Law News and Tips
PLANNING WITH IRAS
Vilbig © 2020
Many of us work all of our lives saving for retirement. Some begin at a young age tucking a little money away in an IRA, a 401(k), a 403(b), or a profit-sharing plan. Some put it off for some time because of day – to – day expenses, but most eventually save something, and when I meet with clients, if they don’t have some sort of a business, the two biggest assets they have is their house in the retirement savings.
But being frugal and saving for the future can create some issues. What do you do with a retirement account if you outlive the account? Many people (particularly guys) just say they’re going to live until they run out of money. Good plan if you know when you’re going to die. The problem is, we don’t know if we are going to get hit by a semi tomorrow or linger in a nursing home for years. We just don’t know, so we need to plan.
The simplest thing to do was to just name your spouse as the beneficiary and your kids as the contingent beneficiaries. If you have a 401(k), a 403(b), or a profit-sharing plan, federal law provides that if you name someone other than your spouse as the primary beneficiary, your spouse must consent to that.
The same rule doesn’t apply to IRAs. Under federal law, you don’t need your spouse’s consent. However, in a recent Missouri case, it was determined that a surviving spouse has rights in marital assets, including IRAs. So Missouri law now protects a surviving spouse’s rights in an IRA.
So assuming you’ve named your spouse as the initial beneficiary, on your death, he or she can roll the retirement account into his or her own name tax-free. If the surviving spouse is younger, that’s a good idea since using the younger spouse’s longer life expectancy means he or she can extend the tax-deferred growth of the account.
On the death of the second of you to die, if you’ve named your children as the contingent beneficiaries, then the assets can be divided among them and rolled over into what is called an “inherited IRA.” It used to be that inherited IRAs would last for the life expectancy of the beneficiary. In the recent SECURE Act, Congress limited the term of inherited IRAs to 10 years. It’s still a good idea to keep the assets in a tax-deferred account, it’s just that there’s a time limit.
But there’s another problem with inherited IRAs. In 2014, in the case of Clark v. Remeker, the US Supreme Court ruled that inherited IRAs are not protected from bankruptcy claims. What this means is that an inherited IRA is not protected from creditors. So if your son or daughter inherits an IRA from you and is later sued and doesn’t have insurance coverage on the matter, all of your hard earned money could go in payment of a judgment. To me, that’s a bad result.
In order to avoid that result, we typically recommend that clients name their spouse as the initial beneficiary of a retirement account, but named a revocable trust as the contingent beneficiary. In 1999, the IRS provided us with “magic language” that permits us to flow an inherited IRA through a trust. By having the assets run through the trust, they are protected from lawsuits.
If you have questions, let’s talk.
AN ESTATE PLANNING CHECKUP
Fred Vilbig © 2020
I recently met with a couple who wanted what I’ll call an estate planning checkup. They said they had a will and just wanted me to check to make sure everything was in order.
When we met, I asked to see their wills. She produced a very simple, generic will. She sheepishly admitted that she had printed it off the Internet a few years ago. In reviewing it, I saw that on her death, everything went to him if he was alive. If he was not alive, it went out right to their kids. Although it had normal (albeit brief) powers authorizing the personal representative to do whatever was necessary to take care of the estate, it did not allow for what is called independent administration.
She was surprised when I explained to her that the will would require the court to oversee and approve everything in the administration of her estate. She apparently thought you avoided probate with a will. A will is only a roadmap through probate. It doesn’t avoid probate. We then discussed ways to avoid probate.
I also talked about the problems with giving property outright to children. If they kept it in their own individual names, the assets could be exposed to the claims of their creditors. If they married and put it in joint names with their spouses, half of it could be taken in divorce. We talked about ways to avoid that.
I then looked at the signature page. She had, in fact, signed the will. There were spaces for the signatures of two witnesses, but they were blank. There wasn’t a notary block at all.
I explained to her that her will was not valid. On the death of the second of them to die, their estate would have to be administered by intestate succession (the will Missouri has written for you). They were not happy to hear that.
In order to have a valid will, there are generally certain requirements that have to be satisfied. There are some exceptions, but that will be for another column. Generally, in order to have a valid will in the state of Missouri, the testator has to be competent. Testamentary competency is very basic: you need to generally know what’s going on; you need to generally know the nature and extent of your estate; and you need to know the objects of your beneficence (that’s a fancy law school word for who your kids are). In addition, the will has to be written. You need to publish or declare that it is your will in front of witnesses. And the witnesses need to sign the will declaring that they found you to be competent and that you signed it in front of them. Although not required for a valid will, we always add a notary block regarding the witnesses’ signatures. Otherwise, on your death, we need to track the witnesses down, drag them to court, and have them prove that those are their signatures on the will.
