Missouri Estate Planning Blog

A sad, true story, modified only slightly:

I received a call from a client today.  We'll call her Suzy.  Her father had died four years ago.  He left a Will that said, in essence, I leave everything to my wife should she survive, and if not to my two daughters equally.  The will was apparently never presented for probate. Mom died a few weeks ago, with no will or trust.  She had told the two daughters (Suzy and Sally) and one granddaughter (Amber - Sally's daughter) the that she wanted all of her money, etc. split three ways.  This conversation took place several months ago. 

The money is all in one bank account that was titled in Mom's name along with Suzy and Sally.

To Suzy's distress I had to inform her that Dad's Will meant nothing - for several reasons.  First, Dad and Mom held everything jointly, and as such all the property, money, etc. became Mom's sole property instantly at Dad's death.  Even had the will been probated, there would have been nothing to probate, because Wills can only control property held in the decedent's sole name.  Secondly, in Missouri, if you fail to open the Probate Estate within one year of the date of death, the Will becomes meaningless.   This a very hard and fast rule.  Finally, the bank account instantly became the property of Suzy and Sally equally at the time of Mom's death.

Suzy wanted the money to be split evenly because she felt that was Dad's wishes.  That's what will happen, unless Sally goes to the bank and pulls out all the money, which she can likely do.

Amber will not receive any money unless Sally does go take the money out of the bank.

Nobody's happy, everybody's confused, and somebody is going to be mad, and the family may be divided forever.

Morals of the Story:

1. Wills only are effective is presented to probate, and an estate is opened within the appropraite time period (One year in Missouri).
2. Wills only transfer ownership of property, money, or other assets that are in the decedent's name, and ONLY the decedent's name.
3. Making oral statements as to one's wishes are generally legally ineffective.
4. Using joint ownership to transfer property upon death can cause many, many problems.  If everybody dies in the order we think, and everybody agrees and is "nice", then things might work out.  It only takes one little bug to really mess things up. 

Vist our website, or email us if you wish to get more information on how to avoid these problems. 

New and young parents often have several things in common.  They often have a home with relatively little equity, and very little else.  Hopefully they have a decent job or jobs, and decent prospects for advancement.    When they think about estate planning they often just worry about naming a guardian for their children - which is a good thing, and then just want to make sure their money, to the extent they have any, goes to the kids.  Again, so far, so good.

What they fail to do many times is to grossly underestimate the money it will take to raise their young children and educate them.  In other words, they only have a small fraction of the Life Insurance that is needed.  Fortunately, term insurance is relatively inexpensive for young people. 

How much?  Any competent financial advisor can assist with the calculation, but we should be talking many hundreds of thousands -- AND on both parents.  At young ages don't worry about "permanent" or "Whole Life" insurance.  Get as much term insurance as is needed.  Notice I didn't say as much as you can afford -- get as much as you need!  Also, beware of the financial advisor or insurance agent who focuses on anything but term insurance.  Worry about the Whole Life, or Universal Life when you are older and can afford it.

The next step is to establish a Trust to receive the Insurance and other assets.  This can be done through a will created, or Testamentary Trust, or even better, as a Living Trust.  This provides probate avoidance, asset protection, and professional management for the funds.  Failure to take this critical step will likely result in the creation of an expensive, probate court supervised conservatorship, and a total distribution of remaining funds to the child at age 18.  It goes without saving that this is a BAD THING!.

Read our no holds barred Special Report for more detailed information and suggestions.

Contact us directly or check our website for more information.

Most importantly -- ACT NOW!

You have likely heard and read a lot about Roth IRA Conversions in 2010. The reason is that this year offera a significant opportunity for anyone with funds in a “Traditional” IRA. Traditional IRA’s allow for deductible contributions, but require taxable distributions commencing when the account holder turns 70 ½. Roth IRA’s are not deductible going in, but all distributions are tax free. There are also no required distributions to the original account holder or spouse. Funds remaining for children or grandchildren must be distributed according to the beneficiary’s life expectancy, but are still tax free. Under some circumstances a Traditional IRA can be converted to a Roth. Generally to do so you pay tax on the value of the account at the time of the conversion. Whether this is wise is a function of the numbers involved. Unfortunately projections must be based on unknowns, such as growth rates of the IRA and tax rates at the time of distribution.

For the year 2010, and only for 2010, there are several significant opportunities. First, a “Roth Conversion” may be elected, but the tax can be deferred to 2011 and 2012 – half each year. Secondly, you can change your mind and “unconvert” at any time prior to the filing of your 2010 tax return. This can be up until October 15, 2011 if you file an extension. Finally, the limitation of $100,000 of “Modified Adjusted Gross Income” has been eliminated for conversions for 2010. In other words, everyone is eligible for a Roth conversion, even those who may not be able to otherwise establish one because of the income limitations. Rollover IRA’s containing funds from 401-k’s and similar plans are also eligible.

Most commentators believe that anyone who can afford to pay the conversion tax should strongly consider this. This is particularly true if you believe that income tax rates will go up, and if your long term view of the economy is relatively positive. Furthermore, if you believe that you will not need to take all of the “required” distributions at 70 ½, you are good candidate. The potential for decades of tax-free growth and tax-free distributions for children or grandchildren makes the concept even more attractive in the right situation. If you combine a Roth conversion with the use of an IRA Protection Trust you have a tremendous planning opportunity.

Even if you are not sure, the idea bears exploration. We can help you think about it. It would be a good idea to involve your financial advisor and accountant as well. If you decide to do it, here is a short checklist:

1. Start planning NOW. Don't wait until the end of the year.

2. Do the conversion early in 2010. This will likely reduce the tax you will pay, and give you the maximum amount of time to evaluate “after the fact”.

3. File an extension for your 2010 return, but be certain all of your taxes are paid timely.

4. Consider what source of funds you will use to pay the tax so as to make the transaction as tax-efficient as possible.

5. Remind yourself to evaluate the transaction in late summer of 2011.

If you have questions concerning this or any related matter, feel free to contact us, or visit our website