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Avoidable: 4 Ways to Avoid Probate

I dwell a lot on probate because while it can go smoothly, it’s generally expensive, time consuming, and most importantly easy to avoid. So let’s talk about how to avoid it.

First, what most people don’t think about is that probate can also include when a person is incapacitated. If a person is physically or mentally unable to make his or her own decisions the court gets involved and appoints a person to do so (along with a long list of necessary steps). This part is extremely easy to avoid through a durable power of attorney. A durable power of attorney allows someone you choose to take control of your financial, medical, and legal matters. A very simple solution and legal document to prevent the need for court.

But of course, more people think of losing a loved one when they talk about probate. Any assets remaining in a deceased person’s name alone will need to go to court and through probate (even if there is a will). But there are a few ways to avoid probate:

Gifting – If there is an asset a person is no longer using or is comfortable no longer having control of, simply giving it away and re-titling the asset is an option. Depending on the type and amount of the gift, there can be tax consequences, so I always suggest talking to an accountant before gifting property.

Joint Titling – By putting another persons’ name on an asset, that person may automatically get the asset when the other passes. This is often times why a wife may not need to go through probate when her husband passes. However, there are multiple forms of joint ownership in Missouri and if the correct one is not used, then probate may still be necessary. And because putting another person’s name on an asset can also be a gift there may be tax consequences as well.

Because of the potential pitfalls with the other two, I rarely recommend them. Instead I focus on two different options:

Beneficiaries – Almost any asset can have a beneficiary. Retirement plans and life insurance ask you very directly, but you can do the same with vehicles, bank accounts, and homes. They might be referred to as “Payable on Death” (POD), “Transfer on Death” (TOD), or a beneficiary deed (real estate). Essentially, all of these allow someone to get any asset upon a person’s death without needing probate court. There are some limitations as well on beneficiaries. This could be a problem with a beneficiary passing first, incomplete or lost forms, or putting a minor as a beneficiary.

Trusts – When beneficiaries are not enough, trusts can also avoid probate. Again though, this comes down to titling. It’s so important once a trust document has been signed that the assets are actually put in the name of the trust. A trust allows more control over how or when the assets can be used. They work well for minors or for preserving assets across generations. But most importantly, a trust implemented correctly can be the easiest way to avoid probate.

Whether through a trust or another method, probate should be completely avoidable for most families. It’s something I advise my clients on every free estate planning consultation and it’s something you should consider as well.

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What Probate Actually Means

Most people don’t understand what probate is and in most of my client meetings I explain what probate actually means. Very simply probate is the court proceeding assets go through to be transferred out of a deceased person’s name. That’s about the only simple thing about probate.

The first thing to know is not all assets must go through probate in ordered to be transferred effectively. If done correctly, an asset with another’s name on it or with beneficiaries listed should not have to go through probate. Beneficiaries are generally automatically done on retirement plans or life insurance policies, but most assets can have a beneficiary listed. On vehicles they’re called “transfer on deaths” (TODs) and on bank accounts they may be stated as “payable on death” (POD). Any asset that has a competent, living adult listed as a beneficiary or co-owner should (for the most part) avoid probate.

However, when plans haven’t been made and beneficiaries haven’t been listed, that’s when the probate court gets involved. Even if there is a will, those assets must go through probate.

There are many different ways for assets to go through probate, but the two I use most often are the small estate affidavit and the full probate proceeding.

A small estate affidavit can be used when the assets that do not have another person’s name on the title or as a beneficiary total $40,000 or less. This process has minimal expenses, but can take a few months to complete. If real estate is involved, any proceeds from a sale may be held in escrow for a year from the date of the deceased’s death. However, attorney’s fee and court fees are much less than full probate. A full probate proceeding, at a minimum, takes 7 months, but often time takes much longer. There are also minimum attorney’s fees based on the size of the estate.

In both proceedings, an attorney is required to file the initial paperwork with the court. Thus attorney fees and court fees start at the very beginning. For a small estate affidavit the assets must be listed in the initial filing and if the value is not known, an appraisal may be necessary. Once the court has accepted the filing, a bond may be required. A bond is like an insurance policy ensuring that the creditors and heirs or beneficiaries of the estate will receive what is legally theirs. The bond amount will be dependent upon the amount of assets and can be very expensive or hard to obtain for some families. If the deceased had a will, this requirement can be waived in the will.