I understand that people are trying to economize. But I have found generally that homemade wills end up costing a lot of money and causing a lot of problems.
Give me a call. Let’s talk.
A Bad Idea
Fred Vilbig © 2020
I got a call from a client the other day.His mother had died, and he had a lot of questions.
His mother and father had divorced years ago.She had remarried, and she and her new husband had had a loving relationship.Not knowing who might die first and wanting to be fair, they had verbally agreed that everything would pass to the survivor on the death of the first of them to die, and on the death of the second, everything would be split 50/50, with half going to her son and half going to his children.They didn’t put that agreement in writing, and everything was owned jointly.They did both execute wills that included those provisions, but that was it.And therein lies the problem.
When a married couple own property jointly, on the death of the first of them to die, everything passes to the surviving spouse.There is no need to probate anything since there is nothing to probate.If you’re talking about real estate, you do need to file an affidavit of death to clean up the title.With regard to financial assets, you probably need a death certificate to show to the financial institution.But no probate.
And when the assets pass to the surviving spouse, the surviving spouse is free to do whatever they want with them.My client said that his step-father was talking about putting the accounts in joint names with his son.The idea was that he wanted his son to be able to pay his bills.But joint ownership between non-spouses can create problems.In the case of bank accounts (they have special rules that apply to them), his son would be able to use that money to pay his bills.But his son would also be free to drain that account.Or if he got sued and lost, the other party could attach those funds to satisfy his or her judgment.In the case of a brokerage account, both joint owners would need to jointly withdraw funds, so he would be no better off than if the account was still in his name.And then on the death of the step-father, all of the assets would pass outright to the surviving son. There would be no probate, and the will that split things 50/50 would prove to be a useless piece of paper.
The best thing that my client’s mom could have done would have been to enter into a pre- or post-nuptial agreement.She and her husband could have agree to split the assets in writing just like they had verbally agreed to do.
But now, my client was in a sticky situation.Although he had a good relationship with his step-father, his step-father was free to do whatever he wanted to do with the assets.I told him that his step-father could put the assets into a trust, and that would avoid probate, allow for his son to take care of him if he became ill, and incorporate the testamentary disposition play he had agreed to with his wife.If he didn’t want to do a trust, he could keep his will and execute a power-of-attorney allowing his son to pay his bills, but not put everything in joint names.There are ways to salvage the situation to achieve what the spouses had agreed to, but it will take some cooperation.
Fred Vilbig © 2020
Identity theft is a big concern in our virtual, technological society. Nefarious people make millions of dollars by stealing your private information and pretending to be you. We use passwords and encrypted software to try to protect ourselves, but these are smart criminals. They know how to work the system.
In a way, identity theft has been with us probably as long as people have been doing business. People would pretend to be someone else to get something valuable. Several movie plots have revolved around this idea: Catch Me If You Can, Face Off, and American Hustle are just a few. (I have to thank my kids for the movie references since I have never seen any of these movies.)
Internet dating sites are also a victim of this kind of thing where the description of the person you think you are meeting doesn’t match the person you actually meet. He’s not an Olympic athlete unless you include drinking Olympia beer as a sport.
A simpler form of identity theft is a forgery. In a forgery, you are pretending to be someone else by signing their name to a document. It’s less elaborate than internet identity theft. You don’t have to dress up and pretend to be someone else. You just have to sign their name. And if what the banks allow for signatures on checks is any indications, you don't even have to try that hard to copy someone’s signature. It’s as if they’ll take just about anything.
That is why we have notaries. Notaries are people commissioned by the State to verify signatures. They affirm that the person signing a document is, in fact, the person supposedly signing that document. If you go to court and a written document is central to your case, you can’t even get the document admitted into evidence unless there is some proof that the document and the signatures are real. If you don’t have a notarized signature, then the people who signed the documents need to go to court to prove that the signature on the document is actually theirs.
With a notarized signature, you don’t have to prove-up the signatures. If the signature is notarized, it is presumed valid. You would have to bring witnesses to prove otherwise.
Normally to notarize a signature, you have to sign a document in the physical presence of a notary. But these are not normal times. Social distancing has become the norm, and that makes notarizing signatures problematic. We recently had a car window will signing to keep our social distance.
