A good estate plan generally minimizes tax exposure, avoids the probate process, consolidates your assets and provides for the private administration of your finances and property. It also can provide for children or loved ones in cases of death or incapacity.
Beneficiary Deeds | A beneficiary deed is essentially a transfer on death (“TOD”) or “payable on death” (“POD”) arrangement where the owner of real estate names another individual as the beneficiary of his or her property. During the owner’s lifetime, he or she owns the property and can do with it as he or she sees fit. However, upon the owner’s death, rather than being administered by the probate court, it automatically is transferred to the named beneficiary outside of probate.
Revocable Living Trust | The revocable living trust has become an increasingly popular tool used to avoid probate, provide for heirs/children down the line, and mitigate tax consequences. The parties to a revocable living trust — and any trust — are the Settlor(s), Trustee(s), and beneficiary/beneficiaries. The Settlor creates the trust. The Trustee manages the property in the trust. The beneficiary is a recipient of the fruits of the trust property, directly or indirectly. The most common revocable living trust arrangement is where an individual creates a trust and names himself/herself beneficiary of the trust and then names his/her heirs or children as qualified beneficiaries. Under this arrangement, if the trust is properly structured and funded, all of the Settlor’s property would be subject to the trust upon death and would pass by virtue of the trust to the named beneficiaries without a need for probate. This arrangement is essentially a purely private and contractual way of avoiding public estate administration.
There are, admittedly, some downsides to the revocable living trust. Only property which is funded to the trust is subject to the trust. Accordingly, most assets must be transferred to the trust in order for the trust to be useful. This can be aggravating and time consuming. The creation of the trust can be expensive. Lastly, administering the trust (e.g., tax returns, etc.) can also add some annoying red tape to the process.
In more complex situations, trusts can be used to mitigate estate taxes. For instance, a very common arrangement amongst married couples is a joint revocable living trust which utilizes the marital tax deduction in a way that provides for both spouses and children/heirs — while simultaneously circumventing the estate tax.
Contact us for a consultation regarding establishing a revocable living trust. Although they are at first difficult to understand, in terms of drafting and structuring the trust, few limits exist outside of one’s own imagination. Moreover, they do, despite their initial costs, tend to be much less inexpensive than the costs of a probate proceeding — and disposes of your property privately on your terms and conditions.
Testamentary Wills | Testamentary wills refer to wills which generally dispose of a person’s property upon death. The most common misconception about these wills are that they avoid the probate process. This simply isn’t true. Wills are said to “speak at death.” More specifically, after an individual dies, if he or she has a will, the will must be located and offered to the applicable probate court. Once the will is offered, there will be a period to challenge its validity. Presuming that the will is valid, it will be used as a guiding light for the probate court in that the court and personal representative will distribute property in accordance with the will’s directives. Think of a will as nothing more than a written statement asking that your property be distributed in a certain way.
One of the downsides with the testamentary will is that you do not avoid probate, and thus subject your estate to a host of expenses in the form of legal fees, court costs, etc. At the same time testamentary wills are the only vehicle in Missouri in which an individual can nominate a guardian or conservator to care for a child. They are, then, needed in many circumstances and are a necessary component in even a trust-centered estate plan.
Living Wills (Advanced Healthcare Directives) Living wills generally stipulate what an individual’s wishes are with respect to healthcare treatment if they are incapacitated or in a medically tenuous position. They are written proof of an individual’s wishes which must be taken into account by healthcare providers. They are often written in a way in which the individual stipulates whether he or she wants life-sustaining or “heroic” medical treatment in certain medical situations.
Powers of Attorney | A power of attorney is an arrangement where one person — the principal — gives consent or authorization to another person — the attorney-in-fact — to act on the principal’s behalf in certain situations. There are two dominant types of powers of attorney: financial and healthcare. A financial power of attorney authorizes the attorney-in-fact to make financial decisions which the principal may make and effectuate all instruments necessary to accomplish those objectives. Similarly, a healthcare power of attorney enables the attorney-in-fact to make decisions regarding the principal’s healthcare treatment. A power of attorney is either “shifting” or “springing.” A shifting power of attorney grants authority to the attorney-in-fact immediately, and that grant of authority generally runs concurrent with the principal’s authority. A springing power of attorney, on the other hand, only grants authority upon the incapacity of the principal.
Probate Estate Administration | An estate must be administered through probate if the decedent owns property in only his or her name at death. The probate process is designed to, among other things, distribute the property to the decedent’s heirs while also resolving all of the remaining debts or liabilities of the decedent. If the decedent had a will, the property is distributed in accordance with the will; if the decedent did not have a will, then the property is distributed per the default Missouri statutory scheme — “intestacy.” The individual who administers the decedent’s estate in Missouri is called the Personal Representative. The Personal Representative may be nominated in a will, but ultimately the Court has final say as to who the Personal Representative is. The two different types of court orders which appoint a Personal Representative are Letters Testamentary and Letters of Administration.
