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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.

 

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What Controls?

One of the most misunderstood topics of estate planning is what documents control a situation.  I often have people calling asking for a power of attorney, when they truly need to update how an asset is titled, or someone calls asking for a will when they really need to update a trust.  So, hopefully this month I can clarify what documents actually control a situation.  It all really depends on who legally owns the asset.

Titling always controls first.  If there are two people on the asset, then they have access to that asset.  Both signatures might be required, but often times (unless dealing with real estate or vehicles) one person may act without the other.

Often times, I have someone ask me about a power of attorney, but they actually mean another person is on their bank account or asset with them.  In that situation, the solution involves changing how the bank account is titled, not changing the power of attorney.

A power of attorney is when someone has an asset in their name, but a second person uses the document to access the first person’s asset.  The power of attorney may only be used when the person is still alive.  The most common time a power of attorney is used is when an individual is no longer able to make decisions and another needs access to his/her retirement accounts to provide for him/her.

However, if the asset is titled in the name of the trust (not in the name of the original owner), the trust controls.  If the original creator of the trust is not able to make decisions any longer the successor trustee takes over.  The successor trustee will have access to make decisions on the asset.  A power of attorney cannot apply in this situation because the person is not the owner the trust is.

When we start talking about when people pass, there are generally a few different ways for the property to be controlled.  First, again is who is titled on the asset.  If there is more than one name on the asset, the remaining name may be entitled to the asset alone.  It depends on exactly how the asset is titled. Generally, if the asset is owned by (and titled to) a married couple, the asset will automatically pass to the other.  If the owners are not married, it must state the asset is owned by joint tenants with right of survivorship for the asset to pass automatically to the other.

The title might again be in the name of the trust, and again, if that is the case, the trust document controls.  The successor trustee would take control of the assets and distribute or hold them as the trust document dictates.

If the asset does not have another person on the title as a current owner or is not in a trust, a beneficiary designation will control.  This might be a beneficiary deed on the house, a “TOD” or Transfer on Death on a vehicle, or a “POD” on a bank account, but if there is any form of a beneficiary listed, that beneficiary gets the asset.

It is only when there is no trust, other person, or beneficiary listed on the title that the asset would go through probate.  At that point, if there is a will the will would control, and if there is no will intestate law would apply.

While it can be confusing, the first step is always looking at the title.  A trustee will always control if it’s owned by a trust, a joint owner may be control, and only after that a power of attorney, beneficiary, or will.

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Do You Need a Will?

Many times a potential client calls asking about a will and when we sit down for a consultation, they’re shocked to find out a will doesn’t accomplish what they want. Because this happens on such a regular basis, I thought I would go over what a will does and doesn’t do and when you might need a will or when you might need something more.

First, a will does not avoid probate. In order for a will to be effective, the court must verify the will and give all potential heirs an opportunity to contest the will. As such, assets passing through a will must go through court and may take months to years before they can be accessed. If your goals are to avoid court and hassle, then a will alone will not do this and you want to consider non-probate transfers.

But, maybe most importantly, if you have minor children you need a will. This is because a will is the only place to tell the court who you want to be guardians for your minor children.

However, even if you do not have minor children, I often recommend a will for a few different reasons. While the will may not be your main device to leave money to your beneficiaries, it is a very important back up. If you forget to put a beneficiary on an asset or put an asset in a trust, it will go through probate and a will can make that process easier a few different ways. First, if your beneficiaries differ from intestate law, if will ensure your assets go where you wish. Secondly, no matter whom your beneficiaries are, it can allow probate to proceed more quickly by allowing independent administration and waiving a bond. A will also allows you to choose who is in charge of handling your assets and acting for your beneficiaries as the personal representative or executor.

So while there are a few situations where you need a will, there are many more where you may not need one, but it would be beneficial.

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A New Perspective to Estate Planning – Parenthood

My husband and I just welcomed our first child into the world on June 16th. As I was thinking of what to discuss this month, I thought I’d simply share how my new parenthood has made me reconsider our estate plan and the documents I create for my clients on a regular basis.

The first thing that occurred to me is how important a medical power of attorney really is. This was my first experience being hospitalized; while I did not have to use my power of attorney, it was extremely comforting to me to know my husband would be able to make medical decisions if I was unable.

