mburkhardt@burkhardtlaw.com | (314) 518-1581

Burkhardt Law

By

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.

By

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.

 

By

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!

By

Blended Families – Accidental Disinheritance – Burkhardt Law Firm

This week I presented at a personal finance college class and a topic that always seems to engage the students is what I refer to as accidental disinheritance. Unfortunately, I’ve seen this come up in several instances, but the most common occurs in blended families.

Husband and Wife both had children before they were married. Because they’re married, they’ve set up all of their assets jointly or have their spouse as the beneficiary on their individual assets. This is normal for most families, but the outcome isn’t always as expected.

When Husband passes, everything passes to Wife as intended, but it’s when Wife passes, that the family realizes things weren’t set up as intended. When Wife received the assets, Wife did not include H’s children as beneficiaries or did not put down beneficiaries at all. In either situation the outcome is the same, Husband’s children are not included. According to Missouri law, a widow’s assets go to her children alone, step-children are not included in intestate law. So, Husband’s children don’t even have a legal right to challenge Wife’s estate unless they were included in her will. And even if they are in the will, if she listed her children as the only beneficiaries, the beneficiary designations control over the will.

I like to believe in these situations that if Wife were informed, she would do everything correctly and Husband’s family wouldn’t have need to call me. But, of course, I get the phone call after the fact, and Wife has passed accidentally disinheriting Husband’s family. Or in some situations, Husband and Wife have met with an attorney and have set up their plan, but because they don’t fully understand the mechanics of the documents things go wrong.

For this reason, it’s extremely important that clients understand their documents and how they work. Especially in blended families, where when things go wrong, accidental disinheritance can happen.

 

By

Lineal Descendants Per Stirpes

There is a common legal phrase in the estate planning world: “Lineal Descendants Per Stirpes” or “LDPS.” And there’s a few reasons I am writing about it today. First, I use the phrase on a very regular basis, so it’s an important concept. But secondly, it has uses outside of just a legal document, like a will, and can help avoid probate if a person’s estate plan does not include a trust.

Lineal Descendants Per Stirpes allows an inheritance to automatically pass to a person’s descendants. This is extremely useful if there are multiple beneficiaries and their children should receive their share if they are not alive. Essentially, if a person is listed as a beneficiary and they pass, with the LDPS designation, their share automatically is divided to their descendants.

There are a few uses for the Lineal Descendants Per Stirpes designation. The first is within wills and trusts. Using LDPS allows for a long list of contingent beneficiaries without naming them all. Generally, I prefer using specifics, however, in the case of grandchildren or nieces and nephews who may not be born yet, the LDPS is a great way to provide for contingencies.

Even more importantly than within a will or trust, LDPS is a great way to provide for contingencies on a non-probate transfer (TODs, PODs, beneficiary designations, etc.). For example, a car uses the TOD designation, but does not allow for contingent beneficiaries. Using LDPS after the beneficiary would allow it to automatically transfer to that person’s children if the original beneficiary passes.

Lineal Descendants Per Stirpes is a mouthful and a fairly complicated legal tool, but it has significant uses in an estate plan. If you have questions on how to use LDPS in your plan, please feel free to give us a call.

By

The Hierarchy of Estate Planning

After writing every month for the last 3 plus years, I sometimes find new topics to blog about difficult. But I often try and reflect on the most common topics that my clients have brought up over the last month. And this month I spent a lot of time explaining what I call the hierarchy of estate planning.

This is certainly not an official term or a concept I’ve seen discussed a lot, but I think it describes some of the concepts of estate planning quite well. What I’m really referring to is what controls a plan. Now, I’ve discussed this before and it also ties into the concept of inconsistency within an estate plan, but hopefully I can explain it just one more way for it to make sense.

How assets are titled control an estate plan. I break it down into four categories:

1 – Ownership/Titling

2 – Beneficiaries

3 – Wills

4 – Intestate Law

To determine how an asset would pass upon a person’s death, first look at who owns the property and how it is titled. 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.

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.

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.

And finally, if there are no co-owners, no beneficiaries, and no will, then intestate law controls and heirs get the asset.

So if you are trying to determine who would get an asset upon someone’s passing, take a look at the hierarchy of estate planning and figure out which category would control.

By

Ensure Your Estate Plan Avoids The Headache of Probate

Every year attorneys have the pleasure to updating their knowledge through continuing education. So this week it was my pleasure to sit through two days of extreme detail about probate court. I’m certain you are not reading this because you want to learn all about probate. However, what I want to communicate is that there was two days of material for an attorney (and there could have been more) demonstrating how complicated probate can be.

Even when it is not complicated, it is an administrative headache. An attorney is often required which is frequently the major expense of probate. But the expense is not the only problem. Probate also has many time constraints. Publication and notices are required unless the estate is under $15,000. Which introduces at least one month, if not over six months, of waiting. Opening a probate estate also creates an easy place for challenges and creditors. All great reasons to avoid probate.

Procedures and laws surrounding probate also affect how you plan to avoid probate. One of the laws mishandled frequently is that a spouse is entitled to at least 1/3 of the assets. This is extremely important in blended families when the spouses do not intend to leave all the assets to the spouse. In order to effectively do this a prenuptial or postnuptial agreement is necessary.