As referenced above, Probate is costly. Aside from court costs, the personal representative and attorney are entitled to the following fees under Missouri Law depending on the size of the decedent’s estate:
When there is only one personal representative he shall be allowed as the minimum compensation for his services the following percentages of the value of the personal property administered and of the proceeds of all real property sold under order of the probate court:
On the first $ 5,000, 5 percent;
On the next 20,000, 4 percent;
On the next 75,000, 3 percent;
On the next 300,000, 2 3/4 percent;
On the next 600,000, 2 1/2 percent;
On all over 1,000,000, 2 percent.
Also note that this fee schedule is not exhaustive. Indeed, an attorney or personal representative may petition the court for additional fees if the amount of work performed exceeds the statutory fees.
Will & Trust Litigation, Challenges | Wills and trusts have to be executed and administered in a legally precise manner. If they are not executed or administered correctly, then they may not need to be honored. It is not uncommon that a faulty will be offered to probate. In such circumstances, it may be warranted to challenge the will for being executed incorrectly. A will can be executed incorrectly if, for instance, the correct formalities are not observed or the testator lacked capacity at the time the will was executed. The same general rules apply to trusts, even though they are usually administered in private. To challenge a will or trust, though, it usually has to be done via litigation. Therefore, the cost and expense can be quite high.
Will & Trust Litigation can, for example, be conducted on the following grounds:
- Undue influence against the testator or settlor;
- Mistake on behalf of the testator or settlor;
- Failure to follow will or trust formalities;
- Breach of trust and/or breach of fiduciary duty;
- Lack of physical or mental capacity at the time of execution;
- Fraud, duress, coercion; or
- Dependent relative revocation.
It is important to realize, however, that before any such challenge is undertaken that both the legal ramifications and practical ramifications of the suit be fully understood by all the parties.
Guardianships & Conservatorships | A guardianship is an appointment made in a will which nominates an individual to care for the testator’s children should something happen to the testator. A conservatorship is also an appointment made in a will, but it generally deals with management of finances for the children.It is important to note, though, that wills are not the only ways in which an individual can become a conservator/guardian. If there is no will in place, and their are children that are without legal guardians, then a person can petition the probate court for Letters of Guardianship and/or Letters of Conservatorship of the children. Guardianships and conservatorships are also appropriate for adults who lack legal capacity.
Frequently Asked Probate/Estate Questions:
Do Wills avoid probate? If I have a Will, does that mean I don’t have to go to probate? No. Wills are said to “speak at death,” meaning they only become valid once the testator passes away. Once the testator passes away in Missouri, the Will must be offered to the probate court in the county in which the testator resided. There is then an objection period to the will in which heirs or interest parties can contest the validity of the will for any number of reasons. Provided there are no objections, there is then a period for creditors to make a claim against the estate. Assuming all of these and other tasks are completed, then the estate may be fully discharged consistent with the Will’s directives. Wills act as a guiding light in the probate process; they do not avoid the probate process.
How is the Personal Representative selected? The Personal Representative is often selected in the Will. If there is no Will, or all of the persons selected in the Will are either unwilling, unfit or deceased, then the default statutory scheme regarding selections controls. The statutory scheme first starts with closest family relatives and moves outward.
Can the Personal Representative be removed? Yes, the Personal Representative may either resign or be removed for cause. A personal representative may be removed for cause if they capacity or if he/she have not fulfilled his/her obligations and legal responsibilities as Personal Representative to the estate and the heirs.
What if heirs or other people begin taking a decedent’s property soon after death but before any probate action can be taken? There is a special procedure for this in Missouri. A Personal Representative needs to be appointed by the Court. Once appointed a summons should be issued to the person(s) who is believed to have estate property to appear in Court to determine whether property was wrongfully taken. This essentially creates an adversarial proceeding in the context of the overall estate administration.
What is the difference between supervised and independent estate administration? Supervised administration means that the personal representative must have court permission before making most property distributions or transfers. Supervised administration is aimed at protecting the heirs’ interest in the estate assets from mismanagement/wrongdoing. Independent administration, on the other hand, means that the personal representative can make most property distributions or transfers without court permission. An estate can be administered indepedently if the Will permits it or all heirs consent to independent administration. Although independent administration is cheaper and less time consuming because it results in less court appearances, the personal representative should exercise extreme caution because he/she is still a fiduciary to the estate and to the other heirs.
What is the inventory and appraisement? Within thirty (30) days after Letters Testamentary or Letters of Administration are issued to the Personal Representative, he/she must make a “perfect inventory” of the estate. This means that all assets of the estate must be listed specifically, including cash, personal property, and real estate. For items of personal property with an uncertain value, there must be a timely appraisal. This 30 day deadline can usually be extended pretty easily with Court permission. Further, the inventory and appraisement must be timely amended with the court if the Personal Representative discovers additional assets which were not initially listed.
How soon can distributions of property from the estate be made to the heirs? If the estate is supervised, then there must be a formal Petition to the Probate Court requesting a distribution of property. If the estate is independent, it may generally make distributions freely. However, creditors have six (6) months to make a claim against the estate. Any property distributed may be subject to creditor claims, so the reasonableness of distributing estate property depends on potential creditor claims and the potential cost of estate administration. It is generally good practice to keep a comfortable amount of assets in the estate, as tantalizing as that may be to heirs.
