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

Burkhardt Law

By

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.

By

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.

By

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.

By

Save Heartache & Money

This week I gave a presentation to a group of professionals I work with on a regular basis. After the meeting, several came up to me concerned that their plans wouldn’t accomplish what they thought it would. So, in the hopes of saving your family heartache and money, I thought I would the main point of that presentation.

When clients hire me to do an estate plan, my job is to avoid probate in the most cost efficient manner with as little conflict as possible. There’s two situations where probate is possible. First, is when a person is no longer able to make decisions for themselves.

If incapacitated and a person does not have any documents in place, the probate court gets involved in a guardianship or conservatorship. In these cases, the court appoints someone to make financial and medical decisions for you. That person must get court approval for any purchases and must make annual reports. Generally, in a time when they must already take care of a loved one, the court is the last thing they need to be dealing with.

This is very easy to avoid through a power of attorney or a trust. Either document may control if you’re incapacitated, but there are two main differences. First, a power of attorney will only control what is in your individual name, while a trust will only control what is in the trusts name. Also, a power of attorney ends upon death, while a trust may also control what happens after you pass.

The other side of planning is what most people think of: when someone passes. Without a will, assets go through intestate law and must go through probate. Even with a will, assets go through probate.

As such, I normally recommend non-probate transfers to be used to avoid probate upon death. This is a fancy term for joint titling, beneficiaries, or a trust. There are different benefits to each one, but generally a trust is the “best” option, while beneficiaries are “better”, and a will is “good.”

A trust is the “best” option because it allows for control over the assets while avoiding probate. Trusts are also very adaptable, permitting one to only change the trust document instead of beneficiary designations when life changes (i.e. changing beneficiaries, beneficiary percentages, and any restrictions on assets). It also can set up different layers of contingencies for beneficiaries and often provides the least amount of conflict between family members. It’s great for complicated families or when minors are involved. I also recommend it when real estate is involved, because in Missouri, if a person or people own real estate their spouses must also sign off on any transaction involving real estate. So, for families with multiple children, it’s a good way to limit the amount of people involved in any decision regarding that property.

Beneficiaries are the “better” choice because they avoid probate. But I generally only recommend them, with liquid assets, limited family members, and responsible beneficiaries.

A will is the “good” option because it goes through probate. This is necessary for families who do not want intestate law to apply and for minor guardianship. But because it goes through probate, there will be court and attorney fees and I rarely recommend it by itself.

So, in the holiday spirit save heartache and money for your family by checking the beneficiaries on your assets with this checklist!

By

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.

By

Do You Need a Will?

Many times a potential client calls asking about a will and when we sit down for a consultation, they’re shocked to find out a will doesn’t accomplish what they want. Because this happens on such a regular basis, I thought I would go over what a will does and doesn’t do and when you might need a will or when you might need something more.

First, a will does not avoid probate. In order for a will to be effective, the court must verify the will and give all potential heirs an opportunity to contest the will. As such, assets passing through a will must go through court and may take months to years before they can be accessed. If your goals are to avoid court and hassle, then a will alone will not do this and you want to consider non-probate transfers.

But, maybe most importantly, if you have minor children you need a will. This is because a will is the only place to tell the court who you want to be guardians for your minor children.

However, even if you do not have minor children, I often recommend a will for a few different reasons. While the will may not be your main device to leave money to your beneficiaries, it is a very important back up. If you forget to put a beneficiary on an asset or put an asset in a trust, it will go through probate and a will can make that process easier a few different ways. First, if your beneficiaries differ from intestate law, if will ensure your assets go where you wish. Secondly, no matter whom your beneficiaries are, it can allow probate to proceed more quickly by allowing independent administration and waiving a bond. A will also allows you to choose who is in charge of handling your assets and acting for your beneficiaries as the personal representative or executor.

So while there are a few situations where you need a will, there are many more where you may not need one, but it would be beneficial.

By

Planning for Minor Children

Starting in Spring I begin getting phone calls as parents plan vacations away from their minor kids. Understandable, parents want to make sure that if something happens to them while they’re on a trip, their kids will be protected. I’ve talked before about planning for minor children, but I thought it was time for a refresher.

I’ll quickly mention again there’s actually two sides to planning for minor children: the physical and the financial. For minors, the court requires a legal competent adult to be in charge of the welfare of the minor child. This is done through guardianship. The court will hold a proceeding to determine who this adult will be. The only way the court will consider the parents’ wishes is through a will. If there is no will, the court will determine on its own who should be in charge of your children. Probably a scary thought if you have differing values from some of your family (or at least it should be).

It can be hard choosing the person who would raise your children if you cannot, but I find this worksheet to be a helpful place to start.

The other side of planning for minor children is financial. If you place more than $10,000 of assets in a minor child’s name, Missouri requires the probate court to be involved. If you have a will, this might specify who is in charge of the assets, but it must still go through the probate court to be valid.

