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You Get Nothing… For Now: Ways to Plan with a Trust

The main reason my clients use trusts are to allow the beneficiary or beneficiaries to receive the use of the assets, but have someone else make the financial decisions. This may because they are minors or there are other circumstances why the beneficiary should not have access to money. The situation directly relates to how the trust document is written, whether the assets remain in trust forever or if they are given to the beneficiary upon some specific event.

If you have or are considering a trust I would consider the following things to determine when to give the beneficiary control of the assets:

  • Why is a trust necessary?
  • Is there ever a time or event that would ensure the beneficiary is responsible enough for the assets?
  • Do I care if the assets are used in a manner I would not approve?
  • Am I concerned about a spouse or future spouse potentially being involved with the assets?
  • Are there events in the beneficiary’s life that should be encouraged through a gift?
  • Are there events in the beneficiary’s life that I want to celebrate with a gift?

As I’ve been drafting trusts I’ve come across many different times when a client wants to give the beneficiary control of the assets. These are a few of my favorites and the most common:

  • Graduation from school
  • Marriage or Holy Orders
  • Specific ages (25, 30, etc.)
  • No drug use for 5 years
  • No felonies
  • Employment

These are just a few of the clauses I’ve drafted and come across, but the list really is unlimited. What controls would you put in a trust for your beneficiaries?  Share at www.facebook.com/burkhardtlaw

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Who Do You Trust? Choosing a Trustee

Happy Labor Day! What better to talk about on a day dedicated to the contributions of workers that have made this county great than the work that a trustee must do? If at this point you don’t know the difference between a will and a trust you should read July’s blog post.

Before going too in depth, I have to mention, a trust can be written in so many different ways that there’s no guaranteeing trustees will always have the same powers or the trust will always have the same provisions. As I write this, please realize a trust can come in several forms and I am only speaking in generalities.

Normally a trust is set up where the person creating the trust, the settlor or grantor, is also the trustee. While the settlor is alive and competent, they can continue using their assets like they normally would. It’s only when they can no longer make decisions or pass that they would stop controlling their assets.

This is when a successor trustee (named by the settlor) would take over. This means a successor trustee may control the trust assets at two different points and for the benefit of different people. The first time is when the settlor is still alive and the trustee must use the trust assets for the benefit of the settlor. This probably will include paying for medical bills, housing, and living expenses. It also will be the trustee’s responsibility to manage any current assets, including maintaining insurance on the belongings and keeping any property in good condition. Essentially, the trustee is the one responsible for making financial and legal (not necessarily medical) decisions for the settlor.

The other situation where the successor trustee takes over is when the settlor has passed. At this point, the terms of the trust cannot change. The trustee CANNOT change beneficiaries or change what the settlor has decided will happen. If the assets are to be distributed, the trustee may chose when to distribute assets and what to do with the possessions until then (again maintaining insurance, giving permission to use assets, etc).

The bigger responsibility is when the assets will be held in trust for a longer period. This is especially the case with minors. In this situation the trustee must decide how to spend the assets for the beneficiaries. They will have the discretion to use the money for college, food, housing, or even to withhold it. In this scenario, the trustee takes the place of the settlor in deciding how the money will be used. As such, it’s an extremely important decisions and must be placed with someone who the settlor trusts and who the settlor thinks will use the money in a way he or she would approve.

No matter why, when, or the time period, a trustee is ultimately in a position to control assets and make multiple administrative and financial decisions. Thus, when choosing a trustee, it’s extremely important to consider the prospect’s responsibility level, risk management abilities, financial abilities, and compare priorities.

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No, You Cannot See Your Niece: Allowing Family Visitation

I apparently have reached the time in my life where I’m surrounded by babies. In addition to three new nieces recently, I’ve also been working with several new parents. It has been my pleasure to work with these new parents protecting the newest members of their families. I’ve talked before about guardianship and trusts and the methods to protect young families. But as I’ve worked with more and more of these families I hear some common concerns and themes.

