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Per Stirpes vs. Per Capita Distribution…

Per Stirpes vs. Per Capita Distribution in a Will

                One of the obvious benefits of having a will is you get to name the beneficiaries of your estate.  When I sit down as an estate planning lawyer St. Peters to meet people, they almost always have an idea of who is going to be their beneficiaries.

However, one thing that they often struggle to decide is how to divide their estate if one or more of their beneficiaries die before they do.

There are two options.  The first is called “per stirpes” distribution and it means that if a beneficiary predeceases, their share goes to their survivors equally.  The other option is called “per capita” distribution and it means that if a named beneficiary predeceases their share is then split only between the other name beneficiaries.

Let’s look at an example:

Sam and Sally have three children, Samuel, Sarah and Samantha.  They each create wills that leave everything to the other spouse and then to the children in equal 1/3 shares, per stirpes. Sam passes away and then Sarah passes away five years later.  Five years after that Sally dies.  Her will controls the distribution of her estate and because she chose per stirpes distribution, Samuel will get 1/3, Samantha will get 1/3 and Sarah’s two children, will each split Sarah’s 1/3 share and each will get 1/6.

With a per capita distribution scheme, under the same example Sarah’s 1/3 would be split between her brother Samuel and sister Samantha.  Sarah’s children would therefore receive nothing and Samuel and Samantha would each split the estate, ½ each.

You can see how the slightest change in one word (“stirpes” or “capita”) can result in a big change.  Therefore, when I counsel clients I discuss these different options thoroughly and ask about their relationship with grandchildren, the health of their children and any potential problems that could develop within the family (which we want to avoid) if one scheme is chosen over the others.

There’s not really a right or wrong way to choose which distribution you want in your will or living trust.  Based on my years of practice, I would say per stirpes is the choice of 90% of clients over per capita.  Most people think that’s the fairest way and are concerned about beneficiaries getting more due to someone else’s death.

On the other hand, per capita can be a better choice if we’re worried about a distribution to grandchildren going to an unpopular daughter or son-in-law.  That can happen when the distribution is made to the grandchild but taken improperly or used unnecessarily by their mother or father.  That’s something to consider if you find yourself with an in-law that you don’t like.

In the end, careful consideration of all circumstances and preferences has to be examined and peace of mind is ultimately the goal with any estate plan.

 

Trust Administration in Missouri…

Trust Administration in Missouri…

TRUST ADMINISTRATION IN MISSOURI

               Over the years, I have had the honor to serve as a trustee of a few living trusts, as my clients have requested.  It is an honor for these clients to choose me to help execute their estate plans and to work with their chosen trust beneficiaries in Missouri.

As a trust lawyer O’Fallon Missouri, it is interesting to see how things work in reality after a client has passed away.  I’ve always been pleasantly surprised at how much easier the process is than probate and a much less stressful process at that.

When a client passes away and I am the successor trustee, my job is to immediately secure all of the trust assets and to ascertain who are the beneficiaries of the trust.  It’s also my job to collect all the mail of the client to learn about any debts they may have.  This usually means having their mail forwarded to my office so that I can keep tabs on any amounts owed.

Because a revocable trust becomes irrevocable when the grantor (creator) dies, I have to obtain a tax identification number (TIN) from the IRS.  With the trust documents and the TIN in hand, I can visit the client’s bank of choice and access all funds held by the trust.  If the funds are payable on death to the trust, the process is a little different but I will still create a trust account to hold all the liquidated assets of the trust estate.

Assets like houses and cars have to be accessed and determined whether they are to go directly to a beneficiary via the trust.  If so, I make arrangements to work with that beneficiary to transfer that asset to them.  In a recent case, there was a mortgage against the property but very little cash.  The house was very nice but needed some money put into it to get it on the market.  Finding the right balance for this kind of situation is part of the job of the trustee.  In this particular case, we opted to stage the house but not to do things like paint it – we figured we could sell potential buyers on the fact that they could get it painted the color they want.  It turned out to be a great strategy.

Communication with beneficiaries is an important part of being a trustee.  In addition to providing a copy of the trust document to all beneficiaries, it’s important for the trustee to be proactive in letting beneficiaries know what’s going on and when they can expect their distribution of funds (or property) from the trust estate.

Finally, most trust documents empower the trustee to hire just about anyone they need to administer trust business, including financial advisors, attorneys and accountants.  It’s important that the trustee not moonlight as they are a fiduciary responsible to maintain trust funds for the beneficiaries.  Any loss attributed to malfeasance (investing in penny stocks resulting in financial loss, for example) by the trustee can result in personal liability.

