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Burkhardt Law

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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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What Type of Estate Plan Do You Need? Choosing the Right Estate Plan

When I work with clients, I see so many different family types and not everyone has the same needs. There are some generalities that I use to guide what plans the different type of families need. For instance, I think most families with minor children need a trust. However, even then, not all clients fall into those generalities. That’s why it’s so important to evaluate each family’s need individually through a consultation. However, even at the end of the consultation, I think it’s extremely important for a client to understand and choose their own estate plan. Part of this is understanding the documents and how they work, which I’ve explained many times. But another large part of choosing the right estate plan is knowing the different considerations that go into the plan.

One of my first questions when sitting with a new client is always about their family and who we’re planning for. The more complicated a family is (i.e. step-children, half-siblings, etc) the more likely a trust or a more complicated plan will be needed to ensure things go where they are intended. Missouri law only provides for a very traditional family and even then isn’t often what clients would want. Thus, legal documents are needed to change these “default” laws and the more certainty a client needs of where assets will go, the more complicated the documents get. It’s also important to know if there is anyone who would potentially challenge a plan.

But the biggest question and concern for me is if there is a need for control. This normally applies because there are minor children who cannot legally handle money for themselves. However, if there’s a beneficiary who just makes bad financial decisions or has a substance abuse problem a trust might also be necessary. There’s also a limited ability to keep spouses or in-laws away from a plan if they could potentially cause problems through a divorce or other issues.

Finally, assets also are an important part of deciding a plan. If there are extremely limited resources, it’s hard to justify the expense of a more complicated plan, but it might also be worth it if any of the above are concerns. However, the type and location of assets also may make a trust worth it or not. For instance, with real estate anyone listed on a beneficiary deed plus their current spouse must sign on any sale of that real estate. That can cause major problems if there are multiple people involved and not all work together. The need for one person to make decisions on real estate may be enough to justify a trust. However, on the other hand, if most of the assets are liquid (retirement money, bank accounts, etc.) and it’s simply a matter of dividing money, then a trust might be overly complicated.

There are so many factors that go into what kind of plan fits a family. However, the more you know about the process and why a particular plan might be right, the better decision you can make for your loved ones.

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Being a Parent: Planning for Children

When I first began my law firm, I started estate planning thinking of my brothers and sisters, nieces and nephews. Then when I had my first born almost three years ago, my perspective changed dramatically. Now as we prepare for our second child, I thought I would take a moment and reflect on how our estate plan has (and hasn’t changed) since children have come along.

The benefit of drafting your own legal documents is you can think ahead and prepare them for changes in the future. So, our documents from five years ago included provisions for future children. However, anytime a new addition is added to the family, the estate plan needs to be reconsidered.

This might mean a completely new structure. Going from a will to a trust. But it also means updating children’s names and very simple updates to make sure everyone is included.

It’s also an opportunity to make sure the people handling money and in charge of the children’s well-being are still appropriate. We had the trustee and guardian decided before Duncan arrived, but it’s amazing how the logically decision became so much harder once my son was actually here. In the end, I believe we made the right decision and we have not changed it. However, it’s mainly because I realize there is no right answer and no one can truly take our place if we aren’t here to parent. We can only choose and hope the transition would be as easy as possible.

Finally, it’s also a great time to review assets and make sure all assets will avoid probate and are included in your plan. If you’ve never talked to a financial advisor, it’s a great time to review life insurance as well as planning for the children’s future with 529s or other investments.

Now, I know many of my clients have children that are all grown up. However, those grownup children might have to start thinking about their own children. So, even if you’re not preparing for your own minor children anymore, it’s worth mentioning to your children for your grandchildren.

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Blended Families – Accidental Disinheritance – Burkhardt Law Firm

This week I presented at a personal finance college class and a topic that always seems to engage the students is what I refer to as accidental disinheritance. Unfortunately, I’ve seen this come up in several instances, but the most common occurs in blended families.

Husband and Wife both had children before they were married. Because they’re married, they’ve set up all of their assets jointly or have their spouse as the beneficiary on their individual assets. This is normal for most families, but the outcome isn’t always as expected.

When Husband passes, everything passes to Wife as intended, but it’s when Wife passes, that the family realizes things weren’t set up as intended. When Wife received the assets, Wife did not include H’s children as beneficiaries or did not put down beneficiaries at all. In either situation the outcome is the same, Husband’s children are not included. According to Missouri law, a widow’s assets go to her children alone, step-children are not included in intestate law. So, Husband’s children don’t even have a legal right to challenge Wife’s estate unless they were included in her will. And even if they are in the will, if she listed her children as the only beneficiaries, the beneficiary designations control over the will.

I like to believe in these situations that if Wife were informed, she would do everything correctly and Husband’s family wouldn’t have need to call me. But, of course, I get the phone call after the fact, and Wife has passed accidentally disinheriting Husband’s family. Or in some situations, Husband and Wife have met with an attorney and have set up their plan, but because they don’t fully understand the mechanics of the documents things go wrong.

For this reason, it’s extremely important that clients understand their documents and how they work. Especially in blended families, where when things go wrong, accidental disinheritance can happen.

 

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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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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!

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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.

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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.

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A New Perspective to Estate Planning – Parenthood

My husband and I just welcomed our first child into the world on June 16th. As I was thinking of what to discuss this month, I thought I’d simply share how my new parenthood has made me reconsider our estate plan and the documents I create for my clients on a regular basis.

The first thing that occurred to me is how important a medical power of attorney really is. This was my first experience being hospitalized; while I did not have to use my power of attorney, it was extremely comforting to me to know my husband would be able to make medical decisions if I was unable.

It also made me re-evaluate our trust and trustees. We completed our trust years ago and with the birth of our first born, my husband and I have set aside some time to review our trust and make sure the decisions we made then still are applicable to our new family.

But the most important thing I have realized is how hard it is to choose a guardian. I have always helped my clients sort through the options and generally act as a third party perspective with objective reasons why someone may or may not be a good fit. Well, I now understand on a very personal level why it is so hard. It’s so difficult to find someone who will raise your child the way you want to raise him. Everyone we’ve considered has positive and negative characteristics and it’s so easy to rule someone out because they’re not perfect. As I’ve told my clients in the past, no one can replace them, they’re only able to choose the best option in the worst circumstance.

Parenthood has given me a new perspective and while I’m proud of that third party, objective view, I hope it’s given me an opportunity to better understand the families I work with and the difficult decisions they must face when forming an estate plan.

Burkhardt Law Firm

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