One of the concerns I hear most often is that the parents want all sides of the family (whether mom’s side, dad’s side, or whomever) able to visit the child. Most parents want to make sure that if they are not there to connect the children to their extended families, their guardians will do so. Unfortunately, guardianship issues go through the probate court and not the family court so the procedure is not the same as a custody hearing. Probate court handles guardianship and who has the right to make legal decisions for the child, but does not dictate visitation rights or schedule.

But there are a few things families can do to facilitate visitation. First and foremost if this is a priority, choosing a guardian who understands should also be a priority. However, choosing a guardian is only one part. It’s also possible just to express your wishes in the documents. This is NOT legally binding, but often times writing down your intentions have more effect than just telling people what you want.

Another method is to choose a trustee or conservator (aka people in charge of the assets for the children) from the other side of the family. I don’t recommend this often, because it can cause problems if the trustee/conservator and guardian do not get along. However, as long as these people can work together, it can also ensure different parts of the family are involved.

It is also possible to include a member of the other side of the family as a beneficiary for a small amount (so they have rights to the trust), then condition any compensation to the trustee (if the same person as the guardian) upon visitation rights. This again can be a decisive provision and does not allow for flexibility on the parts of the guardian. As such, it may not be a good option for everyone.

Because these issues are important and there are many possible problems and solutions, it’s extremely important to talk about these things with possible guardians. If this is a sensitive subject for your family, I would also recommend consulting a professional who can walk through some of the advantages and disadvantages of the different possibilities and find the right solution for you.

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Trust vs. Will

At least once a week I’m asked the difference between a trust and a will. The main difference between a will and a trust is that (in order to be effective) a will must go through probate. A will tells the court what you want to happen to your assets and minor children after you pass, while a trust controls what happens to your death both before and after death. Now, I’m not going to dwell on probate, but if that’s a goal, a trust is going to be the preferable option. A trust also is easier to use than a power of attorney when a person becomes incapacitated.

However, in order for a trust to be effective, assets must be titled in the name of the trust. So your car, bank account, home, etc, must belong to the trust. After the assets are owned by the trust, you may only do with your assets what the trust says you may do. In most situations, a trust is written broadly enough that you may continue treating your assets the way you normally would. However, you can place limitations on how assets are used and when they may be distributed. This is not possible in the same way in a will.

Finally, a trust allows one person to control. With a will, one person controls, but if you use non-probate transfers in conjunction with a will, all owners of non-liquid assets must sign off on the sale of an item. For example, if you TOD your car to your three children, all three children must sign off on the sale of the car. Whereas if the car is owned by the trust, only the trustee has to sign on the sale of the car. This is normally a much larger concern with houses where beneficiaries may not agree or where arranging everyone to sign off at the same time in the same place may be difficult.

So, the next question that follows this discussion is whether a trust or a will is right for you. Well, the only way I can truly answer that question is to sit down and do a free consultation with someone. However, these questions are good indicators:

Do you have minor children?
Are your beneficiaries likely to argue with each other?
Are your beneficiaries in town?
Do any of the beneficiaries have financial, medical, or relationship problems?
Is it likely they will contest your wishes?
Are your assets easily dividable?
Do you own a business?

If you answered any of these questions (or especially more than one) “yes”, then a trust might be the best option for you. If you or someone you know are wondering if a will or trust is better for you and your family, I strongly recommend consulting an attorney. The Burkhardt Law Firm offers free no obligation consultations and would love to help you answer these questions.

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Your Online Estate Plan

Recently, a friend and owner of an IT company (Michelle Herring of CMIT Solutions of St. Charles and Chesterfield), passed along a question she encountered. What do people do about their online accounts when estate planning?

First, I just have to say, I loved that she mentioned this. In a world where more and more of our world is online, it’s a real problem. Even for older families this presents a real issue. Mom now does all of her banking online and doesn’t receive paper billing. How do the kids know what bills are due and what’s already been paid? For those of younger generations constantly on Facebook or even LinkedIn, what happens to those accounts?