Trust administration is a very complex area of law and requires the expertise of a trust administration lawyer O’Fallon, Missouri.

 

Missouri Probate Steps: Inventory Filing…

Missouri Probate Steps: Inventory Filing…

MISSOURI PROBATE STEPS:  INVENTORY FILING

This blog article discusses the the Missouri probate step of filing an inventory.

So a person has passed away and either they had a will or did not have a will.  Either way, a probate may need to be opened in the county where the decedent died to determine who is entitled to the assets of the decedent.  This process is called probate.

The first step in probate is someone or several people file an Application for Probate and for Letters Testamentary (if there is a valid will) or for Letters of Administration (if there is no will).  It is these Letters that allow the person to act as the Personal Representative (same as executor) or the Administrator (same as executor but only in situation where there is no will) and to deal with the assets of the probate estate.

The next step is filing an Inventory within 30 days of the Letters being issued.  This process can be tedious because it is here that you are tracking down what the decedent had but what it’s approximately worth.  It’s a complicated process.  Hopefully you have an attorney helping you through it.  As a quick aside, in Missouri you can have a Supervised estate or an Unsupervised estate.  The Unsupervised estate, in the right situation, is the easiest way to get through probate because the court does not directly monitor all of the transactions of the estate.  The catch is you need to hire an attorney in order to be allowed to open an Unsupervised estate.   My advice?  Hire an attorney.

Back to the Inventory process.  This can vary widely by county.  In St. Louis County, the Inventory is checked over by an auditing department and that is primarily due there is much more probate fraud in St. Louis County than just about anywhere in the state.  St. Charles County has a terrific probate department and they are very helpful.  They take more of a hands off approach to Inventories that are filed and will usually call if something is missing or incorrectly filed.  Probate courts in Warren County, Lincoln County and Franklin County tend to have less estates filed and often do not have their own forms.  In such a case, it is usually okay to use the forms found on the St. Louis County website, although it is always best to call ahead.

Before you can even file a document called an Inventory, however, you have to know what is included in the estate.  A bank account in the decedent’s name only with no beneficiary named will be part of the estate and must be included in the inventory.  With the letters in hand, the executor can find out the account numbers and the value.  They should also be receiving account statements by mail or online by this time as well.  If an account has the decedent’s name and someone else’s name, it avoids probate and is owned by the surviving account holder.  If there are beneficiaries named on the account, it will also avoid probate.

This is pretty much the same as with all accounts, including IRAs, 401K, non-qualified investment accounts (i.e. a Scottrade or Edward Jones account) and life insurance.  Missouri allows decedents to transfer property after death to TOD beneficiaries.  Check the title of all vehicles, including cars, boats, motors and trailers.

What about a home?  If a house is titled in the decedent’s name alone then you need to see if a beneficiary deed was recorded prior to their death.  If so, the house will avoid probate and go to the beneficiaries named on the beneficiary deed document.  If not, the house will be part of the probate inventory and an appraisal may be necessary.  Some counties allow the tax assessment figure to suffice.

Finally, personal property, unless of some value and/or titled property does not usually need to be accounted for in the Inventory.  However, and this is a big however, it should ALWAYS be inventoried by the executor to avoid a fight among the beneficiaries / heirs.

In conclusion, the Inventory notifies the court what is included in the estate and notifies the beneficiaries or heirs of the estate as well since they are to receive a copy of the filed Inventory document.  Once the Inventory is filed, the next step is to deal with creditors and the debts of the decedent.  I will discuss this step in a future blog post.

 

Serving As Trustee of A Trust? Not As Easy As It Looks!

Serving As Trustee of A Trust? Not As Easy As It Looks!

SERVING AS A TRUSTEE OF A TRUST:  NOT AS EASY AS IT LOOKS

One of the services provided by Legacy Law Center is trust administration.  When a person passes away with a living trust (or other type of trust) in place, the assets in the trust must be administered, i.e. managed and/or distributed according to the terms of the trust document.

Serving as a trustee sounds like a glamorous position.  You’re in charge of money and you have a lot of power over that money, right?  Well, it’s not that simple.  For starters, a trustee is a fiduciary.  A fiduciary is a person who has the power and duty to act on behalf of another person (usually referred to as a “beneficiary”) under circumstances that require total trust, good faith and honesty.   A fiduciary must avoid self-dealing (buying trust property themselves at a discount for example) and must avoid conflict on interests.

Here’s where things get tough for most trustees.  They are in charge of a trust in which they are likely a beneficiary and other family members are beneficiaries as well.  Even in the best of families, one person in charge of significant assets is going to create circumstances in which the trustee’s moves and motives are questioned at every turn.

