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When You Don’t Avoid Probate – Part 3 – The Worst-Case

Last month, we took a break from talking about probate to have a guest writer.  However, I want to tell you about the worst-case scenario of probate, or at least what I consider the worst-case scenario.  Before I get into specifics, I’m an attorney, I have to give a caveat:  Law is very fact dependent.  Probate cases can proceed in many different ways and require many different things depending on the specific case.  That being said, a full probate proceeding usually follows this generic procedure:

First, the people applying to be a Personal Representative has to apply for the Letters.  It can either be Letters of Administration if there is no will or Letters of Testamentary if there is a will.  As part of this process, the court requires the information I mentioned before.  If there is a will, the court requires the original will to be submitted.  Depending on the specific case, the heirs or beneficiaries involved may have several different forms to sign off.   These could include waiving bond and consenting to the Personal Representative being named, among others.

I also want to point out that notice has to go out to the legal heirs, not just the people listed in the will.  So this means if someone was disinherited, they get notice they were disinherited and have a court case already filed where they can contest the will.

Once the Letters have been approved, this court order will allow the Personal Representative to collect assets in the name of the estate.  From the estate account valid expenses of the personal who passed (burial, bills, taxes, etc.) can be paid.

After the Personal Representative has been appointed and received the Letters, the court requires an Inventory. This is just a list of assets that were held in the name of the person who passed.

Then after all of this initial work, there’s a waiting period.  Nothing really happens for about 6 months while the creditors have a period to file any claims.

After the creditor claims period, any claims can be negotiated.  Often times, we can set a hearing for the claims and the court will dismiss the claim if the creditor does not appear.  What this means is that I often will go to court, the estate will pay me for my time, but the claim does not need to be paid.

Once all of this has been taken care of, the Personal Representative can begin closing the estate.  To do this, they need to give notice to all of the people receiving money and an accounting (called the Settlement) of what has happened to the assets.  With the consent of everyone involved, some of these formalities can be waived.  They can then hand out the money and close the estate.

What this all comes down to is: The money that is supposed to go to the loved ones, ends up paying for court and legal fees.  Disinherited family have the opening to contest.  Creditors have the opportunity to get paid. The beneficiaries have to wait over (and at best) six months before receiving money.  All in all, a situation most people want to avoid.

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Grandparent Rights

When clients call with family law issues, I am quick to defer to and refer to a few fellow attorneys I trust and who know family law infinitely better than I ever will.  However, one area, I think is important to touch on with regards to estate planning are grandparent rights.  Now I try to help my clients plan with ways to encourage visitation when I/we foresee a problem.  However, to give you a more educated view on those rights, George Halenkamp of Halenkamp Law was nice enough to put some thoughts together.

One unforeseen circumstance that can dramatically effect estate planning for grandparents is when a child goes through a divorce or has died. Goals can quickly change when this scenario occurs, especially when it comes to visitation with their grandchildren. It seems unfortunate that grandparents would have to go to court just to see their grandchildren, but sometimes grandparents are forced to consider their options.

Under Mo. Rev. Stat. §452.402 (RSMo Supp., 2011), the court may grant grandparent reasonable visitation with their grandchild under the following circumstances:

  1. When the parents of a child are filing for divorce, grandparents are able to file a Motion to Intervene to request a reasonable period of visitation from the Court or file to modify an existing order;
  2. When the parent of a child is deceased, and the surviving parent denies the decedent’s parent reasonable visitation with the child; or
  3. If the child resided with the grandparent for a minimum of six months within the two years from the filing of the petition, and if the grandparent has been denied visitation with the child for at least 90 days.

A common assumption has existed over time that grandparents have little to no chance of being awarded visitation with their grandchildren. This assumption is not necessarily true. It is presumed that parents living together know what is in their child’s best interests, but this is a “rebuttable presumption,” meaning that the burden of proof is on the grandparents to prove that granting them visitation is in the child’s best interest.

How do grandparents show that reasonable visitation it is in the child’s best interests? The answer is complex and fact specific. However, generally speaking, Missouri statutes allow the court to appoint guardian ad litem, order a home study or consult with the child in order to determine the child’s best interests. The court may consider several factors in determining the best interest of the child. Additionally, the court may conduct a further analysis to make this decision, including talking to the child about his or her own wishes.