In a full probate case, the next step is for the court to appoint a personal representative. This is the person, also known as an executor, who is responsible for selling and distributing assets. The court may grant independent administration where the personal representative may make some decisions without court approval or it may proceed with supervised administration where the court’s approval is required for any action by the personal representative. Supervised administration will often take more time and cost more in attorney’s fees. Independent administration can also be authorized through a will.

If the assets are over $15,000 of value, publication is also necessary to inform creditors and potential heirs of the probate estate.

Next in the full probate proceeding, the personal representative is required to file an inventory detailing all of the assets, which again, often includes appraisals. Once the inventory has been filed, assets may be sold. Six months and ten days after the first publication the estate may be settled by accounting for any debts that must be paid and the amounts owed to the beneficiaries of the estate.

In either proceeding, there are a ranging set of fees, due to the court, attorneys, bonds, publication, appraisals, etc. It’s generally worth avoiding when possible through advancing planning with an attorney. However, it’s obviously not always possible to avoid. So, if you’ve lost someone and have assets that are still in his or her name, probate in some form is likely necessary.

If you think probate is necessary, there’s often no rush (certainly not once the court is involved). The main date to note, is that a will must be admitted to probate within a year of death. So, if there is a will involved, I would recommend reaching out to an attorney well before that year has passed. However, for most families, probate may be considered on your timeframe. With that in mind, I recommend reaching out to an attorney with any questions, but waiting until you are certain there are no other assets in the deceased’s name before filing with probate.

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But I Already Have A Plan: When to Update Your Estate Plan

Unfortunately, you might have already formed an estate plan, but that doesn’t mean you’re done. At least once a year (often times more frequently), I check in with clients to make sure their plan has actually been implemented and that nothing needs to change. If you’ve already signed your estate planning documents here are a few times it might be worth calling your attorney to make sure nothing needs to be updated:

Assets – If you have had a large change in wealth or assets since you’ve first set up you estate plan, it’s probably time to review. A change in wealth could mean you need to re-evaluate your beneficiaries, trustees, distributions, along with any changing tax laws that may now apply. Even new assets may warrant a phone call to ensure they are planned for and, more importantly, titled properly.

Moving – This goes hand in hand with new assets, where a new home title should be reviewed to make sure it is done correctly and consistently within your plan. However, if changing states, an estate plan should also be review to make sure state laws don’t require different documents or in case a state estate tax might apply.

Time – Over the years, lives change and as they do it’s important to make sure an estate plan changes with them. If children grow up, distribution ages or events might need to be altered. Trustees or other people named in documents might not seem like a wise choice anymore.

Family Changes – Along the same lines, families change dramatically as well. Distribution ages, structures, amounts, etc. all need to be reviewed as family dynamics and life shifts over the years. Specifically, I would recommend a review for any of the following events.

Divorce – Unfortunately, this is a common family change. Provisions may need to be made or changed if a person needs to be removed from a plan or even if a new structure is necessary to prevent interference with a person’s wishes.

Death – Losing a loved one is often hard enough without thinking about the legal consequences, but eventually documents need to be updated to reflect the loss.

Births – While many documents provide for a later born child, I still recommend a review and an update when including new beneficiaries to avoid unnecessary complications later.

With that being said, my husband and I will be taking the time to review our own plan as we look forward to the birth of our first child in June. Have you recently looked at your documents or had a big life change? Take a moment to consider if you might need a review.

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Take Control Through Estate Planning

I recently had the pleasure of sitting down with Chris Finny from the Finney Law Office. As Chris was explaining how he helps individuals through difficult events in their lives (car accidents, getting hurt on the job, medical procedures gone wrong) I noticed a common theme. Yes, Chris’s clients have been injured in some form, but the bigger more lasting effect is that they have had control taken away from them. Maybe that’s control of their body, their ability to earn a living, or just the management of their finances. Unfortunately, as I learned from Chris, those who have gone through a personal injury case know how quickly they can lose the ability to make decisions. But through effective legal planning, some of that lose is preventable.

