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

Burkhardt Law

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

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.

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

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.

By

Who Has the Power: Attorneys-in-Fact, Personal Representatives, Guardians, and Trustees

Estate planning can be complicated. In addition to different ways to structure a plan, multiple people can be involved. Most of the time, the people making decisions within the different documents are the same person. However, they don’t have to be. As such, it’s important to understand what the different positions and documents require.

Attorneys-in-Fact – This person can also be called an Agent, but it’s the person acting through a Power of Attorney. Their power either begins immediately or when a person is no longer able to make decisions for themselves. However, this power ends with the person creating the document (also known as the principal) dies. The attorney-in-fact can have many different responsibilities, but I generally divide it into two categories. The first being responsibility over the principal’s assets which remain in the principal’s name and legal decisions. The best example of this is generally making decisions over insurance policies or retirement accounts. They must use these assets for the principal’s benefits. The second category is medical decisions. The attorney-in-fact has the power of what treatments the principal should receive, may sign off on medical waivers, and will make the final decision on end of life treatment.

Personal Representative – Previously called an executor or executrix, this is the person acting under an individual’s will. When acting as a personal representative (or PR), that person will have to locate the will and deliver it to the probate court. They will then be responsible to the court to determine what assets must pass through probate with an inventory and accounting of those assets. The PR will have to determine what to do with assets, pay any creditor claims, and is responsible for all filings submitted to the court. At the end of the probate matter, the PR will also be the one who divides the estate to any beneficiaries.

Guardians – For many families, this is the most important role. This is specified in the will and is vital for determining who is responsible for minor or incompetent children. The court has the final decision on who a guardian will be, but a parent’s will and wishes are often respected.

Trustees – A trustee is the person responsible for enforcing the terms of the trust.   Essentially this means that when the principal is no longer able to make decisions (or chooses not to), the trustee will take control of any assets held in the trust’s name. At that point they will use the assets for the person who created the trust. When the principal passes, the trustee will be responsible for either distributing the remaining assets to the beneficiaries or managing the assets for the beneficiaries. This position can last for multiple years and generations.

All of these roles require a person to act in the best interests of the principal or the beneficiaries, but there can be very little oversight. A lot of responsibility and power comes with attorneys-in-fact, personal representatives, guardians, and trustees and there is definitely the ability to abuse the power. As such, it’s extremely important to choose the right person for each role and most importantly choose someone who can be trusted.

By

Planning for Minor Children

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

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

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

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

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

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

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

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

By

Avoidable: 4 Ways to Avoid Probate

I dwell a lot on probate because while it can go smoothly, it’s generally expensive, time consuming, and most importantly easy to avoid. So let’s talk about how to avoid it.

First, what most people don’t think about is that probate can also include when a person is incapacitated. If a person is physically or mentally unable to make his or her own decisions the court gets involved and appoints a person to do so (along with a long list of necessary steps). This part is extremely easy to avoid through a durable power of attorney. A durable power of attorney allows someone you choose to take control of your financial, medical, and legal matters. A very simple solution and legal document to prevent the need for court.

But of course, more people think of losing a loved one when they talk about probate. Any assets remaining in a deceased person’s name alone will need to go to court and through probate (even if there is a will). But there are a few ways to avoid probate:

Gifting – If there is an asset a person is no longer using or is comfortable no longer having control of, simply giving it away and re-titling the asset is an option. Depending on the type and amount of the gift, there can be tax consequences, so I always suggest talking to an accountant before gifting property.

Joint Titling – By putting another persons’ name on an asset, that person may automatically get the asset when the other passes. This is often times why a wife may not need to go through probate when her husband passes. However, there are multiple forms of joint ownership in Missouri and if the correct one is not used, then probate may still be necessary. And because putting another person’s name on an asset can also be a gift there may be tax consequences as well.

Because of the potential pitfalls with the other two, I rarely recommend them. Instead I focus on two different options:

Beneficiaries – Almost any asset can have a beneficiary. Retirement plans and life insurance ask you very directly, but you can do the same with vehicles, bank accounts, and homes. They might be referred to as “Payable on Death” (POD), “Transfer on Death” (TOD), or a beneficiary deed (real estate). Essentially, all of these allow someone to get any asset upon a person’s death without needing probate court. There are some limitations as well on beneficiaries. This could be a problem with a beneficiary passing first, incomplete or lost forms, or putting a minor as a beneficiary.