But Governor Parson has recently relaxed that requirement. By Executive Order under the declared State of Emergency, we can now do virtual or remote notarization. For our purposes, we have to be able to see the person sign the document through a web-based program, they have to prove they are who they say they are with a picture ID, and after signing the document, they immediately have to send it to the notary. How long we will be able to do this is uncertain, but it relieves some of the stress on people. A lot of people don’t have even the most basic estate planning documents – a will, a power of attorney, or a medical directive – but they are afraid (and rightfully so) to physically meet with us. Now we have an option.
If you need to do some planning, but you were hesitant to take action during the pandemic, give us a call at (314) 241-3963. We are conducting our interviews by phone or by videoconferencing. Based on that conference, we can prepare documents and send them to you for review. After you have had a chance to review the documents to put them in final form, we can now sign them over the internet. Your safety and the safety of our employees is uppermost in our minds.
;Vilbig © 2019
I recently heard from a client about an estate planning mess that could have been avoided. Although this particular story is hearsay, I know from experience that these kinds of things regularly happen.
Bill (these are not their real names) had been married to Julie for years. Together they raised three wonderful children. After the kids were grown, Julie got sick and died, leaving Bill a widower at a young age (relatively speaking).
After Julie’s death, Bill lived alone for several years, but that can be tough. Older singles get isolated. Most of their friends are married, so they can feel like the odd man out socially. So Bill became lonely.
After some time, Bill met Debra. Debra was a lovely lady. Her husband had also died after they had raised two children. Bill and Debra grew to love one another, and they decided to marry. The kids were actually happy to see their parents so happy.
Bill and Debra had a happy life together. They trusted each other completely. They bought a house together; they invested their money together; they had a joint bank account, and they named each other as their beneficiaries on their IRAs.
As time when on, Bill noticed that Debra was forgetting things. It was almost unnoticeable at first, but it grew progressively worse. Debra was finally diagnosed with dementia. Bill took care of her as best he could, but he himself was aging. The stress and strain proved too much, and Bill died. Since Bill and Debra had not done any planning, Debra’s kids had her declared incompetent and opened up a conservatorship to manage her money and pay her bills. Debra did not survive Bill long, and she soon passed away. That’s when Bill’s kids had an unpleasant surprise.
On Bill’s death, everything passed over to Debra, including Bill’s IRA. It wasn’t a malicious thing, but it just happened. So when Debra died, everything went to her children. Nothing was left for Bill’s kids. Debra’s kids could have shared, but they were disinclined. Bill’s kids were very upset, but there wasn’t anything that could be done.
This is just one of many examples of an unfortunate result from lack of good planning. I recently met a young couple with a large family. Although they had thought about it, they had never gotten around to planning their estate. Now they were facing a medical emergency, so that need was immediate.
Although you can’t wrap it up in a nice box and put a pretty bow on it (or maybe you can), I would like to suggest a Christmas present for your family: a well thought out estate plan. It’s not a cool present, but it may be one of the more important things you can give them. Just a thought. Give me a call if you want to talk.
And at the risk of offending some, Merry Christmas and a blessed new year.
Fred L. Vilbig © 2019
Many years ago the firm I was with was approached by a Chicago law firm about merging. I admit the managing partner of the firm (I’ll call him Joe) at a wedding in my wife’s hometown. He seemed nice enough, but pretty intense.
The next week he called me. We started the process of investigating a possible merger. This is called “due diligence.” There were meetings between the partners, financial records review, and overall philosophies to consider and compare. It takes a lot of time and effort to think through something like that. You don’t want to make a mistake since undoing a merger is even worse than doing one.
We were almost done with all of that due diligence at the beginning of summer. Joe told us that we would need to take a short pause because his partners were making him take a vacation. Evidently, he hadn’t taken a vacation in years, and his partners were concerned about the amount of stress in his life. He and his family were going to Florida. He said he’d be in touch when he got back.
I was expecting a call after about two weeks. Nothing. Three weeks went by, and there was still nothing. Soon a month had passed, and still nothing. Finally, I called to see what was going on. I got his secretary, and in a very somber tone, she said that she would have someone call me back.
A day or so later I got a call from one of Joe’s partners. He told me that while sitting on the beach on vacation, Joe had suffered a massive heart attack and had died. We were stunned, to say the least. Evidently, the stress of taking a vacation had been too much for him and his heart.
Vacation season is one of those times of the year when people need to think about estate planning. If parents with small children are traveling alone, they need to make sure that everything is in order. When kids go on vacations alone or study abroad for the summer, they at least need to have a power of attorney - to handle financial matters when they are out of town or unconscious - and a medical directive - so someone can make medical decisions when they can't.