I want to suggest some basic documents everyone should think about, so that if you do experience an injury of that type, your wishes are still the ones that are being considered.

First is a medial power of attorney and health care directive. This allows you to set out your medical wishes if you aren’t able later to communicate or enforce them. It also gives you the power to choose who will help enforce those wishes.

There’s also another power of attorney to cover your financial and legal decisions. I truly consider this one of the most important documents of an estate plan and would highly recommend everyone of any age to have one. Again, in this document, you get to choose who handles your finances and makes decisions for you or your family if you’re not capable of making your own.

And of course, don’t forget about the will. While this is the document where you get to override state law and say where your possessions go, for parents it’s a lot more. This is the ONLY legal way to have a say in who will take care of your minor children.

But if you really want control, a trust really is the most effective and detailed way to do so. A trust gives you the ability to make detailed decisions over your finances and beneficiaries, even allowing you to make sure your beneficiaries cannot touch their inheritance until an age or event you decide.

Without these documents, those left to take care of you will have to go to court to earn those rights, and the court has the final say on who will be making decisions for you. So whether you’ve been involved in a personal injury case or just know it can happen to anyone, take some control now and consider your estate plan today.

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You Get Nothing… For Now: Ways to Plan with a Trust

The main reason my clients use trusts are to allow the beneficiary or beneficiaries to receive the use of the assets, but have someone else make the financial decisions. This may because they are minors or there are other circumstances why the beneficiary should not have access to money. The situation directly relates to how the trust document is written, whether the assets remain in trust forever or if they are given to the beneficiary upon some specific event.

If you have or are considering a trust I would consider the following things to determine when to give the beneficiary control of the assets:

  • Why is a trust necessary?
  • Is there ever a time or event that would ensure the beneficiary is responsible enough for the assets?
  • Do I care if the assets are used in a manner I would not approve?
  • Am I concerned about a spouse or future spouse potentially being involved with the assets?
  • Are there events in the beneficiary’s life that should be encouraged through a gift?
  • Are there events in the beneficiary’s life that I want to celebrate with a gift?

As I’ve been drafting trusts I’ve come across many different times when a client wants to give the beneficiary control of the assets. These are a few of my favorites and the most common:

  • Graduation from school
  • Marriage or Holy Orders
  • Specific ages (25, 30, etc.)
  • No drug use for 5 years
  • No felonies
  • Employment

These are just a few of the clauses I’ve drafted and come across, but the list really is unlimited. What controls would you put in a trust for your beneficiaries?  Share at www.facebook.com/burkhardtlaw

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Who Do You Trust? Choosing a Trustee

Happy Labor Day! What better to talk about on a day dedicated to the contributions of workers that have made this county great than the work that a trustee must do? If at this point you don’t know the difference between a will and a trust you should read July’s blog post.

Before going too in depth, I have to mention, a trust can be written in so many different ways that there’s no guaranteeing trustees will always have the same powers or the trust will always have the same provisions. As I write this, please realize a trust can come in several forms and I am only speaking in generalities.

Normally a trust is set up where the person creating the trust, the settlor or grantor, is also the trustee. While the settlor is alive and competent, they can continue using their assets like they normally would. It’s only when they can no longer make decisions or pass that they would stop controlling their assets.

This is when a successor trustee (named by the settlor) would take over. This means a successor trustee may control the trust assets at two different points and for the benefit of different people. The first time is when the settlor is still alive and the trustee must use the trust assets for the benefit of the settlor. This probably will include paying for medical bills, housing, and living expenses. It also will be the trustee’s responsibility to manage any current assets, including maintaining insurance on the belongings and keeping any property in good condition. Essentially, the trustee is the one responsible for making financial and legal (not necessarily medical) decisions for the settlor.

The other situation where the successor trustee takes over is when the settlor has passed. At this point, the terms of the trust cannot change. The trustee CANNOT change beneficiaries or change what the settlor has decided will happen. If the assets are to be distributed, the trustee may chose when to distribute assets and what to do with the possessions until then (again maintaining insurance, giving permission to use assets, etc).