It also made me re-evaluate our trust and trustees. We completed our trust years ago and with the birth of our first born, my husband and I have set aside some time to review our trust and make sure the decisions we made then still are applicable to our new family.

But the most important thing I have realized is how hard it is to choose a guardian. I have always helped my clients sort through the options and generally act as a third party perspective with objective reasons why someone may or may not be a good fit. Well, I now understand on a very personal level why it is so hard. It’s so difficult to find someone who will raise your child the way you want to raise him. Everyone we’ve considered has positive and negative characteristics and it’s so easy to rule someone out because they’re not perfect. As I’ve told my clients in the past, no one can replace them, they’re only able to choose the best option in the worst circumstance.

Parenthood has given me a new perspective and while I’m proud of that third party, objective view, I hope it’s given me an opportunity to better understand the families I work with and the difficult decisions they must face when forming an estate plan.

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Planning for Minor Children

Starting in Spring I begin getting phone calls as parents plan vacations away from their minor kids. Understandable, parents want to make sure that if something happens to them while they’re on a trip, their kids will be protected. I’ve talked before about planning for minor children, but I thought it was time for a refresher.

I’ll quickly mention again there’s actually two sides to planning for minor children: the physical and the financial. For minors, the court requires a legal competent adult to be in charge of the welfare of the minor child. This is done through guardianship. The court will hold a proceeding to determine who this adult will be. The only way the court will consider the parents’ wishes is through a will. If there is no will, the court will determine on its own who should be in charge of your children. Probably a scary thought if you have differing values from some of your family (or at least it should be).

It can be hard choosing the person who would raise your children if you cannot, but I find this worksheet to be a helpful place to start.

The other side of planning for minor children is financial. If you place more than $10,000 of assets in a minor child’s name, Missouri requires the probate court to be involved. If you have a will, this might specify who is in charge of the assets, but it must still go through the probate court to be valid.

A lot of the clients I see try and avoid this through placing an adult’s name on the assets instead of the child’s. I hope needless to say, this is a very bad idea. First of all, that person then has no legal obligation to use that money for the benefit of the child. Even beyond this, the money is then at risk to any creditors or liabilities they have. But the largest drawback I see with this is that the assets are then subject to that adult’s estate plan (or lack thereof). If that adult becomes incapacitated and unable to access the money themselves, there is no way to legally use the assets for the child. Worse, if that adult passes without an estate plan taking this into account, the money most likely will not go to the child.

I also have some prospective clients who have a testamentary trust. This means the trust is established in their will not by a standalone trust document.  There are two major drawbacks with this type of trust. First, the will must go through the probate court in order for the trust to exist. Secondly, because the trust does not exist until after death it can be difficult to properly title assets to avoid probate.

The other hesitation for many parents is that this plan is only necessary if both parents pass. While this is true, you cannot unfortunately plan on the circumstances surrounding estate planning. It’s much easier to plan in advance than clean up the mess left behind. Planning is much less expensive done proactively and work does not need to be done twice if a plan is established beforehand.

This is why for most young families, even when I get asked about wills, I strongly recommend a trust in addition to the wills.

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Will You Have Access to Your Children’s Medical Information?

You’ve probably considered your own plans, perhaps even your parents. But have you thought about your children’s plans? You might think they’re young enough they don’t need a plan, but for your benefit, here’s why they might.

First, in the situation of older adult children you might be hoping to leave them an inheritance. Depending on how they receive that inheritance, their own estate plan might come into effect. Because of that, if you have a strong opinion on where you’d like the money to go, you first might to reconsider your own plan, but also ask your kids what their plan looks like.

Second, in the situation of younger adult children (18+) you are no longer their legal guardian. Which means you no longer have legal rights to their medical or financial information. This is a scary thought for most parents with children in college. If there’s a medical emergency you may not have access to your child’s medical information.

Finally, with younger children, legal guardians have the right to make decisions for their children, but what happens if all of the legal guardians are out of town and inaccessible? Before leaving town, you might consider putting in place a power of attorney to allow someone else to make important and time sensitive medical considerations for your kids.

So when considering your own plans, don’t forget to think about your children’s decisions as well!

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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.

Burkhardt Law Firm

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