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Guardians – A Tough Decision for an Estate Plan

For a long time I delayed executing my own estate plan because I got hung up on one thing, but one very important thing, who would take care of my children if something were to happen to both my husband and I.  For families with minor children choosing guardians can be the most important and hardest decision to make when working on an estate plan.  When thinking about your will, you have to decide who you want to act as personal representative of the estate, who the beneficiaries of the estate will be, and who will be appointed guardian of minor children.  That last part can be the hardest, as it is so hard to imagine anyone replacing your role as mom or dad.  No one can truly replace you, but you can consider many things when making that difficult choice.

When we first started brainstorming guardians and who we wanted to raise our children if something were to happen to us, we thought of those whom we are closest with and also more importantly, whom our children are closest with.  We thought of my parents.  Although our children are also close with my husband’s parents, they live out of town and we don’t see them as often as we would like.  My parents live less than a ten-minute drive from us, so naturally my kids are vey close with them because we are able to spend a lot of time with them.  If something were to happen right now, I would love my parents to be there for the kids.  However, it is important to look further out.  Would my parents be able to care for the kids until they were old enough to be on their own?  With our parents getting older we didn’t know that we could answer yes to that last question.  Losing parents would be hard enough on our kids, and we would want to give them as much stability as possible, so we decided for us, our parents may not be a good long- term option.  With that in mind we were able to cross both sets of grandparents off our list of possible guardians.

Next, we looked at our siblings, our children’s aunts and uncles.  My husband and I each have two siblings, so this gave us four more options to consider.  How can you choose between sides of the family?  We considered everything from mental health, medical health, relationship history, financial responsibility, location, life- style choices, and again relationship between them and our children.  We ultimately ended up choosing the sibling who lives nearby, has children that are close with and close in age to our children, and even lives in the same school district as us, so that our children wouldn’t have to be uprooted from their school community.  That sibling doesn’t always make same the parenting choices I would, but ultimately, I know that my children would be taken care of, and would feel loved under their care as the guardian.

What I realized, was part of my delay was from not having what in my mind was the “perfect” choice for a guardian.  Because again, how can anyone replace me, as mom?  All the uncertainty of the current pandemic definitely gave me the urge to make a decision and get things in order.  You never know what is going to happen and having a plan in place will make things easier on everyone.  And although this kind of decision definitely warrants taking time to think about, it probably shouldn’t take 10 years like it took me!  Luckily, nothing happened to us during that time, but you never know and at some point you just need to make a decision.  Documents can always be redrafted at a later time if after further thought you change your mind.

-Lisa Villareal

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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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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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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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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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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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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.

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Being a Parent: Planning for Children

When I first began my law firm, I started estate planning thinking of my brothers and sisters, nieces and nephews. Then when I had my first born almost three years ago, my perspective changed dramatically. Now as we prepare for our second child, I thought I would take a moment and reflect on how our estate plan has (and hasn’t changed) since children have come along.

The benefit of drafting your own legal documents is you can think ahead and prepare them for changes in the future. So, our documents from five years ago included provisions for future children. However, anytime a new addition is added to the family, the estate plan needs to be reconsidered.

This might mean a completely new structure. Going from a will to a trust. But it also means updating children’s names and very simple updates to make sure everyone is included.

It’s also an opportunity to make sure the people handling money and in charge of the children’s well-being are still appropriate. We had the trustee and guardian decided before Duncan arrived, but it’s amazing how the logically decision became so much harder once my son was actually here. In the end, I believe we made the right decision and we have not changed it. However, it’s mainly because I realize there is no right answer and no one can truly take our place if we aren’t here to parent. We can only choose and hope the transition would be as easy as possible.

Finally, it’s also a great time to review assets and make sure all assets will avoid probate and are included in your plan. If you’ve never talked to a financial advisor, it’s a great time to review life insurance as well as planning for the children’s future with 529s or other investments.

Now, I know many of my clients have children that are all grown up. However, those grownup children might have to start thinking about their own children. So, even if you’re not preparing for your own minor children anymore, it’s worth mentioning to your children for your grandchildren.

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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.

Burkhardt Law Firm

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