The bigger responsibility is when the assets will be held in trust for a longer period. This is especially the case with minors. In this situation the trustee must decide how to spend the assets for the beneficiaries. They will have the discretion to use the money for college, food, housing, or even to withhold it. In this scenario, the trustee takes the place of the settlor in deciding how the money will be used. As such, it’s an extremely important decisions and must be placed with someone who the settlor trusts and who the settlor thinks will use the money in a way he or she would approve.

No matter why, when, or the time period, a trustee is ultimately in a position to control assets and make multiple administrative and financial decisions. Thus, when choosing a trustee, it’s extremely important to consider the prospect’s responsibility level, risk management abilities, financial abilities, and compare priorities.

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No, You Cannot See Your Niece: Allowing Family Visitation

I apparently have reached the time in my life where I’m surrounded by babies. In addition to three new nieces recently, I’ve also been working with several new parents. It has been my pleasure to work with these new parents protecting the newest members of their families. I’ve talked before about guardianship and trusts and the methods to protect young families. But as I’ve worked with more and more of these families I hear some common concerns and themes.

One of the concerns I hear most often is that the parents want all sides of the family (whether mom’s side, dad’s side, or whomever) able to visit the child. Most parents want to make sure that if they are not there to connect the children to their extended families, their guardians will do so. Unfortunately, guardianship issues go through the probate court and not the family court so the procedure is not the same as a custody hearing. Probate court handles guardianship and who has the right to make legal decisions for the child, but does not dictate visitation rights or schedule.

But there are a few things families can do to facilitate visitation. First and foremost if this is a priority, choosing a guardian who understands should also be a priority. However, choosing a guardian is only one part. It’s also possible just to express your wishes in the documents. This is NOT legally binding, but often times writing down your intentions have more effect than just telling people what you want.

Another method is to choose a trustee or conservator (aka people in charge of the assets for the children) from the other side of the family. I don’t recommend this often, because it can cause problems if the trustee/conservator and guardian do not get along. However, as long as these people can work together, it can also ensure different parts of the family are involved.

It is also possible to include a member of the other side of the family as a beneficiary for a small amount (so they have rights to the trust), then condition any compensation to the trustee (if the same person as the guardian) upon visitation rights. This again can be a decisive provision and does not allow for flexibility on the parts of the guardian. As such, it may not be a good option for everyone.

Because these issues are important and there are many possible problems and solutions, it’s extremely important to talk about these things with possible guardians. If this is a sensitive subject for your family, I would also recommend consulting a professional who can walk through some of the advantages and disadvantages of the different possibilities and find the right solution for you.

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Trust vs. Will

At least once a week I’m asked the difference between a trust and a will. The main difference between a will and a trust is that (in order to be effective) a will must go through probate. A will tells the court what you want to happen to your assets and minor children after you pass, while a trust controls what happens to your death both before and after death. Now, I’m not going to dwell on probate, but if that’s a goal, a trust is going to be the preferable option. A trust also is easier to use than a power of attorney when a person becomes incapacitated.

However, in order for a trust to be effective, assets must be titled in the name of the trust. So your car, bank account, home, etc, must belong to the trust. After the assets are owned by the trust, you may only do with your assets what the trust says you may do. In most situations, a trust is written broadly enough that you may continue treating your assets the way you normally would. However, you can place limitations on how assets are used and when they may be distributed. This is not possible in the same way in a will.

Finally, a trust allows one person to control. With a will, one person controls, but if you use non-probate transfers in conjunction with a will, all owners of non-liquid assets must sign off on the sale of an item. For example, if you TOD your car to your three children, all three children must sign off on the sale of the car. Whereas if the car is owned by the trust, only the trustee has to sign on the sale of the car. This is normally a much larger concern with houses where beneficiaries may not agree or where arranging everyone to sign off at the same time in the same place may be difficult.

So, the next question that follows this discussion is whether a trust or a will is right for you. Well, the only way I can truly answer that question is to sit down and do a free consultation with someone. However, these questions are good indicators:

Do you have minor children?
Are your beneficiaries likely to argue with each other?
Are your beneficiaries in town?
Do any of the beneficiaries have financial, medical, or relationship problems?
Is it likely they will contest your wishes?
Are your assets easily dividable?
Do you own a business?

