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

Burkhardt Law

By

But Chances Are So Small – Estate Planning – Burkhardt Law Firm

The number one reason I hear for why people they don’t think they need an estate plan is: “Well, my spouse is named as a co-owner on everything I own or is a beneficiary on everything I own and the chances of us dying at the same time is small.”  Well, even if you are right and you and your spouse don’t pass at the same time and your beneficiary designations avoid probate, there are reasons why you still need an estate plan.

Things can fall through the cracks, and you may forget to put a beneficiary designation on a new asset, or there may be other unforeseeable assets that don’t have a beneficiary designation and will therefore go through Probate.  A will is a good way in those circumstances to be able to tell the Probate court what to do with those assets.  A will can waive bond and ask for independent administration which can reduce the cost and time if assets have to go through Probate.

A good estate plan does not only plan for death, it is also a plan for when you are living but incapacitated.  An estate plan may include both a medical power of attorney/heath care directive and a financial power of attorney.  These documents are utilized while you are still alive.

If you have retirement accounts, your spouse cannot be an owner of your account.  They can be a beneficiary, but that beneficiary designation does not give them any rights to access your account or funds from the account until you have passed away. If you to need to access money from your retirement account and are not capable of making financial decisions the only way to do that is through a financial power of attorney.  A financial power of attorney will allow someone of your choosing to make financial decisions and access funds when you are not capable.  If you do no not have a financial power of attorney, there may be a delay and added cost if someone has to go through the court system for conservatorship in order to access the funds. This is just one of many reasons a financial power of attorney is an important document to make part of your estate plan.

The other document utilized as part of an estate plan during your life is the medical power of attorney/heath care directive.  If you are not capable of making medical decisions for yourself a medical power of attorney will allow a person of your choosing to make medical decisions on your behalf.  Do you have specific wishes for end of life? Would you want treatments like feeding tubes to be removed if the doctor did not believe you would have significant recovery?  It is important to make your wishes known and this can be done through a medical power of attorney/heath care directive.

Even if you are not concerned about assets passing through Probate, I strongly suggest considering an estate plan so that you can have access to funds when needed through a financial power of attorney and to make your end of life wishes known through a medical power of attorney/heath care directive.

By

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.

By

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!

By

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.

 

By

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.

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

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

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

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.

Burkhardt Law Firm

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