Unfortunately, this is the new frontier of estate planning, meaning the laws haven’t caught up with reality. Many (if not all) of the online accounts you use require you to accept a user agreement stating you will be the only person using the account. This means you’re technically violating your agreement with that company if you give another person your password.

Even more of an issue, many online entities have no set policy (and certainly not consistent across companies) of what happens after a user passes: Is a court order required? Can a trust access the account? Does a power of attorney give access?

Few websites truly plan for their user’s eventual (and guaranteed) non-use. There has been discussion that some online entities will or have settings that allow you to give another person access to your account if you don’t log in within a specific amount of time or other forms of estate planning within your online account. After some searching, I could not find these settings in a few of the bigger sites (feel free to share if you do).

So what do you do? There are a few options. Some practical and some not. First and probably the most “legal” (but also probably the least practical) is to keep a list of all your online accounts, so your estate can contact the company and follow the given procedures of that company (if there are any). But really, who has time to create a list and then the hassle of your estate trying to contact and comply with several (plus some) different companies.

Another option is to create a list of all of your accounts and passwords. Either written somewhere or in a document. Hopefully, you can figured out why I don’t recommend this. While it gives your estate access to your accounts, it may inadvertently give access to others as well.

The best solution I’ve seen so far (also recommended to me by CMIT Solutions… seriously, check them out) is to use a password storing cite such as LastPass or KeePass. These applications are secure mobile databases that allow you to store your passwords online on an encrypted site. Essentially, you only have to remember (or share) one password and you have a list of all your online accounts with the passwords. An added feature of LastPass (I installed it over the weekend) is that you don’t have to manually enter the list. As you visit the websites, LastPass will give you the option to save the site and the password.

All of these options have their downfall, but no matter how you plan for your online world, it’s important to consider and plan for as well.

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Still You: What Happens if Your Incapacitated

For those who don’t know me, I read.  A lot.  I’m in two book clubs and average probably a book a week.  Last year I read a wonderful book called “Still Alice” by Lisa Genova.  It’s a book written from the point of view of a woman with early onset Alzheimer’s disease.  It was well written and an interesting story, but it also focuses on something that is all too common, the inability of a loved one to make decisions for themselves.  The book doesn’t touch on the legal complications that can arise with incapacitation, but I, of course, will.

When a person no longer is able to remember where they live, generally, they are not in a position where they can remember their medications, decide if they should be living in their house, or determine if they should take money out of their IRA. This means someone else must make these decisions for them and hopefully make the decisions that person would have made for themselves.  But who makes those choices for them if they’re not capable?

In the best case scenario, they’ve already made arrangements for someone to take over in a power of attorney or have set up a trust. In which case a person they’re decided upon simply begins to act for them with the legal document.  However, many people don’t have these documents.

Without them, a person must go to probate court and file for a guardianship or conservatorship over the incapacitated or disabled person.  Guardianship is the process where a person is given control over the care and custody of another, whereas conservatorship is the process where a person is given control over another’s finances.  In both types of cases, the information needed for filing is extensive, including a full report of the person’s assets/income and an assessment by a doctor.

After filing, an attorney (the guardian ad litem) must be appointed for the disabled/incapacitated person.  This attorney is completely separate from any attorney hired by the family or loved ones to file the legal documents.  What this means is often two attorneys are involved, which of course means two sets of legal fees.

Next, a hearing is schedule where the court will hear evidence on why the incapacitated/disabled person needs a guardian/conservator.  Generally, this occurs a week or two after the petition has been filed.  The judge overseeing the hearing will eventually make the decision on what powers the guardian/conservator will be granted and will only grant that person the powers necessary for the incapacitated/disabled person’s wellbeing.  These powers are issued through the letters of guardianship/conservatorship.