There is an old saying - "An ounce of precaution is worth a pound of cure." So a little planning can go a long way. Give me a call.
Fred L. Vilbig © 2019
Mary’s husband Joe died over a year ago. They had a simple estate. Everything was owned jointly. They had done some estate planning by signing “I-Love-You” wills, durable powers-of-attorney, and medical directives. An “I-Love-You” will is one that says everything goes to the surviving spouse, but if they’re not alive, then everything gets divided equally among the kids and distributed outright. Nothing fancy, but it covers the bases.
Since everything was held jointly, Mary didn’t bother to file the will with the Probate Court. She didn’t think it was necessary. Although it’s not important to our story, the law does say that if you have a decedent’s will, you are supposed to file it. If you don’t, the court can order you to file it. It’s kind of serious business. Now back to our story. As I said, Mary didn’t file the will.
Time passed. Mary had a hard time going through Joe’s stuff. They had been married for a long time, and Mary missed him terribly. But after almost 2 years, she started going through all of his papers to sort through them and throw out things she didn’t need or want. And as sometimes happens, she found an old life insurance policy. Joe had been in the military before they had married, and he had taken out a paid-up life insurance policy. He named his parents as the beneficiaries, but they had died a long time ago. There wasn’t a backup beneficiary, so the life insurance proceeds would have to be paid to Joe’s probate estate. But that was the problem.
Since Mary didn’t file Joe’s will within a year of his death, the will could not be filed. To be valid in Missouri, a will must be filed within a year of a person’s death. In addition, without a filed a will, you can only open an intestate estate (an estate without a will) within one year of the person’s death. So even though Mary had Joe’s will and the insurance proceeds were payable to Joe’s “estate,” Mary couldn’t get to the insurance proceeds … at least not that way. So what to do?
When a person has been dead for over a year and no will was filed, in order to “probate” a decedent’s assets, you have to petition the court for a determination of heirship. To determine heirship, you have to petition the court to determine who are the heirs entitled to the assets. It’s a little more involved than probate in some ways, and it requires a hearing with a court appearance. Most people dread court appearances for some reason.
So for Mary, we had to proceed with a determination of heirship. Not the worst thing, but then I won’t be the one on the witness stand.
The moral of the story is that if a person dies with a will, you need to file the will with the Probate Court. If you discover an asset more than a year after their death, you can probate it. Believe it or not, under these circumstances, probate is probably the preferred solution. Who’d of thunk it?
HOME FOR THE HOLIDAYS
Fred L. Vilbig © 2018
The holidays are great. The food, getting together with family, other people’s decorations. Yes, I said other people’s decorations. We have a peak on our roof that is about 30 feet up, and it must be at least 100 feet down. Yes, I’ll get the decorations up, but it is a death defying feat if I say so myself.
So where was I? Oh, yes: the holidays. My wife’s favorite holiday is Thanksgiving because it just involves cooking a big meal, and she’s a great cook. That’s lucky for my kids since I am not such a great cook, and it really stresses me out trying to get everything on the table at the same time while it is still hot.
But either at Thanksgiving or Christmas, the family gets together for a big meal. The out-of-town kids fly or drive in, and the in-town kids come over for a full house like it used to be. It seems that our holiday dinners last a long time with people staying around the table reminiscing about things. My wife and I often listen to the stories about what the kids did when they were young. Later we’ll check with each other and find out that neither of us knew anything about those things. Often we’re surprised, but at least no one got seriously hurt.
In addition to all of the good times that we have at the holidays, they are also a good time to check up on family members, particularly our parents. For some, we see our parents on a regular basis. We may not notice the little, subtle changes that may be taking place. For others who see their parents only once or twice a year, the accumulation of these little changes can be shocking.
When you’re home for the holidays, you may want to pay attention. Are they eating right? Are they dressing appropriately for the weather? As we age, we all get a little forgetful, but are they getting forgetful to the point that it is a problem? Have they gotten lost when going to the store? Do you see big changes in habits that seem to be ways of compensating for something? Did they use to be social, and now they are a homebody? Do you see big changes in their personality?
As we age, there are changes, but the question is whether they are creating problems. If not, it might still be a good idea to check to make sure that everything is in order. Do they have a will and/or a trust? Do they have a durable power of attorney? Do they have a medical directive that includes a medical power of attorney and a living will? And it’s important for the children to know who is going to be primarily responsible if something happens.
