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Do You Know What You Want? Preparing Your Estate Plan

This weekend I had the pleasure of my sister coming into visit and spending a lot of time with two of my youngest nieces. Watching my siblings and listening to them take care their children really reminded me why I got into estate planning. New parents plan for every need their children have and estate planning certainly falls into that range. As children grow, necessities change, but the need for estate planning doesn’t. This month I thought I’d share some of the considerations I suggest to my clients as we’re preparing their estate plan:

1 – How old are your beneficiaries? If minor children receive $15,000 or more, there must be an adult in charge of the assets for them. Who do you want that to be? Minor children need guardians. Have you thought about who you trust with the wellbeing of your children? If your beneficiaries aren’t minors, are they responsible enough with money to receive your entire estate at once?

2 – Do your beneficiaries get along? If they don’t, do you want one of them to make a decision? Would it be better to have a third party like a trust company make decisions? Even if they do get along, will one beneficiary be put in a tough position if they have to say no to another beneficiary?

3 – Is college or another life event important to you? Trusts allow you to give assets at different times in the beneficiary’s life. You can give a distribution earlier if they receive a degree, get married, or really any life event that you want to encourage.

4 – Is it likely they will contest your estate plan? If so, you can prevent them from receiving anything if they challenge the plan.

5 – Are there any other beneficiaries or charities you would like to include? I always set up a list of contingencies is an estate plan to ensure if something happens quickly or all at once, there is at least a backup plan in place. Think about what you would want to happen if your original beneficiaries aren’t able to accept your assets.

6 – Who do you want to make decisions for you? Powers can be divided, but generally I recommend one person being in charge of all the finances and possibly another for medical decisions. Location, age, and ability are all important considerations. Again, I recommend having a backup plan, with at least one, but often times, two contingencies.

There are plenty of other things to consider as well, but generally this gives you a good idea of where to start before talking to a professional. With these basic things in mind, it’s possible to determine what type of estate plan is right for you and your beneficiaries.

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Making a List and Checking It Twice: Your Beneficiaries

Holidays are a great time to catch up with family and because everyone’s around. But it’s also a great time to talk to everyone about what’s important to them. Whether it’s your home or a pillow that’s sat on your couch for the last twenty years. Value means something different to everyone and by talking about those values now, you can avoid heartache and conflict later.

Whether it’s your house or that pillow, you probably want to transfer those important items outside of probate. So to keep in the holiday spirit, I wanted to give you the gift of something practical you can do without an attorney (though I still of course recommend free consultations from the Burkhardt Law Firm to make sure you don’t need more)… The following is a checklist to make sure you have beneficiaries listed or updated and something I would review at least once a year.

Spreadsheet

I included personal property on the list.  However, it’s important to note, a handwritten list alone is not legally enforceable.  So while it does make sense to make a list or at least think about the beneficiaries of personal property, this again is an area to consult an attorney to make sure your wishes will be achieved.

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Hey, That’s Not What I Wanted?!

Ever been to a restaurant where you ordered something, then when it was brought out, found out that what you ordered wasn’t what you thought it was?  That’s similar to how Missouri intestate law works.

Before explaining what the law says, let me define intestate.  Intestate just means without a will.  So, intestate law is what Missouri says happens to your stuff when you die if you don’t have a will or beneficiaries on assets.

Well that’s fine, but that just means it goes to my spouse who will use it to take care of my kids, right? Nope, and unfortunately, it’s not a simple answer.

Really, it all depends on the structure of your family.  Married? Kids? Kids from a prior relationship?  Here’s a quick chart I came up with to help:

Chart

The people who receive your assets under intestate law are called heirs (instead of devisee, beneficiary, or legatee if under a will or trust).

It’s important to note, that this only provides for biological or legal relationships.  Have a step-child who you consider your own? Not adopted? No heir.  Have a friend who you would like to include?  Too bad.  Have a significant other whom you didn’t marry? Out of luck.

So if this chart shows your assets going to a person or people going where you didn’t expect or don’t want… Well, it might be time to talk about a will.

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Have You Taken Care of Your Children?

Most of my clients contact me because they want to make their children’s lives easier.  Several call after they have lost a parent and dealt with the mess of someone who wasn’t prepared.  Often I hear the sentiment they never want to make their children go through what they’ve had to do.  So, with this in mind, I thought we’d talk about preparing for your kids, specifically minor kids.

There are two distinct areas of planning when you’re talking about your children and estate planning.  And they really apply to everyone with minor children.  First is guardianship.  If something happens to both parents, who will take care of the children?  Most people know maybe have even told someone.  But have they made it legal?  Having a conversation with a desired guardian or other friend is great and definitely recommended, but doesn’t mean your child will go to that person.  A will is the ONLY way to state your wishes for guardianship.  If you do not state your wishes there, the court will make that decision without your input, and most likely choose an older sibling.
So, now that you know how to legally choose a guardian, who should you choose?  There’s a long list of considerations and each person is going to have a different level of importance with each factor, but in my mind the first qualification is trust.  For instance, one of my best friends chose my husband Scott and me to be the guardian for her son.  Now, we’re about 500 miles away from her and her son, so we don’t get to see him that often and if we do end up being his guardian, he’ll be coming to us.  Honestly, not the perfect situation.  However, she doesn’t think her family will raise him with her values in mind.  She trusts us to make those decisions for him.  In addition, she trusts us to say no if it’s not the right decision at the time.

