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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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Where There’s a Will, There’s a Way… (Sorta)

You know what a will is, right? Right.  Well, at least I’m guessing you do if you’re reading this.  It’s a legal document that says where your assets go when you pass.  But there’s a lot more to it than that. So let’s discuss all a will involves! Fun!

First, I want to address a very common misconception.  Wills go through probate. No discussion, it’s that simple in Missouri.

The next question really is if you need a will then right?  Short answer. Yes.

But of course being a lawyer, the better answer is that it depends.  Do you like Missouri’s intestate laws (where your property goes without a will)?  No, then ABSOLUTELY!   A will (and maybe a pre-nup) is the only effective way to tell the court where you want your assets to go.

Agree with intestate law? Then, you may not need one as much, but you probably still want one for the following reasons.

The most important being your wishes regarding minor children.  Do you have an opinion on whom your children should live with? Make decisions for them? Control their money?  Then you better have a will.  A will is the only document a court will look at for determining guardianship of YOUR kids.  (You can learn more about guardianship here).

A will can also dictate who is in charge of your property throughout the court process.  Don’t want your brother John to handle your assets, but rather your sister Susie? Better get a will and nominate a personal representative.

You’ve heard me say it once, and you’ll hear me say it again. Probate is expensive and time consuming. Having a will can cause the court process to be less expensive and move more quickly.  In a will you can authorize independent administration which allows your personal representative to handle more with your property without court oversight.  You can also allow this personal representative to serve without bond.  This means they don’t have the expense of finding and filing a bond (which can be impossible for those with bad credit).

Using a will in probate can also shorten the time it takes to go through the court by authorizing independent administration.  This allows the personal representative to act without court supervision over many common administrative actions.  In essence, it takes a lot of the burden of court off of the personal representative and might allow things to move more quickly because the personal representative does not need to go to court as often.

So when deciding if you need a will, much of the decision comes down to who your beneficiaries are, how your assets are titled, and how much of a problem a delay in court would cause. Not sure?  Give me a call.

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Hey, That’s Not What I Wanted?!

Ever been to a restaurant where you ordered something, then when it was brought out, found out that what you ordered wasn’t what you thought it was?  That’s similar to how Missouri intestate law works.

Before explaining what the law says, let me define intestate.  Intestate just means without a will.  So, intestate law is what Missouri says happens to your stuff when you die if you don’t have a will or beneficiaries on assets.

Well that’s fine, but that just means it goes to my spouse who will use it to take care of my kids, right? Nope, and unfortunately, it’s not a simple answer.

Really, it all depends on the structure of your family.  Married? Kids? Kids from a prior relationship?  Here’s a quick chart I came up with to help:

Chart

The people who receive your assets under intestate law are called heirs (instead of devisee, beneficiary, or legatee if under a will or trust).

It’s important to note, that this only provides for biological or legal relationships.  Have a step-child who you consider your own? Not adopted? No heir.  Have a friend who you would like to include?  Too bad.  Have a significant other whom you didn’t marry? Out of luck.

So if this chart shows your assets going to a person or people going where you didn’t expect or don’t want… Well, it might be time to talk about a will.

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Have You Taken Care of Your Children?

Most of my clients contact me because they want to make their children’s lives easier.  Several call after they have lost a parent and dealt with the mess of someone who wasn’t prepared.  Often I hear the sentiment they never want to make their children go through what they’ve had to do.  So, with this in mind, I thought we’d talk about preparing for your kids, specifically minor kids.

There are two distinct areas of planning when you’re talking about your children and estate planning.  And they really apply to everyone with minor children.  First is guardianship.  If something happens to both parents, who will take care of the children?  Most people know maybe have even told someone.  But have they made it legal?  Having a conversation with a desired guardian or other friend is great and definitely recommended, but doesn’t mean your child will go to that person.  A will is the ONLY way to state your wishes for guardianship.  If you do not state your wishes there, the court will make that decision without your input, and most likely choose an older sibling.
So, now that you know how to legally choose a guardian, who should you choose?  There’s a long list of considerations and each person is going to have a different level of importance with each factor, but in my mind the first qualification is trust.  For instance, one of my best friends chose my husband Scott and me to be the guardian for her son.  Now, we’re about 500 miles away from her and her son, so we don’t get to see him that often and if we do end up being his guardian, he’ll be coming to us.  Honestly, not the perfect situation.  However, she doesn’t think her family will raise him with her values in mind.  She trusts us to make those decisions for him.  In addition, she trusts us to say no if it’s not the right decision at the time.

