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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.

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Who Owns Your Property? Missouri Ownership

As I repeatedly tell my clients and have probably written many times in the past, titling is key to an estate plan. This specifically relates to ownership of an asset and who and how an owner is listed on that property. Recently, I had a client ask for a bit more information on what the different types of joint ownership are and she suggested I share that in my blog. So here you go.

In Missouri there are three types of joint ownership. The first is “Tenants in Common”. This is the default ownership for multiple owners unless you specific otherwise. This means that the owners each own their share as an individual. If one owner dies, their share passes as they designate. This could necessitate probate if proper planning has not occurred. This form of ownership also does not protect the owners from the creditor of any other owners. So if one owner owes money or is sued, that debt could be imposed upon the joint property.

“Joint Tenants with Right of Survivorship” or “JTWROS” is the second form of joint ownership. If property has this designation, it means the property will pass to the last surviving owner upon the other owner’s death. This is a great way to avoid probate if the surviving owner is meant to receive the entire property. However, this is not always the best solution. For example, if the children are listed as JTWROS, but the grandchildren should inherit their parent’s share if the parent passes before them, it may defeat the intent. This ownership also exposes the property to the each individual’s owner liability like Tenants in Common (where the property may be subject to the other owner’s debts).

Because of the liability risks Tenants in Common and JTWROS cause allowing one owner’s creditors access to the assets, I often consult against these forms of ownership.

However, the final form of ownership, “Tenancy by the Entirety” does not have this risk. In Missouri, Tenancy by the Entirety is the only form of ownership where the creditors of one owner may not access the joint property. This ownership can only be between a husband and wife. Further, the property has to be titled during the marriage. If the asset is titled in the owners’ name before the marriage, the property has to be retitled to obtain Tenancy by the Entirety.

While this might give you a guide to how your assets are titled, the best way to guarantee your assets are in a form of ownership that meets your needs is to consult with an attorney.

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Decisions

When you begin an estate plan you are trusting and asking a lot of a few people to implement your plan. Often that can be overwhelming trying to choose the person. But it can be even harder if you have limited family or family that is not appropriate for the decisions they would need to make. A few things to help consider your options:

First, consider the role you are asking them to take. Are they handling money? Taking care of the kids? Making medical decisions?

Would they make the same decisions you would make?

Are they mentally and emotionally capable of making those decisions?

Is their age or physical limitations of concern?

If they are only making decisions on one part of your plan, will they work well with the others making decisions for you?

If they are not local, will that cause problems? Would it be difficult to deal with real estate? Are they interacting with the court?

How will they interact with your family or the others involved? Will they communicate adequately? Will they handle problems fairly and diplomatically?

But what if you really don’t have the option of families or friend fulfilling this role? It is possible for an independent party to act for you as at least a trustee. Banks, financial companies, and even accountants may accept this role. Often in an estate plan, professional advice is required, so hiring a professional trustee may make sense. It also puts a neutral third party in the role of the decider and can prevent family disputes and complications. However, professional services of course cost money and may not be practical for all families. As such, it’s very important to discuss options with an estate planning attorney and make the right decision for you.

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The Power of Attorney: A Major Power

Recently I’ve had several clients who are intimidated by the amount of power their power of attorney (or trustee) has.

Which is truly understandable, once you authorize an agent or attorney-in-fact to act under a power of attorney or a trustee to act under a trust, you are essentially giving them control over your assets. This normally includes the power to make decisions over investments, write checks, and sell property. Without oversight.

Legally, your agent or trustee acts as a fiduciary; meaning, they have to act in your best interests. However, just because a person is told they have to act in your best interests doesn’t mean they will. So how can one ensure that their agent or trustee will actually act as they would want?

First, there is always the threat of a law suit. You certainly hope that the person you are trusting with all of these powers would not need to be sued. But it is a real threat. In addition, when an agent abuses their power, they are personally liable if they do not act in your best interests. This means they are really putting their own assets on the line if they act improperly.

So if they truly start abusing the power or stealing, your other loved ones can sue the agent. This leads to another very important provision. Accounting and reporting. If you put one person in charge of your finances, it’s wise to also require that person to report to others who have an interest in your estate. For example, if you make your oldest child the agent, all of your children would have the right to know what is occurring with your finances.