Trusts – When beneficiaries are not enough, trusts can also avoid probate. Again though, this comes down to titling. It’s so important once a trust document has been signed that the assets are actually put in the name of the trust. A trust allows more control over how or when the assets can be used. They work well for minors or for preserving assets across generations. But most importantly, a trust implemented correctly can be the easiest way to avoid probate.

Whether through a trust or another method, probate should be completely avoidable for most families. It’s something I advise my clients on every free estate planning consultation and it’s something you should consider as well.

By

But I Already Have A Plan: When to Update Your Estate Plan

Unfortunately, you might have already formed an estate plan, but that doesn’t mean you’re done. At least once a year (often times more frequently), I check in with clients to make sure their plan has actually been implemented and that nothing needs to change. If you’ve already signed your estate planning documents here are a few times it might be worth calling your attorney to make sure nothing needs to be updated:

Assets – If you have had a large change in wealth or assets since you’ve first set up you estate plan, it’s probably time to review. A change in wealth could mean you need to re-evaluate your beneficiaries, trustees, distributions, along with any changing tax laws that may now apply. Even new assets may warrant a phone call to ensure they are planned for and, more importantly, titled properly.

Moving – This goes hand in hand with new assets, where a new home title should be reviewed to make sure it is done correctly and consistently within your plan. However, if changing states, an estate plan should also be review to make sure state laws don’t require different documents or in case a state estate tax might apply.

Time – Over the years, lives change and as they do it’s important to make sure an estate plan changes with them. If children grow up, distribution ages or events might need to be altered. Trustees or other people named in documents might not seem like a wise choice anymore.

Family Changes – Along the same lines, families change dramatically as well. Distribution ages, structures, amounts, etc. all need to be reviewed as family dynamics and life shifts over the years. Specifically, I would recommend a review for any of the following events.

Divorce – Unfortunately, this is a common family change. Provisions may need to be made or changed if a person needs to be removed from a plan or even if a new structure is necessary to prevent interference with a person’s wishes.

Death – Losing a loved one is often hard enough without thinking about the legal consequences, but eventually documents need to be updated to reflect the loss.

Births – While many documents provide for a later born child, I still recommend a review and an update when including new beneficiaries to avoid unnecessary complications later.

With that being said, my husband and I will be taking the time to review our own plan as we look forward to the birth of our first child in June. Have you recently looked at your documents or had a big life change? Take a moment to consider if you might need a review.

By

Take Control Through Estate Planning

I recently had the pleasure of sitting down with Chris Finny from the Finney Law Office. As Chris was explaining how he helps individuals through difficult events in their lives (car accidents, getting hurt on the job, medical procedures gone wrong) I noticed a common theme. Yes, Chris’s clients have been injured in some form, but the bigger more lasting effect is that they have had control taken away from them. Maybe that’s control of their body, their ability to earn a living, or just the management of their finances. Unfortunately, as I learned from Chris, those who have gone through a personal injury case know how quickly they can lose the ability to make decisions. But through effective legal planning, some of that lose is preventable.

I want to suggest some basic documents everyone should think about, so that if you do experience an injury of that type, your wishes are still the ones that are being considered.

First is a medial power of attorney and health care directive. This allows you to set out your medical wishes if you aren’t able later to communicate or enforce them. It also gives you the power to choose who will help enforce those wishes.

There’s also another power of attorney to cover your financial and legal decisions. I truly consider this one of the most important documents of an estate plan and would highly recommend everyone of any age to have one. Again, in this document, you get to choose who handles your finances and makes decisions for you or your family if you’re not capable of making your own.

And of course, don’t forget about the will. While this is the document where you get to override state law and say where your possessions go, for parents it’s a lot more. This is the ONLY legal way to have a say in who will take care of your minor children.

But if you really want control, a trust really is the most effective and detailed way to do so. A trust gives you the ability to make detailed decisions over your finances and beneficiaries, even allowing you to make sure your beneficiaries cannot touch their inheritance until an age or event you decide.

Without these documents, those left to take care of you will have to go to court to earn those rights, and the court has the final say on who will be making decisions for you. So whether you’ve been involved in a personal injury case or just know it can happen to anyone, take some control now and consider your estate plan today.

Burkhardt Law Firm

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