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

Burkhardt Law

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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 Best – Trusts

The question I am most often asked is the difference between a will and a trust. And it’s a very simple one. A trust and will both control assets and can put limitations on assets, but a will goes through probate while a trust does not. I’ve written a lot on these differences and I often emphasize that a trust is about control and not always necessary. However, while it may not always be the best decision for my clients depending upon a personal cost benefit analysis, it is always the best legal choice.

Beyond just providing control for those who need it, it also simplifies an estate plan in a few major ways.

First, it allows one person to be in control of all of the assets. Now, this may not be a problem in regards to liquid assets, but it often times does cause a problem with real estate. In Missouri when a married person is listed on real estate, his or her spouse must also sign off on any transaction of that real estate. So, when a beneficiary deed is used to transfer real estate, everyone listed on the deed, plus all of the spouses, must sign off on the sale of that real estate. That can be a lot of people involved in one small transaction. A trust prevents disagreements and everyone having to agree at once by allowing one person to make the final decision.

This also is important when it comes to final expenses. If life insurance or other liquid assets are left to multiple people, there is no set legal requirement everyone share the final expenses. Even worse, if an extra asset is left to a beneficiary with the intent that they use it for final expenses, they are not obligated to use it either. This can cause a lot of resentment if they choose to keep that money and force someone else to pay for those final expenses. A trust avoids this problem, by requiring one person to pay those expenses before all the beneficiaries get their share.

Secondly, while assets are in the trust, those assets are protected for the beneficiaries. That means that creditors and divorces cannot get to the money while it is in the trust. As soon as the money is distributed to the beneficiaries, it is fair game, but the trust can at least protect it for a certain amount of time.

Another great reason for a trust is when beneficiaries are not receiving equal amounts. Throughout a person’s life money can be accumulated in real estate, investments, retirement accounts, etc. Often times, the allocations between these assets varies over time. So, if money moves between assets and the beneficiaries on those assets are different, the amounts the beneficiaries receive will also change. As such, assets held outside a trust and given to different beneficiaries must be reviewed on a regular basis to make sure the amounts are still the correct amounts for the listed beneficiaries.

Finally, changes to a plan happen and can often happen on a regular basis. If a trust is not used, the changes may require multiple changes to multiple different assets. However, with a trust, often the trust simply needs to be changed rather than making changes on every asset owned.

The simplicity of an estate plan with a trust makes it the best legal option. But everyone’s plan and needs are different and while a trust may be the best, it may not be the best practical option for everyone’s benefit. To determine what plan is right for you or a loved one, an attorney can explain different options and help you decide the practical choice for your family.

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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.

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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.

 

Burkhardt Law Firm

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