Hopefully, you’re in a position where several of those people come to mind.  No matter your initial thoughts, I would strongly recommend taking the time to fill out a Guardianship Worksheet.  You can find one at the end of this article.

The next consideration is financial.  Even if you don’t have enough to provide for your children for the rest of their lives, you’ll probably be leaving them something.  If you leave more than $10,000 to a minor without a custodian, the court will appoint one.  Again, this takes away your ability to choose who controls your children’s money.  Essentially, this means you don’t want to leave more than $10,000 directly to a minor.  However, if you give that money to another person without legally specifying it is for the benefit of the child, they have no legal obligation to use the money for the child.

If your estate passes through your will, you may add a provision giving a person control of your child’s assets (either called a conservator or a trustee).  However, if you want to avoid probate and plan to use beneficiary designations or other non-probate transfer (pay on death, transfer on death, etc) you cannot just list another person as the beneficiary and expect them to use it for the child.  The easiest way to avoid probate and to designate an adult to control the money is to set up a trust.  This person is called a trustee and must use the money for the child’s benefit.

As you consider choosing a conservator or trustee, keep in mind, this does not need to be the same person as the guardian.  Doing so will make the guardian’s life easier, but if your chosen guardian is not great with money or just needs some oversight, a separate trustee can provide that.  I’ve also seen parents who want to involve both sides of the family and will choose someone from the mother’s side for the guardian and someone from the father’s side for the trustee.  No matter the arrangement, having two different people as guardian and trustee make the
situation more complicated and the two people must be able to communicate well.  This structure should only be used after much consideration.

Finally, unless specified, a minor will be entitled to their money when they turn 18. Will your children be responsible enough to control their money at 18?  If you’re not sure, or doubt it, you can set up a trust (along with a will containing a trust) with specific ages or life stages (i.e. graduating college) when they can access their money.  A trust also allows additional controls on how the money can be used (school, cars, vacations, etc).

As you can probably tell, for most families with minor children, I recommend a will (stating guardianship) and a trust (controlling the assets).  It doesn’t take much, only $10,000, before naming a trustee has its benefits.  But no matter the documents used, whether will or trust, there’s a lot to be considered when planning for your children.  This gives you a place to start, but a lawyer will help you finish the process.

GuardianshipWorksheet

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Trust Me

On a regular basis I get a phone call from a client wanting to do a will. After sitting down with the client and learning more about their life, asset, and goals they generally decide to do a revocable trust. So, in this mind set and because I’m regularly asked about when a trust is worth it, my top reasons for the average person to do a trust:

1 – PROBATE. Think about your assets. House, car, bank accounts, brokerage accounts, anything without a beneficiary. Total their equity. More than $40,000? You’re going through probate. Probate is a long, expensive, public process, most people want to avoid. A trust can do exactly that. The important issue here is that assets must be in the trust in order to avoid probate.

2 – CONTROL. Now think about your beneficiaries and look at that total you had before. Trust your beneficiaries with that money outright? No? Then a trust can implement controls where your assets are only used in ways you specify or at time when you think your beneficiaries will be responsible with those assets. This directly applies to minors and children. At times, the court will appoint a person to control a minor’s assets. This means they will most likely gain access to those assets when they reach the age of 18. Will the beneficiary really be conscientious enough at 18 years old to use those assets in their best interest? In addition, will the court appoint the same person you would choose to handle your money?

3 – COMPLICATED FAMILIES. This is a bit unfair, as I admit, we all have complicated families. However, I really mean families with step-children and step-parents or families where disinheritance is a reality. General beneficiary schemes do not account for these “non-traditional” families and it’s often important to use a trust to guarantee the people you wish have access and control over assets.

4 – MULTIPLE BENFICIARIES. If your assets are over that $40,000 mark and you still want to avoid probate, it is possible to list beneficiaries on most assets. However, when you have 6 beneficiaries (especially when a few of them are married) it makes it complicated when they try and sell an asset. In most cases, all of their signatures (and perhaps their spouses) will be required for a sale. Beyond the problems and delay actually gathering all of the signatures, it also can create problems when one person disagrees on what to do with the house or a car. In a trust, they all can benefit from assets, but only one (or maybe two) people make the decision and sign off on that decision.

5 – CONTINGENCIES. In the same aspect, if you are worried about probate, beneficiaries on most forms are limited. There are only spaces for limited beneficiaries and in addition to the number of contingencies, they limit how complicated the beneficiary scheme can be. For example, you have two beneficiaries. Something happens to the one and you’d like their share to go to their children instead of to the other beneficiary. Most beneficiary forms do not allow for this level of detail. It either all goes to one level or the other. A trust can consider your beneficiaries and family as a whole.