These may be tough, maybe even awkward questions to ask, but they are important. Surprises are not welcome, particularly when it is too late to fix things. In prior columns, I have written about times we have fortunately discovered problems before it was too late. And in other columns, I have written about those times we were too late to fix the problem directly, but we were able to find ways to work around the problem. But there are times when we discover the problems too late to fix other than by going to court, and the client ends up paying a lot of money in legal fees. So even though the questions may be tough and awkward, not asking them can end up costing a lot of money and aggravation.
So enjoy your holidays, but you might want to ask some questions … before it’s too late.
PLANNING FOR YOUNG CLIENTS
A friend recently called me. He has two daughters in their 20’s. They recently got jobs, and they were in the process of applying for benefits. They were asked about whether they had a will, whether they had a power of attorney, and who should be called to handle medical emergencies. That got them thinking, and they turned to their dad for advice. That was nice.
It may seem strange that a 20-something single person needs to think about a will. At that age, dying is one the last things people think about, but it makes sense. With a will, you get to say where your property goes when you die. You can cover that with pay-on-death and transfer-on-death beneficiary designations, but those can be of limited value, and people miss things. So a basic will makes sense.
In addition to saying where things should go, you get to pick who is going to go through your stuff and administer your estate. Even a 20-year-old (or maybe particularly a 20-year-old) doesn’t want just anyone going through their stuff, even when they’re dead.
So even if you think you’ve done all of your planning, it is possible to have missed something, and will is a good safety net. If you don’t have kids, the will can be very simple, but if you have kids, you want to say who is going to be their guardians, and you probably want to avoid having the court administer their money sort of like in a Dicken’s novel.
In addition to a will, a young person certainly would want to have a durable power of attorney. Maybe it’s just my job, but I constantly run into situations fairly regularly where someone is in an accident or gets ill and can’t handle their business affairs. A durable power of attorney (and the word durable needs to be in it) allows someone to handle these things when you can’t.
And finally, a young person needs to have a medical directive of some sort. These do several things. First, they are a medical power of attorney that authorizes someone you name to make medical decisions whey you can’t. Second, they need to include HIPAA authority so that a doctor can talk to your family about your condition. I recently reviewed a medical directive that did not have HIPAA authority. Fortunately, we caught it before they needed to use it because, with that authority, doctors and hospitals won’t talk to anyone about anything.
The last thing that a medical directive should include is a living will. If someone is in a car accident, close to death, with no hope of improvement no matter what is done, do they want to be kept “alive” on machines or just allowed to die a natural death? It’s not a pleasant thing to think about, but it is so important when the time comes.
So when my friend called and asked what his daughters should do, I told them they needed to do some planning. It can make a lot of difference if the unthinkable happens.
Fred L. Vilbig © 2018
Two recent high profile deaths highlighted one of the reasons people should consider using a trust for their estate plans.
On June 8th, Anthony Bourdain died.He was 61. He has been described as one of the most influential chefs in the world. Mr. Bourdain’s death was tragic because it was a suicide which is so tragic for everyone involved, but particularly for those who were close to the decedent. You always question whether there was something you could have done. It’s very difficult.
But very soon after his death, there were reports in the press about how he had taken care of his daughter with his estate. It’s not that it was a fortune, but it was just a discussion of how he took care of an important person in his life.
The second high-profile death was that of Richard “Old Man” Harris on June 25.He was the patriarch of the family on the TV show “Pawn Stars.”His death wasn’t necessarily a surprise. He was 77 and had battled Parkinson’s disease for some time. Still it’s always sad to lose someone you love.
Much like in the case of Anthony Bourdain, soon after his death, articles began to appear in the press regarding his estate plan. Evidently in 2017, he amended his will to cut his son, Christopher (and his children!), out of his will. We don’t know why, but that didn’t stop the press from speculating. Who needs those kinds of things aired in the press for the vultures to pick at?
And that brings me to my point: privacy. Apparently both Anthony Bourdain and Richard Harris planned their estates using wills. When a person dies, his or her will has to be filed with the local probate court. With a little ingenuity, people (such as reporters) can get a peek at it, and then what should be private becomes public.
With a trust, everything is private unless a lawsuit makes it public. The trust beneficiaries are given a copy of the trust and accountings, but the only people who are in the know are the ones who have a need to know. That way all of the family business is kept in the family where it belongs. That’s a better plan!
To talk about planning your estate using a trust, feel free to contact me to take a closer look.
Want to avoid problems with your estate? Estate planning can avoid this type of situation.