The other important provision regarding probate is that minors may not receive more than $15,000 without involving the probate court. Essentially, this means a trust is required to avoid probate when leaving money to minors.

If this sounds like something you want to avoid, then learn more about avoiding probate here.

By

Yet Another Unpleasant Aspect of Divorce

Many times I get phone calls from children or new spouses who have lost the parent or spouse. These are my least favorite phone calls because I never have good news for the person calling.

The call always involves out-of-date beneficiary designations with the ex-spouse still on the form even after a divorce. And unfortunately, at least in the case of beneficiary designations, there’s nothing the children or new spouse can do. Because a beneficiary controls over a will and is in effect a legally binding contract, the ex-spouse gets whatever had their name on it even after the divorce. And trust me, I hate having to tell a family that just lost a parent or a spouse that.

So this is the short lesson of the month, if you’ve just gotten a divorce, or did ten years ago, and haven’t taken the time to update your beneficiaries, please do it today. Save me the unpleasant phone call when your loved ones call me to get the bad news or share this with someone who’s already dealt with enough of the unpleasantness of divorce.

By

His, Hers, and Ours

This past month I have come across a very common situation several times. Blended families or parents with his, hers, and ours kids.

Unfortunately, multiple of these situations happen when it’s too late. In those situations, one side of the family is completely disinherited and often when that would not have been the wishes of either parent. When one of the parents passes, generally they leave (through beneficiaries or joint titling) everything to their spouse. The spouse then passes and leaves everything to only their children. For example, if dad passes and leaves everything to step-mom, then step-mom passes and everything is left to her children and dad’s children receive nothing. This is because without a will or another estate plan, the assets pass through the estate of the second person to die and is distributed through intestate law to that person’s family. Normally an outcome someone is unhappy with.

Instead, by forming a plan, the his, hers, and ours children can be protected. Many times both parents consider all children their own and are very happy to allow everyone to inherit equally. In that case it’s fairly simple to protect everyone with beneficiaries or trusts (depending on the level of protection the family needs).

However, sometimes, especially when planning for adult children and young children at the same time. While parents want to be fair, it’s hard to balance the ongoing needs of a young child versus the less dependent adult child. Add into this a step-parent and the situation can become very complicated quickly balancing all three sets of needs. Providing for the spouse while also making sure the step-parents isn’t resented can be problematic.

Unfortunately, intestate law and simple beneficiary designations don’t normally protect all the different interests and can cause people to mistakenly be disinherited. The only way to fully protect the entire family, including the his, hers, and ours kids is to plan. Don’t make the mistake of leaving everything to the spouse and then leaving nothing to your children.

 

By

Save Heartache & Money

This week I gave a presentation to a group of professionals I work with on a regular basis. After the meeting, several came up to me concerned that their plans wouldn’t accomplish what they thought it would. So, in the hopes of saving your family heartache and money, I thought I would the main point of that presentation.

When clients hire me to do an estate plan, my job is to avoid probate in the most cost efficient manner with as little conflict as possible. There’s two situations where probate is possible. First, is when a person is no longer able to make decisions for themselves.

If incapacitated and a person does not have any documents in place, the probate court gets involved in a guardianship or conservatorship. In these cases, the court appoints someone to make financial and medical decisions for you. That person must get court approval for any purchases and must make annual reports. Generally, in a time when they must already take care of a loved one, the court is the last thing they need to be dealing with.

This is very easy to avoid through a power of attorney or a trust. Either document may control if you’re incapacitated, but there are two main differences. First, a power of attorney will only control what is in your individual name, while a trust will only control what is in the trusts name. Also, a power of attorney ends upon death, while a trust may also control what happens after you pass.

The other side of planning is what most people think of: when someone passes. Without a will, assets go through intestate law and must go through probate. Even with a will, assets go through probate.

As such, I normally recommend non-probate transfers to be used to avoid probate upon death. This is a fancy term for joint titling, beneficiaries, or a trust. There are different benefits to each one, but generally a trust is the “best” option, while beneficiaries are “better”, and a will is “good.”

A trust is the “best” option because it allows for control over the assets while avoiding probate. Trusts are also very adaptable, permitting one to only change the trust document instead of beneficiary designations when life changes (i.e. changing beneficiaries, beneficiary percentages, and any restrictions on assets). It also can set up different layers of contingencies for beneficiaries and often provides the least amount of conflict between family members. It’s great for complicated families or when minors are involved. I also recommend it when real estate is involved, because in Missouri, if a person or people own real estate their spouses must also sign off on any transaction involving real estate. So, for families with multiple children, it’s a good way to limit the amount of people involved in any decision regarding that property.

Beneficiaries are the “better” choice because they avoid probate. But I generally only recommend them, with liquid assets, limited family members, and responsible beneficiaries.

A will is the “good” option because it goes through probate. This is necessary for families who do not want intestate law to apply and for minor guardianship. But because it goes through probate, there will be court and attorney fees and I rarely recommend it by itself.

So, in the holiday spirit save heartache and money for your family by checking the beneficiaries on your assets with this checklist!

Burkhardt Law Firm

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