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

Burkhardt Law

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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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Avoidable: 4 Ways to Avoid Probate

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

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

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

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

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

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

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

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

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

Burkhardt Law Firm

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