However, that does not end the probate court’s supervision.  After a conservator is appointed, that person must then inventory the disabled person’s assets.  If property must be sold or leased, the conservator must also petition the court before taking action. The conservator/guardian must also file an annual report with the probate court detailing the actions of the guardian/conservator over the year.  For a conservator this includes a detailed accounting of the incapacitated person’s assets.

Without the proper estate planning, an already difficult situation of an incapacitated loved one, becomes a lot more complicated and expensive, including legal proceedings, multiple attorneys, and continuing court supervision.  Essentially, while the disabled/incapacitated person is alive (and perhaps well after depending on their other estate planning) the probate court will be involved.  Hopefully, we never find ourselves or a loved one disabled or incapacitated, but planning for it will make it that much easier if it does happen.

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Who Has the Power?

First of all, happy Fourth of July!  In honor of the holidays and those who have made it possible, especially our troops, I want to focus on power of attorneys.  Now I understand the connection between the armed forces and a power of attorney may not be completely obvious, but let me explain.  When out of the country for any reason, most people want to have their estate planning documents for understandable reasons.  But when you’re going overseas unsure of when you’re going to return and without easy communication, it’s a different story.  You need someone with authority over your bank accounts, insurance, maybe even your house.  This is where the power of attorney comes in.

The person making those decisions is called the agent or attorney and fact and the person actually making the document is sometimes referred to as the principal.   Now, power of attorneys come in many different forms and for many different decisions.

There are two types of power of attorneys that are important for most families’ estate plans: a springing power of attorney and a durable power of attorney.  A springing power of attorney only grants the agent the power to act for the person when a certain event occurs.  Hence the springing.  Generally, this occurs when two doctors certify that the person is unable to make decisions for themselves.  This is how I write the majority of the power of attorneys because most families do not need another person able to make decisions over their money and assets.  It also avoids problems when there are conflicting instructions between a person completely capable of making decisions and their agent.  Now, if you are going out of the country and someone needs to be able to access and make decisions for your account, you do NOT want a springing power of attorney.  However, that’s a more detail analysis an attorney can help you make on an individual basis.

The durable power of attorney allows the agent to act for a person if they are incapacitated or if it is unsure whether they are dead or alive.  Because many people execute these forms to plan in case of incapacitation, it’s extremely important to make sure the document has the “magic” language of a durable power of attorney.  As I said before, I generally help my clients with a springing power of attorney.  But I also include the magic durable power of attorney language.

Most people need a financial/legal power of attorney AND a medical power of attorney.  They do not need to be separate documents, but normally are because some people want different friends/family making financial decisions and medical decisions.  Whether it’s one document or two, it’s important they are reviewed to cover most situations, ranging from banking to insurance to health care choices.  A power of attorney may be drafted for almost any specific decision to give another the power to make that decision.  I’ve reviewed documents to allow one sibling to sell a car for the other 6 siblings (much easier than 7 signatures).

What every power of attorney has in common though it’s no longer effective after death.  Therefore the other estate planning documents (wills, trusts, etc) are extremely important.  Also, without a power of attorney designating someone to make decisions, a person must go through the probate court to have someone appointed to make those decisions.  A power of attorney is much easier and cheaper.

On a final note, people ask me when an estate plan is needed, and while many young people do not have enough assets to truly NEED a will, they certainly have the potential for medical issues and absolutely need a power of attorney no matter the age.  Many clients even choose to execute a power of attorney for their minor children’s health care decisions so a grandmother or other trusted caretaker can act in the event of an emergency where the parent is not available.  A great idea if the parents are extremely inaccessible (out of the country, etc).

So if you don’t have a power of attorney or have any questions, give me a call.  Or at a minimum, take the time to execute a free medical power of attorney from the Missouri Bar (found here).

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Trust Me

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

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

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

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

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

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

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

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How Much Do You Know

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

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

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

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

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

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

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

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

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

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Even The Simpsons Worry About Guardianship… Do You?

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

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

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

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

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

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

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

Burkhardt Law Firm

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