What is the Final Settlement & Proposed Schedule Distribution? After the estate has been fully administered, and creditor claims (if any) have been fully addressed, the final settlement and proposed schedule of distribution should be filed with the court. The final settlement reflects an accounting of what has been done with the assets to date, illustrating both receipts and disbursements. The proposed schedule of distribution is what the Personal Representative intends to do with the remaining assets after Court approval. Often times an additional publication reflecting the proposed distribution is required in a county newspaper.
How long does Probate take in Missouri? This depends, among other things, mainly on the size of the estate and the number of creditors who make a claim on the estate. Probate may take as little as one (1) month, but for larger estates (those in excess of $40,000), it may take anywhere from 6-18 months.
I am just trying to obtain a small amount of assets through probate such as a small checking account and/or car, do I still need to go through the probate process? Not necessarily. If an estate’s assets, less liens, charges, and encumbrances, is less than $40,000 — and if no Will has been presented to the probate court within a certain period of time — you may be able to request a small estate administration. With a small estate, the applicant simply executes an affidavit detailing the believed amount of the estate and his/her plans to distribute/administer the estate. Although the administration is independent, the applicant is legally obligated to administer the estate faithfully and correctly.
How much does probate cost? See the above statutory fee schedule for what an attorney is entitled to from the estate at a minimum. Other probate costs include the court filing fee, publication fee, miscellaneous probate fees (depend on a given county), and attorney fees. Attorney fees are generally worked out on a case-by-case basis. In some estate, a retainer fee and hourly fee may be appropriate. In other cases, a simple claim against the probate estate will satisfy fees.
How do I avoid probate? Probate is avoided most commonly by either (a) owning nothing when you die, (b) created beneficiary designations (“POD” or “TOD” elections) or (c) by creating a trust and titling all of your assets in a trust. The reason these methods avoid probate is because only property which is owned exclusively by the decedent at death, without beneficiary designations, must flow through probate.
What are the different ways property can be owned? A tenancy by the entirety (between a married couple), a tenancy in common, a joint tenancy, community property (which does not exist in Missouri), in trust, in a conservatorship, in a receivership, in a bankruptcy estate, etc. And of course individually by just one person, which often is the cause of many probate problems.
How much do trusts cost to create? It depends on the nature of the trust (e.g., revocable or irrevocable) and how it is structured. Generally, a revocable living trust can cost $1,500 and upwards. Irrevocable trusts may be much more expensive because, as the name suggests, they are not subject to change and more planning and preparation needs to go into drafting and structuring.
What are the pros of a trust? Probate avoidance, forces you to evaluate your assets and plan, allows you to make property distributions based on your wishes, tax avoidance/mitigation, and allows you to provide for yourself and your family in virtually any way you see fit.
What are the cons of a trust? It’s costly, it can be a pain to administer because of the titling and taxes, it can result in the feeling that you must constantly tweak/amend the trust, and it is often times difficult to understand (particularly for friends and family who may be involved in the trust directly or indirectly).
Why do I need a trust if I can just co-title all of my assets or create beneficiary designations? This is an alternative way to avoid probate, as referenced above. However, co-titling is a blunt instrument in that your beneficiary gets the assets outright with absolutely no strings attached. With a trust, you are able to condition distributions on the occurrence of certain events and can make stipulations to hold the property for future generations. At the end of the day it all depends on the nature of your objectives. There is usually more than one way to get there.
How long does a guardianship/conservatorship proceeding take? In many cases, because of the exigent circumstances which are usually present, the Court may order emergency orders granting guardianship or conservatorship over a ward. No matter what, though, a full hearing has to take place in which there is a finding of legal incapacity. From there, the Court has to determine that the petitioner requesting guardianship/conservatorship is fit to assume the station. This process can take 1-2 months, but in more contested cases can take much longer.
How do I make guardianship/conservatorship appointments for my minor/legally incapacitated children? Through a Will. Only under a Will can you nominate another individual to be guardian and/or conservator. However, this nomination is not enough. Ultimately, the Court will have to approve the nominee (in the matter touched on above) to ensure that the arrangement is in the child(ren)’s best interests.
What are grounds for challenging a Will or Trust? You cannot challenge a Will/Trust just because you don’t like the way it handles property. As discussed above, you must either have a challenge which proves that the document is either substantively invalid or was executed improperly.
What are refusal of letters? Sometimes an estate’s assets do not justify a lengthy administration. If somebody nevertheless applies for an administration and requests letters testamentary or letters of administration, an interested party (usually a spouse or creditor) may request that the court refuse the letters and order the estate be administered on a smaller and more expedited basis.
What is a Missouri HealthNet Waiver? Probate courts require that the Personal Representative obtain and file a waiver from the Missouri Department of Social Services certifying that the estate does not owe any outstanding funds to the Department of Social Services. This can take anywhere from one to four weeks to obtain.
Do you handle Probate/Estate matters frequently? Yes. I find it to be one of the more interesting things I practice.