“Why was Mom and Dad’s home sold and not kept?”

“That accountant the trustee hired is too expensive, they should have used my accountant. “

“The trustee is using trust assets for himself.”

“What happened to Uncle Dave’s fabulous gun collection?  Everything just disappeared.”

Rest assured, in most family trusts, once the assets are in control of the trustee, the worst assumptions and second guessing will begin.  In some families it starts on the day of the funeral.  If the trustee lets things fester, trust litigation can develop.

I’ve seen circumstances where the trustee could not take the emotional toll that the role put on them.  They were desperate for my firm to help.   Hiring a trust attorney to assist in the administration of the trust can create a firewall between the trustee and beneficiary while ensuring the trustee carries out their duties effectively.  For example, in the situation where the beneficiaries are already doubting the moves of the trustee even before they have the assets in their control, the trust attorney can send out a letter stating that the beneficiaries are welcome to contact the firm for updates but that updates will come via letter once they are necessary.  A letter from the attorney outlining the timeline for resolution of the trust is often a good way to set expectations.  When that letter comes from the trustee, second guessing can only worsen.

Our firm does not draft trusts without a no-contest provision which states that any beneficiary who files a lawsuit contesting the trust potentially loses their inheritance for doing so.  Now, there are exceptions to these provisions, but courts will uphold them on the belief that if the grantor of the trust (the creator of it) wanted that provision, they meant for it to be enforced.

Remember this as well:  The trustee in most trust situations does not have to rush through the process of identifying assets and distributing them.  That’s a competing problem for a trustee because working too fast can lead to mistakes and a fiduciary that makes mistakes can be personally liable. 

Ultimately, the best move a trustee can often make is to utilize the provision in the trust allowing them to hire professionals to handle the investing of trust assets (financial advisor), to account for them (CPA) and to deal with the legal issues of the trust (attorney).  Once these professionals are hired, a trustee will often find that the mob puts down their pitchforks, that a path with an end in sight develops and that they handle their duties more effectively and efficiently.

One more thing:  We always remind our trustees that they were chosen for a reason and their crazy brother and angry sister were passed over as trustee for a reason.   You were the one chosen because you were the most dependable.

 

 

Special needs trusts…

Special needs trusts…

SPECIAL NEEDS TRUSTS IN MISSOURI:  AN OVERVIEW

A special needs trust (“SNT”), sometimes referred to as a supplemental needs trust, is a trust that is used primarily to supplement, but not replace, any public benefits (like Medicaid and Supplemental Security Income (called “SSI”) that a special needs beneficiary may receive.   The three main types of SNT are the d(4)(A) disability trust, the d(4)(C) pooled trust and the third party SNT.

This article will focus on third party special needs trusts, as they are commonly used by parents planning their estate for a disabled child and their other children.

First, it is crucial that a third party SNT is drafted correctly by an experienced estate planning and/or elder law attorney.  This is because the language of these trusts is scrutinized very closely by public benefits agencies to ensure that the purpose who created the trust intended the inheritance within to be supplemental for the special needs child and not to replace or supplant public benefits.  Medicaid and SSI are both means tested benefits, i.e. you must have limited assets to qualify for them.  An individual with special needs, however, ordinarily meets this minimum asset standard because they cannot work.  And that is why they cannot directly inherit assets from a trust from their parents or other relatives such as grandparents.

Generally speaking, the trust must contain language that provides that the trustee has sole and/or absolute discretion to distribute assets from the trust on behalf of the special needs individual.  This differs from most trusts which often use the ascertainable standard of distributions, “health, education, maintenance and support” (sometimes referred to as “HEMS”).   This standard can disqualify a special needs individual from public benefits.

Knowing what a special needs trust can pay for is also crucial, as the rules regarding this are tricky and confusing.  In Missouri, expenses that can be paid for (without supplanting public benefits) are clothing, phone, cable, vehicle expenses, insurance, tuition / books, household furnishings, computers and electronics, taxes, medications and therapy and legal fees.

There are frequent and often conflicting rules changes surrounding special needs trusts.

Choosing a trustee and successor and alternate trustees is an entirely different issue and best left for another article.  However, this is also a crucial aspect of special needs planning as the complexity of these trusts requires someone who can navigate the complexities or who understands when they need to hire someone (such as Legacy Law Center) to assist them.

Legacy Law Center can assist clients in all aspects of special needs trusts, from the utilizing our expertise and experience in drafting these trusts to assisting trustees to carefully and correctly administer the trusts with the strict and every changing guidelines.