trust must be the owner. The new owner under this ownership will have control and ownership completely outside of probate.

If there isn’t a trust as the owner or there isn’t a co-owner, then you look to see if there are beneficiaries. If there are beneficiaries, then they then own the property. And when I say beneficiaries, I also include Transfers on Death (TODs) and Payable on Death (PODs) designations. Again, these beneficiaries take ownership without probate.

It is only after ownership or beneficiaries that a will would control. If there are no co-owners and no beneficiaries, then whomever would get the property under the will is the new owner. However, a will must go through probate to transfer the property to the new owner.

And finally, if there are no co-owners, no beneficiaries, and no will, then intestate law controls and heirs get the asset. But again, the heirs would have to go through probate to gain access to the asset.

So, do me a favor, if you or a loved one has assets you’re worried about going through probate, CHECK HOW THEY’RE TITLED!

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What Type of Estate Plan Do You Need? Choosing the Right Estate Plan

When I work with clients, I see so many different family types and not everyone has the same needs. There are some generalities that I use to guide what plans the different type of families need. For instance, I think most families with minor children need a trust. However, even then, not all clients fall into those generalities. That’s why it’s so important to evaluate each family’s need individually through a consultation. However, even at the end of the consultation, I think it’s extremely important for a client to understand and choose their own estate plan. Part of this is understanding the documents and how they work, which I’ve explained many times. But another large part of choosing the right estate plan is knowing the different considerations that go into the plan.

One of my first questions when sitting with a new client is always about their family and who we’re planning for. The more complicated a family is (i.e. step-children, half-siblings, etc) the more likely a trust or a more complicated plan will be needed to ensure things go where they are intended. Missouri law only provides for a very traditional family and even then isn’t often what clients would want. Thus, legal documents are needed to change these “default” laws and the more certainty a client needs of where assets will go, the more complicated the documents get. It’s also important to know if there is anyone who would potentially challenge a plan.

But the biggest question and concern for me is if there is a need for control. This normally applies because there are minor children who cannot legally handle money for themselves. However, if there’s a beneficiary who just makes bad financial decisions or has a substance abuse problem a trust might also be necessary. There’s also a limited ability to keep spouses or in-laws away from a plan if they could potentially cause problems through a divorce or other issues.

Finally, assets also are an important part of deciding a plan. If there are extremely limited resources, it’s hard to justify the expense of a more complicated plan, but it might also be worth it if any of the above are concerns. However, the type and location of assets also may make a trust worth it or not. For instance, with real estate anyone listed on a beneficiary deed plus their current spouse must sign on any sale of that real estate. That can cause major problems if there are multiple people involved and not all work together. The need for one person to make decisions on real estate may be enough to justify a trust. However, on the other hand, if most of the assets are liquid (retirement money, bank accounts, etc.) and it’s simply a matter of dividing money, then a trust might be overly complicated.

There are so many factors that go into what kind of plan fits a family. However, the more you know about the process and why a particular plan might be right, the better decision you can make for your loved ones.

Burkhardt Law Firm

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