In many cases, grandparents are a valuable part of a child’s life. While the parents of the child do generally have primary rights to the child, grandparents are place into a difficult situation if an unexpected divorce or death happens. Grandparents do have legal options to consider in certain circumstances. It is always preferable for the relationship to stay outside of the court room. However, grandparents sometimes may not have any other choice but to involve the courts.

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When You Don’t Avoid Probate (Pt. 2) – Your Options

So as I mentioned last month, I have been doing a lot of probate work recently.  And there I discussed what is needed to begin probate.  This month I want to discuss what the different probate options are.

The simplest option is the small estate affidavit.  The limitation is that you can only use a small estate affidavit if the total assets are under $40,000.  You also have to have proof of the assets and will not be an executor or personal representative. This means if you don’t know the assets, you cannot use a small estate. But if you know all the assets and they’re under $40,000, a small estate affidavit will result in a court order giving access to those assets. It’s a great option.

Another “easy” option is the determination of heirship. However,  this is only available a year after a person has died. It also requires a court hearing. And because a will has to be admitted into probate within a year of the death, you cannot use a will. The assets can only pass intestate.  At the end of the hearing, there is a court order showing who the heirs are who get the assets. So again, there will not be a personal representative to get access to unknown assets,  but it’s another simple option to get to assets.

However,  if the assets are over $40,000, you can’t wait a year, or if there’s an unknown and you need to gather information,  the only option is a full probate proceeding. A full probate process is what most people want to avoid with a proper estate plan for a few reasons.  First, it opens the assets to creditors and challenges.  Secondly, you’re paying attorney to handle it all.  And finally, in a simple case, it won’t be resolved for over six months and normally will take over a year to complete.  So while, it’s sometimes the only option, it’s the proceeding most people think of and want to avoid.

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When You Don’t Avoid Probate (Pt. 1) – What You Need

As I help clients form an estate plan, the main goal is normally to avoid probate.  There are different ways to do that, beneficiary designations or a trust, but sometimes it simply doesn’t happen.  More and more recently I have been hired to clean up those times when a person hasn’t properly planned.

When a new probate client comes in, there’s a few things that we need to figure out to determine how probate will work:

The assets – Only assets that do not have a beneficiary or owner will go through probate.  So, if a life insurance policy has a beneficiary, it does not need to go through probate.  Or if a bank account has another person listed as an owner (but please don’t DIY plan this way), it does not need to go through probate.  So the first step, is to figure out which assets need to go through probate and the approximate value.

The heirs/devisees – I also need to know about the family left behind.  The court will need to know who the heirs are and if there was a will, who was entitled under the will.  For all these people, I need legal names, addresses, dates of birth, and, if possible, social security numbers.

The death certificate – Where a person lived and when they passed determine which court and which probate process will be used.

As you can see, it’s not a long list of things of things that I need.  However, gathering the information can be difficult.  Even just getting an approximate value of the assets can be hard, because when a person passes most companies will not give out that information until probate has begun.   But this is just the first step to beginning the probate process, next month I’ll explain those processes and how they each work.  From there, I’ll tell you the drawbacks to each and why it’s just best to avoid probate from the start!

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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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A New Year’s Resolution – Don’t Wait to Plan

A New Year’s Resolution – Don’t Wait

We have had the wonderful privilege of being extremely busy since I have returned from maternity leave.  I feel extremely lucky and blessed that my clients and those who refer me trust me enough that we had a great 2018 and are looking forward to a full and eventful 2019.  So, thank you to all who read this for your continued faith and trust in me.

However, I do have a bit of a request.  As we enter 2019, if you hear someone talking about a will or power of attorney, any estate plan, with the phrase “We’ve been meaning to do that…” or anything similar, please interrupt.  Now, estate planning is my business, so of course, it’s a bit self-serving.  But that really isn’t the reason.  I’ve had many acquaintances over the years who haven’t used me for one reason or another, and I understand when that happens.  A person can be too close.  But even when I’ve been told a potential client has had their plan done elsewhere, I thank them for getting it done.  Because it can be too late to plan.

