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Burkhardt Law

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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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Don’t Forget…. To Title Your Assets!

I meet with most of my estate planning clients three times and in each of those meetings I (try to) emphasize that an estate plan is truly controlled by how assets are titled. Of course the legal documents are important, I wouldn’t have a job if they weren’t. But the documents I create don’t mean anything unless we know how the assets are titled.

This is because it is really how an asset is titled that determines where the asset goes and if it will have to go through probate.

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. The new owner under this ownership will have control and ownership completely outside of probate.

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. Again, these beneficiaries take ownership without probate.

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. However, a will must go through probate to transfer the property to 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. But again, the heirs would have to go through probate to gain access to the asset.

So, do me a favor, if you or a loved one has assets you’re worried about going through probate, CHECK HOW THEY’RE TITLED!

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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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Decisions, Decisions – Burkhardt Law Firm

When forming an estate plan there are several important decisions necessary. The first is simply, what type of plan do I need? What documents are appropriate? This is a decision I would recommend discussing with an attorney, but anyone over the age of 18 needs a power of attorney. Then it’s important to look at how you will avoid probate and if you need a will or a trust. But no matter the type of plan or documents there are some basic decisions you might need to make.

Who will be making medical decisions for you if you cannot? Do you have a backup?

What medical decisions would you want for yourself? Anything specific that you would want communicated?

Who will be making financial decisions for you if you cannot? Do you have a backup?

Do you want the person making financial decisions to have immediate decision making power? Or do they need a doctor to verify you can’t act for yourself?

Who will be making decision over any businesses you own?

Who will be taking care of the welfare of any minor children?

Who will be taking care of the financial decisions for any minor children?

Do any of your beneficiaries need age or income limits for when or how much money they will receive? If so, what ages or how much is appropriate?

The list could go on and on regarding the decisions you’ll find yourself making when forming an estate plan, but these are a great place to focus and give shape to your plan.

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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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Awkward Discussions

Over the years I’ve had many people ask me how to approach the topics of wills, trusts, and difficult end of life decisions (medical, funeral, etc). Understandably it’s a topic normal people don’t sit around and discuss. Unless of course you’re an estate planning attorney. But I did say normal.

Either people don’t want to discuss the topic themselves or they feel intrusive and pushy bringing it up to loved ones. Even I have been in the uncomfortable position of being near someone I care about and worrying if they had properly protected themselves. So how do you start a discussion on estate planning with your parents or loved ones?

Well, if I had that answer, I might have already retired. But a few tips to begin the conversation and make it a bit easier:

Tell them about this great blog you read. Find a neutral topic to introduce the subject. Don’t just jump in with “you need a will.” Bring up an article or whatever has made you think about it in the past. Refer to your attorney friend or the recent celebrity who lost millions by the lack of planning. If they are open to the topic, then you can get more personal and really talk in detail. If they seem hesitant, don’t force the issues, but just mention it every once and a while without focusing on them.

Talk about yourself. So let me be clear. This is not about you. If you are talking about a plan for another, do not make it about yourself. However, people plan for their loved ones and so if you open up about your concerns, then you might get them to talk about their own concerns and plans.

Don’t focus on death. In my meetings, I rarely use the “D” word. There are a thousand ways to talk about it without using the word itself. Instead focus on love. The real concerns are either making sure wishes are followed or making sure the ones left can focus on the family.

Be honest. There is a reason you are reading this blog. You’ve either done your own planning or your thinking about someone’s plan. Chances are it’s not about you. You’re trying to make another’s life easier. Let that come through as you bring up the topic. Make it about the big picture concerns and why you’re trying to discuss it.

Truthfully, there’s just no magic conversation. However, with a bit of tact, compassion, and understanding there’s a way to bring it up and be respectful about a potentially uncomfortable subject. And don’t forget, I’m always a phone call or blog post away when those discussions lead to questions.

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Who Owns Your Property? Missouri Ownership

As I repeatedly tell my clients and have probably written many times in the past, titling is key to an estate plan. This specifically relates to ownership of an asset and who and how an owner is listed on that property. Recently, I had a client ask for a bit more information on what the different types of joint ownership are and she suggested I share that in my blog. So here you go.

In Missouri there are three types of joint ownership. The first is “Tenants in Common”. This is the default ownership for multiple owners unless you specific otherwise. This means that the owners each own their share as an individual. If one owner dies, their share passes as they designate. This could necessitate probate if proper planning has not occurred. This form of ownership also does not protect the owners from the creditor of any other owners. So if one owner owes money or is sued, that debt could be imposed upon the joint property.

“Joint Tenants with Right of Survivorship” or “JTWROS” is the second form of joint ownership. If property has this designation, it means the property will pass to the last surviving owner upon the other owner’s death. This is a great way to avoid probate if the surviving owner is meant to receive the entire property. However, this is not always the best solution. For example, if the children are listed as JTWROS, but the grandchildren should inherit their parent’s share if the parent passes before them, it may defeat the intent. This ownership also exposes the property to the each individual’s owner liability like Tenants in Common (where the property may be subject to the other owner’s debts).

Because of the liability risks Tenants in Common and JTWROS cause allowing one owner’s creditors access to the assets, I often consult against these forms of ownership.

However, the final form of ownership, “Tenancy by the Entirety” does not have this risk. In Missouri, Tenancy by the Entirety is the only form of ownership where the creditors of one owner may not access the joint property. This ownership can only be between a husband and wife. Further, the property has to be titled during the marriage. If the asset is titled in the owners’ name before the marriage, the property has to be retitled to obtain Tenancy by the Entirety.

While this might give you a guide to how your assets are titled, the best way to guarantee your assets are in a form of ownership that meets your needs is to consult with an attorney.

Burkhardt Law Firm

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