These combined tactics are normally enough to dissuade an agent from acting improperly. However, if someone is really abusing your power of attorney, it is likely only a law suit will stop them. And that thought is absolutely a frightening one. But if you do not create a power of attorney, it’s likely the court will become involved anyway. And do you trust the person you choose or the person the court appoints?

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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.

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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.

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Celebrating Fathers

As I mentioned last month, the majority of my cases begin with a mother making a phone call. However, once we begin working together, I find many of the fathers focus on the practical aspects of protecting the money for the children. So as the thank you I promised in May, I thought I would thank all of those fathers by offering advice on one of the main concerns I see.

Often times, fathers focus on how long the money should remain in trust for the children. Most fathers (and mothers) do not expect their children to be ready for their inheritance immediately at 18. Instead what I normally suggest is to give the money out in stages. This can be life events or ages. For example, upon college graduation the children might receive 10%, then 50% at 30, then the remainder at 35.

When determining the times for distribution consider the following:

What life events do you want to encourage? School, careers, holy orders?

When do you think your children will be responsible enough to handle $10,000.00? $50,000.00? $100,000.00? $500,000.00?

How much of a burden do you want to place on the Trustee?

At what point is it the children’s issue if they want to make poor decisions?

At what point do the costs of administration outweigh the benefit of protecting the money?

There’s obviously no right answer when determining at what points to distribute money to the children. Holding the money in trust can be extremely beneficial if the children are not responsible. While the money is still in the trust’s name, the money is protected from spouses, creditors, and bad decisions. However, as I’m sure all fathers know, children cannot be protected forever. The costs and burdens of the trust as well as limiting the child’s access generally mean the money should be distributed at some point. And when? Well, thanks to the fathers who make that hard decision.

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My First Mother’s Day as a Mother

As I was considering what to blog about this month, I was reflecting on the fact that this month I will celebrate my first Mother’s Day as a mother. It’s amazing to think my son is quickly approaching a year old and very surreal to even think of myself as a mother. But here I am and here he is.

Now, I realize that doesn’t seem to tie into estate planning, but it also made me consider another facet of my work. The majority of the prospective clients that call are women. And, more often than not, mothers. My husband is amazing and a wonderful father, as are most (if not all) of my clients who are also fathers. But I’ve found that it’s really the mother who takes action to plan for the kids if she isn’t there.

So this month, rather than explaining about guardianship or trusts or many of the other topics that come up for these mothers (and fathers), I just wanted to say thank you. Thank you to all of the mothers who have stopped and thought about the unpleasant aspects of life. Thank you to all of the mothers who have made hard decisions for their children. Thank you to all of the mothers who have taken the time and made estate planning and their children a priority.

And next month, I promise to thank all of the fathers.

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The Case for Life Insurance

This month I met with a client who had made provisions for his children. Upon my advice we then made contingencies for his grandchildren but not his children-in-law. When one of his kids learned that it understandably left him concerned about his wife if something happened to him. My solution: life insurance.

Life insurance is a regular topic I discuss with my clients for many reasons, but recently it has come up in some very important ways. The first being one of the most obvious and important to me. That is when it is meant to provide for a family after a loved one passes. Nothing can make up to losing a husband or father, but at times something is necessary to make up for the finances they contributed. Especially if whomever is left behind cannot solely take on all of the responsibilities left for the family. Whether breadwinner, caregiver, or both.

For families with some debt it is also an important way to leave assets hassle free. If someone is going to inherit a house or business, debt may be a realistic part of that property. But it also might be a complication to have to refinance a mortgage or try to obtain business financing. For beneficiaries with poor credit it might be extremely expensive or just impossible. Using life insurance to pay these debts can make your gifts much more of a gift and much less of a burden.

For business owners it can also be a way to ensure the business can be transferred to another for the fair value of the business.

Life insurance is also one of the best ways to make the family left behind doesn’t have to pay for a funeral out of their pocket.

There is also the obvious use of life insurance to guarantee a certain amount of money is left as an inheritance. This is extremely important for my clients with blended families. Life insurance is a great way to guarantee a prior born child or a new spouse will not be disinherited.

No matter the reason, life insurance is an extremely important consideration of any estate plan. I would strongly recommend talking to a licensed insurance agent about all of the different products and what would fit your goals the best.

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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.

Burkhardt Law Firm

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