I’ve helped a lot of families form a plan to avoid probate, but this year we’ve also helped many loved ones grieving sort through when a plan wasn’t in place.  And I’ll be honest, I prefer the planning in advance.  Many times, probate is simple, a few months, everyone getting along, and a magic court order that gives easy access.  I try to help it work this way any opportunity I can.  That, of course, isn’t all the time.  If there are people who need access to funds immediately, families that are more complicated, or just small assets spread everywhere, it can make probate a nightmare.  Unfortunately, I also have had to tell many families that with the amount of work (and legal fees) involved, probate just wouldn’t be worth it.

There’s also the call I get on a regular basis, where a loved one wants to help get a person a power of attorney, but there’s a question of capacity.  Sometimes, we’re able to proceed, but more often then not, it’s too late.  In that situation, the only way to access accounts would be to go to the court and petition for a conservatorship.

I hate those calls where I am the one breaking the news that court is the only way and often not a practical way because of the legal fees.  It’s terrible for me, and I’m not the one dealing with the situation.  So, do me a favor this year, and if you hear anyone making a resolution to get their estate plan encourage them not to wait!

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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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Talk Now – Discuss Your Estate Plan

As the holidays approach, many people gather with their loved ones and take some time out of the year together. As you get together, it is a great time and perhaps a rare opportunity to discuss your estate plan while everyone is together.

Many families never talk about finances before the whole family becomes involved in decision making. And I can understand that money can be a very personal issue. So I respect not sharing all of the details or amounts, but having everyone know the general plan can forestall some arguments. A few of the things I would suggest sharing:

Who’s making decisions – When the times comes for someone to act on your behalf, it’s easier for everyone if they already know who will be making those decisions. They’ll know why the person was selected and they are more likely to honor your wishes. If they don’t like it or are upset with not being chosen it also gives them a chance to object to the right people and avoid blaming the person you’ve chosen.

How the plan works – Your loved ones should know if you have a trust, beneficiary deeds, or just an idea of how your plan works. This will set reasonable expectations for how much people will need to be involved and how long things will take. Part of my job is trying to make sure a client understands how their own plan works, but sometimes trying to explain your own plan can be difficult, so it’s also nice to include your family as you’re planning so things are fresh.

Who to contact ­– Often times clients want me to meet their family, so their family has a contact for questions when they need one. And I’m happy to do so. It also gives me an opportunity to explain the plan if my clients desire. However, the legal side often isn’t extremely urgent when something happens. A person’s financial advisor and CPA really should be the first phone call so tax problems can be avoided by moving money improperly.

Stuff – Personal property, or the stuff inside your home, doesn’t have a title and because of that ownership can be problematic. It’s this stuff that can cause problems. If a person wants something, there is very little, aside from honesty, to prevent them from taking it. However, if everyone involved has clear expectations then there’s more accountability if there are problems.

By taking the time to discuss your estate plan, your loved ones can be a little more prepared for a time that will never be easy. So, what better opportunity to talk than now while everyone is together?

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The Need to Plan – Why Make an Estate Plan?

Every month I try to find a subject about estate planning to clarify and share my insights. After years of writing, it gets a bit harder each month to think of something new. Normally, questions throughout the prior month and weeks give me something to write about. However, this month, there really hasn’t been one subject that’s stood out to me. If anything, it’s been more of a question of why plan at all?

Of course, there are a lot of good reasons, but unfortunately, I’ve been reminded recently that the best reason is you never know. You just never know when you won’t be able to make that plan. Even as I write this, I am waiting for a family member to let me know if I need to rush to the hospital tomorrow for a friend.

I’ve seen children who’ve lost their parents, a wives who’ve lost their husbands, siblings who’ve lost their sisters. No matter the circumstances, the situation is never easy. I’m hopefully that I can help make that hard time a bit easier, but even easier is not having to worry about the law when you’re already mourning or taking care of a loved one. If there’s an emergency, you don’t want to have to find an attorney, you want to be able to act.

You want the right people making decisions. Without the proper documents in place, the court is likely going to choose who can make decisions for you… if anyone does. I’ve gotten many phone calls about someone who is no longer really aware of their surrounds and a loved one wants a power of attorney. At that point, the person can no longer sign a power of attorney and the court must appoint someone. Unfortunately, this is not an easy nor inexpensive process. Often times, the cost prevents a person from going to court and no one is then able to make decisions.

No matter your reason or reasons, the need to make a plan is an important one and shouldn’t wait until the plan isn’t yours to make.

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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.

 

Burkhardt Law Firm

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