6 – PROBATE. So, you’ve seen this once, but it deserves another mention. As you’ve probably gathered at this point, there are other ways to avoid probate. With a small and “traditional” family without minors or other needs for control, those other forms work great. However, in reality those situations rarely exist. That is why after I sit down with most clients they no longer want just a simple will; they want a trust.

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How Much Do You Know

When I sit down with clients, there’s a varying level of knowledge about estate planning, the different documents, and just what everything means. As such, my job is often to make sure people know how the law works and what happens in different situations so my clients can make the best decisions themselves with advice from me where they want it. So, for this month, I thought I’d start with the basics:

  • pic_06What is probate?
  • What is a will?
  • What is a trust?
  • What is a power of attorney?
  • What is an advance health care directive?

Probate is the court process a person’s property goes through when they die to transfer the property out of the deceased’s name. Wills must go through probate (though it took Esq. behind my name for my mother to believe me on that). You can avoid through non-probate transfers, such as transfer-on-death (“TOD”s), payable-on-death (“POD”s), trusts, joint titling, and other methods. Probate is time consuming and can be very expensive. Because of this many people specifically form an estate plan to avoid probate. If you’re worried about your beneficiaries being unable to access quickly or wasting resources on court, talk to an attorney. There are many methods to avoid probate and not all are appropriate for everyone.

Trusts, however, are the main way to avoid probate. A properly funded trust effectively re-titles property from a person’s name to the trust. The person then decides who benefits from the trust assets and who controls those assets until they pass or are no longer competent to make decisions. Generally, the person setting up the trust may benefit and control the assets. This allows a person who becomes incapacitated to continue to benefit from their property, but gives a different, competent person the ability to make decisions regarding that property.

It’s very important to note the “properly funded” part. If property is not actually transferred to a trust (normally by renaming the asset in the name of the trust), then the property cannot be transferred through the trust documents and must still go through probate and a will or state inheritance law.

So, every estate plan (whether a trust is involved or not) should include a will. Wills set out a person’s wishes upon their death for guardianship of minor children and any property not transferred through non-probate transfers. This means that anything with a beneficiary (i.e. life insurance, retirement plans), TOD, POD, jointly titled, etc. are not given away according to the will.

Along the same lines, every estate plan needs a Power of Attorney. Powers of Attorneys come in many different types, but generally should cover legal, financial, and medical decisions. The document gives another person the power to make decisions for the person. The types of decisions can be limited and the document can be drafted so it only goes into effect when a person becomes incompetent.

Finally, a Health Care Directive establishes a person’s desires regarding specific medical situations. It covers circumstances where a person is unable to make decisions regarding their wishes, but can be used outside of terminal conditions (unlike a Living Will).

A full estate plan covers all of these areas and uses each document to make sure you are completely protected. Hopefully, this has explained the basics for you, but please if you have any questions email me or contact me here.

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Even The Simpsons Worry About Guardianship… Do You?

This week when I turned on the television to watch two of my favorite shows, I got caught thinking about work. Maybe it was a theme within FOX, but both The Simpsons and Bones revolved around issues of estate planning.

The episode of The Simpsons didn’t involve any big discussions or much deep thought (though I know that comes as a surprise). The whole episode shows Marge and Homer Simpson trying to find guardians for their children. While their problem is finding anyone who wants their kids (see the clip below) most people face the harder decision of finding someone they trust to care for their kids.

Bones took the issue more seriously (again, big surprise), it also presented the subject with much needed humor. As I discuss this subject on a daily-basis, I very much appreciated a popular media tackling the matter and presenting it in (as much as possible) a positive light.

As I watched, the lawyer in me laughed at the two extremes Booth and Bones presented. A good will does not need to be 312 pages, but in turn should also not be hand-written on a sticky note. Further, when you have a complicated family or sizeable assets or just want to avoid the courts, a will probably will not accomplish your goals. Revocable trusts are a great option for most families (even if you’re not a genius scientist with best selling books).

However, I winced at the proposition Booth presented of leaving his girlfriend assets and trusting her to be fair to his son. This is something I advise people on a regular basis. Never create any legal document expecting everyone’s best behavior. If you could do that, then why create the legal document to begin? If you want to leave something to your children, leave it to the children, not another person. If you leave it to the guardian/parent/partner, that person has no legal obligation to use it for the children.

In reality I probably winced at the majority of Booth’s sentiments. Especially, that preparing for death is inviting it. Unfortunately, death is a fact of life and can be extremely difficult on those who are left behind. When someone isn’t prepared in advanced, they also leave behind a tangle of assets that the court has to sort out. This leaves their loved ones not only in with emotional grief, but very likely legal grief as well.

Even if I disagreed with some of the characters throughout Bones and wouldn’t recommend Homer & Marge’s style of picking guardians (finding random strangers), I appreciated FOX and both shows tackling a hard subject. In doing so it raised some important questions and hopefully will get some families talking. It’s at least gotten me to do so.

Burkhardt Law Firm

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