If you answered any of these questions (or especially more than one) “yes”, then a trust might be the best option for you. If you or someone you know are wondering if a will or trust is better for you and your family, I strongly recommend consulting an attorney. The Burkhardt Law Firm offers free no obligation consultations and would love to help you answer these questions.

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Do You Know What You Want? Preparing Your Estate Plan

This weekend I had the pleasure of my sister coming into visit and spending a lot of time with two of my youngest nieces. Watching my siblings and listening to them take care their children really reminded me why I got into estate planning. New parents plan for every need their children have and estate planning certainly falls into that range. As children grow, necessities change, but the need for estate planning doesn’t. This month I thought I’d share some of the considerations I suggest to my clients as we’re preparing their estate plan:

1 – How old are your beneficiaries? If minor children receive $15,000 or more, there must be an adult in charge of the assets for them. Who do you want that to be? Minor children need guardians. Have you thought about who you trust with the wellbeing of your children? If your beneficiaries aren’t minors, are they responsible enough with money to receive your entire estate at once?

2 – Do your beneficiaries get along? If they don’t, do you want one of them to make a decision? Would it be better to have a third party like a trust company make decisions? Even if they do get along, will one beneficiary be put in a tough position if they have to say no to another beneficiary?

3 – Is college or another life event important to you? Trusts allow you to give assets at different times in the beneficiary’s life. You can give a distribution earlier if they receive a degree, get married, or really any life event that you want to encourage.

4 – Is it likely they will contest your estate plan? If so, you can prevent them from receiving anything if they challenge the plan.

5 – Are there any other beneficiaries or charities you would like to include? I always set up a list of contingencies is an estate plan to ensure if something happens quickly or all at once, there is at least a backup plan in place. Think about what you would want to happen if your original beneficiaries aren’t able to accept your assets.

6 – Who do you want to make decisions for you? Powers can be divided, but generally I recommend one person being in charge of all the finances and possibly another for medical decisions. Location, age, and ability are all important considerations. Again, I recommend having a backup plan, with at least one, but often times, two contingencies.

There are plenty of other things to consider as well, but generally this gives you a good idea of where to start before talking to a professional. With these basic things in mind, it’s possible to determine what type of estate plan is right for you and your beneficiaries.

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What Now? What to Do When a Loved One Dies

Unfortunately, this month I’ve heard of several people passing. While I normally focus on planning, there are so many questions when a loved one dies.

First, while there are timeframes involved (which we’ll get to later), take time to grieve. There is plenty to do, but generally speaking, there is also plenty of time to do it.

Second, before moving any assets, taking any checks, ESPECIALLY retirement accounts, it’s extremely important to talk to an accountant or financial advisor. There are wrong ways to take money that could cause large tax liabilities that cannot be fixed.

Third, determine what assets are involved and if there are any bills that must continue being paid. Back in December, I mentioned making a list of your assets and how they’re titled. If your loved one does not have a list already prepared, use this one as a starting point.   If you’re not planning on selling a home or car that has a loan, keep paying the loan. If you don’t have access to a bank account or other liquid assets of the deceased to make the payments, keep clear records of any money of your own you contribute to the deceased assets.

Finally, you will need to consult an attorney. In Missouri, an attorney is required to handle probate. But more importantly, if there is a will it must be ADMITTED into probate within ONE YEAR of the date of death in order for the will to be valid. It’s important to make sure the will has been admitted, not just filed. I’ve had clients come to me a year and a half after the parent has passed, thinking that because the will had been filed with the court, the will would control. Unfortunately, because it had only been filed and not admitted, more work had to be done and more people had to sign off on the court filings.

While there are important things that need to be done after some a loved one passes, very little is actually urgent (I promise the probate court won’t treat it as urgently as you imagine it) and most decision should be made with some extra time and thought. I’d much rather help people plan in advance when they’re able to think rationally, rather than after when they’re thinking emotionally. Either way, it’s a difficult time with much that needs to be done, but these few things are a place to start.

Burkhardt Law Firm

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