A lot of the clients I see try and avoid this through placing an adult’s name on the assets instead of the child’s. I hope needless to say, this is a very bad idea. First of all, that person then has no legal obligation to use that money for the benefit of the child. Even beyond this, the money is then at risk to any creditors or liabilities they have. But the largest drawback I see with this is that the assets are then subject to that adult’s estate plan (or lack thereof). If that adult becomes incapacitated and unable to access the money themselves, there is no way to legally use the assets for the child. Worse, if that adult passes without an estate plan taking this into account, the money most likely will not go to the child.

I also have some prospective clients who have a testamentary trust. This means the trust is established in their will not by a standalone trust document.  There are two major drawbacks with this type of trust. First, the will must go through the probate court in order for the trust to exist. Secondly, because the trust does not exist until after death it can be difficult to properly title assets to avoid probate.

The other hesitation for many parents is that this plan is only necessary if both parents pass. While this is true, you cannot unfortunately plan on the circumstances surrounding estate planning. It’s much easier to plan in advance than clean up the mess left behind. Planning is much less expensive done proactively and work does not need to be done twice if a plan is established beforehand.

This is why for most young families, even when I get asked about wills, I strongly recommend a trust in addition to the wills.

By

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.

By

What Probate Actually Means

Most people don’t understand what probate is and in most of my client meetings I explain what probate actually means. Very simply probate is the court proceeding assets go through to be transferred out of a deceased person’s name. That’s about the only simple thing about probate.

The first thing to know is not all assets must go through probate in ordered to be transferred effectively. If done correctly, an asset with another’s name on it or with beneficiaries listed should not have to go through probate. Beneficiaries are generally automatically done on retirement plans or life insurance policies, but most assets can have a beneficiary listed. On vehicles they’re called “transfer on deaths” (TODs) and on bank accounts they may be stated as “payable on death” (POD). Any asset that has a competent, living adult listed as a beneficiary or co-owner should (for the most part) avoid probate.

However, when plans haven’t been made and beneficiaries haven’t been listed, that’s when the probate court gets involved. Even if there is a will, those assets must go through probate.

There are many different ways for assets to go through probate, but the two I use most often are the small estate affidavit and the full probate proceeding.

A small estate affidavit can be used when the assets that do not have another person’s name on the title or as a beneficiary total $40,000 or less. This process has minimal expenses, but can take a few months to complete. If real estate is involved, any proceeds from a sale may be held in escrow for a year from the date of the deceased’s death. However, attorney’s fee and court fees are much less than full probate. A full probate proceeding, at a minimum, takes 7 months, but often time takes much longer. There are also minimum attorney’s fees based on the size of the estate.

In both proceedings, an attorney is required to file the initial paperwork with the court. Thus attorney fees and court fees start at the very beginning. For a small estate affidavit the assets must be listed in the initial filing and if the value is not known, an appraisal may be necessary. Once the court has accepted the filing, a bond may be required. A bond is like an insurance policy ensuring that the creditors and heirs or beneficiaries of the estate will receive what is legally theirs. The bond amount will be dependent upon the amount of assets and can be very expensive or hard to obtain for some families. If the deceased had a will, this requirement can be waived in the will.

In a full probate case, the next step is for the court to appoint a personal representative. This is the person, also known as an executor, who is responsible for selling and distributing assets. The court may grant independent administration where the personal representative may make some decisions without court approval or it may proceed with supervised administration where the court’s approval is required for any action by the personal representative. Supervised administration will often take more time and cost more in attorney’s fees. Independent administration can also be authorized through a will.

If the assets are over $15,000 of value, publication is also necessary to inform creditors and potential heirs of the probate estate.

Next in the full probate proceeding, the personal representative is required to file an inventory detailing all of the assets, which again, often includes appraisals. Once the inventory has been filed, assets may be sold. Six months and ten days after the first publication the estate may be settled by accounting for any debts that must be paid and the amounts owed to the beneficiaries of the estate.

In either proceeding, there are a ranging set of fees, due to the court, attorneys, bonds, publication, appraisals, etc. It’s generally worth avoiding when possible through advancing planning with an attorney. However, it’s obviously not always possible to avoid. So, if you’ve lost someone and have assets that are still in his or her name, probate in some form is likely necessary.

If you think probate is necessary, there’s often no rush (certainly not once the court is involved). The main date to note, is that a will must be admitted to probate within a year of death. So, if there is a will involved, I would recommend reaching out to an attorney well before that year has passed. However, for most families, probate may be considered on your timeframe. With that in mind, I recommend reaching out to an attorney with any questions, but waiting until you are certain there are no other assets in the deceased’s name before filing with probate.

By

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

Burkhardt Law Firm

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