Hopefully, you’re in a position where several of those people come to mind.  No matter your initial thoughts, I would strongly recommend taking the time to fill out a Guardianship Worksheet.  You can find one at the end of this article.

The next consideration is financial.  Even if you don’t have enough to provide for your children for the rest of their lives, you’ll probably be leaving them something.  If you leave more than $10,000 to a minor without a custodian, the court will appoint one.  Again, this takes away your ability to choose who controls your children’s money.  Essentially, this means you don’t want to leave more than $10,000 directly to a minor.  However, if you give that money to another person without legally specifying it is for the benefit of the child, they have no legal obligation to use the money for the child.

If your estate passes through your will, you may add a provision giving a person control of your child’s assets (either called a conservator or a trustee).  However, if you want to avoid probate and plan to use beneficiary designations or other non-probate transfer (pay on death, transfer on death, etc) you cannot just list another person as the beneficiary and expect them to use it for the child.  The easiest way to avoid probate and to designate an adult to control the money is to set up a trust.  This person is called a trustee and must use the money for the child’s benefit.

As you consider choosing a conservator or trustee, keep in mind, this does not need to be the same person as the guardian.  Doing so will make the guardian’s life easier, but if your chosen guardian is not great with money or just needs some oversight, a separate trustee can provide that.  I’ve also seen parents who want to involve both sides of the family and will choose someone from the mother’s side for the guardian and someone from the father’s side for the trustee.  No matter the arrangement, having two different people as guardian and trustee make the
situation more complicated and the two people must be able to communicate well.  This structure should only be used after much consideration.

Finally, unless specified, a minor will be entitled to their money when they turn 18. Will your children be responsible enough to control their money at 18?  If you’re not sure, or doubt it, you can set up a trust (along with a will containing a trust) with specific ages or life stages (i.e. graduating college) when they can access their money.  A trust also allows additional controls on how the money can be used (school, cars, vacations, etc).

As you can probably tell, for most families with minor children, I recommend a will (stating guardianship) and a trust (controlling the assets).  It doesn’t take much, only $10,000, before naming a trustee has its benefits.  But no matter the documents used, whether will or trust, there’s a lot to be considered when planning for your children.  This gives you a place to start, but a lawyer will help you finish the process.

GuardianshipWorksheet

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Even The Simpsons Worry About Guardianship… Do You?

This week when I turned on the television to watch two of my favorite shows, I got caught thinking about work. Maybe it was a theme within FOX, but both The Simpsons and Bones revolved around issues of estate planning.

The episode of The Simpsons didn’t involve any big discussions or much deep thought (though I know that comes as a surprise). The whole episode shows Marge and Homer Simpson trying to find guardians for their children. While their problem is finding anyone who wants their kids (see the clip below) most people face the harder decision of finding someone they trust to care for their kids.

Bones took the issue more seriously (again, big surprise), it also presented the subject with much needed humor. As I discuss this subject on a daily-basis, I very much appreciated a popular media tackling the matter and presenting it in (as much as possible) a positive light.

As I watched, the lawyer in me laughed at the two extremes Booth and Bones presented. A good will does not need to be 312 pages, but in turn should also not be hand-written on a sticky note. Further, when you have a complicated family or sizeable assets or just want to avoid the courts, a will probably will not accomplish your goals. Revocable trusts are a great option for most families (even if you’re not a genius scientist with best selling books).

However, I winced at the proposition Booth presented of leaving his girlfriend assets and trusting her to be fair to his son. This is something I advise people on a regular basis. Never create any legal document expecting everyone’s best behavior. If you could do that, then why create the legal document to begin? If you want to leave something to your children, leave it to the children, not another person. If you leave it to the guardian/parent/partner, that person has no legal obligation to use it for the children.

In reality I probably winced at the majority of Booth’s sentiments. Especially, that preparing for death is inviting it. Unfortunately, death is a fact of life and can be extremely difficult on those who are left behind. When someone isn’t prepared in advanced, they also leave behind a tangle of assets that the court has to sort out. This leaves their loved ones not only in with emotional grief, but very likely legal grief as well.

Even if I disagreed with some of the characters throughout Bones and wouldn’t recommend Homer & Marge’s style of picking guardians (finding random strangers), I appreciated FOX and both shows tackling a hard subject. In doing so it raised some important questions and hopefully will get some families talking. It’s at least gotten me to do so.

Burkhardt Law Firm

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