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Affidavit of Heirship – An Alternative to Probate?

An Affidavit of Heirship is a sworn statement that can be used by heirs as an alternative way to transfer property and establish ownership when the original owner dies intestate or without a will. Affidavit of Heirships allow for heirs to take possession of the estate without going through probate. The Affidavit of Heirship outlines the deceased person’s family history and the identity of heirs. It is then filed in the public records in the county where the decedent’s real property is located. An Affidavit of Heirship can be useful to establish ownership of mineral interests; however, it is important to note that an Affidavit of Heirship is not a formal adjudication of who inherits the decedent’s property upon death. An Affidavit of Heirship only creates a rebuttable presumption that the facts in the Affidavit are correct versus a judicial determination which conclusively determines heirs of an estate.

When do you use an Affidavit of Heirship?

An affidavit of heirship can be used when someone dies without a will, and the estate consists mostly of real property titled in the deceased’s name. An Affidavit of Heirship can be an appropriate alternative for some, but a probate proceeding is usually the safer alternative to establish a link in the chain of title when dealing with real property. However, when establishing ownership of a mineral interest, Affidavits of Heirships can be very useful. Title to mineral interests can be established with an Affidavit of Heirship and will usually be sufficient for a company to sign a lease with you or to release payments.  However, this will not vest you with ownership of the property for up to ten years. 

What is included in an Affidavit of Heirship?

An Affidavit of Heirship outlines the deceased person’s family history and the identity of the heirs. The Affidavit should be signed by two disinterested witnesses who are knowledgeable about the deceased and his or her family history, but cannot benefit from the estate financially. Each disinterested witness must swear under oath as to specific information about the deceased including the following:

  • They knew the decedent.
  • The decedent did not owe any debts.
  • The true identity of the family members and heirs.
  • The person died on a certain date in a certain place.
  • The witness will not gain financially from the estate.

The affidavit must state whether or not a decedent has died testate or intestate (with or without a will). If the decedent died testate, the affidavit must state whether the will has been probated in Oklahoma. If the will has not been probated, a copy of the will must be recorded with the affidavit. If the will has been probated, but the severed mineral interest was omitted from the final decree, a copy of the final decree and the will must be filed with the affidavit of heirship. After being filed of record for at least ten years, an affidavit of heirship may pass marketable title, so long as the affidavit meets the statutory requirements and no other document was filed which contradicts the heirship provided in the affidavit.

Limitations and risks associated with Affidavits of Heirship

Because an Affidavit of Heirship is not a formal adjudication of who inherits the decedent’s property upon death, there are risks with establishing property ownership using an Affidavit of Heirship. An Affidavit of Heirship does not transfer title to real property. Once it has been on file for ten years though, the filed an Affidavit of Heirship becomes evidence of the facts contained in it about the property. The legal effect of the affidavit of heirship is that it creates a clean chain of title transfer to the decedent’s heirs.

This means an Affidavit of Heirship cannot permanently establish the heirs of the individual who died without a will until the expiration of the ten year period. Upon the ten year mark, there is a clean transfer of title. Until then, a risk exists that ownership by the heirs will not be recognized by third parties such as purchasers, banks and title companies. It is also important to remember that an omitted heir or creditor of the decedent can challenge the ownership claim and claim an interest in the property owned by the decedent at any time.

An Affidavit of Heirship can be an appropriate alternative for some, but a probate proceeding is usually the safer alternative to establish a link in the chain of title when dealing with real property. However, when establishing ownership of a mineral interest, Affidavits of Heirships can be very useful.

Establishing Mineral Interest Ownership

Title to mineral interests can be established with an Affidavit of Heirship and will usually be sufficient for a company to sign a lease with you or to release payments.  However, this will not vest you with ownership of the property for up to ten years. After being filed of record for at least ten years, an affidavit of heirship may pass marketable title, so long as the affidavit meets the statutory requirements and no other document was filed which contradicts the heirship provided in the affidavit.

A party relying on an affidavit of heirship should do so with an awareness that the claim to ownership could be challenged at any time during the ten year period before title completely vest. Most likely, large mineral estates should never be distributed via affidavits of heirship. There are several situations where an an Affidavit of Heirship could fail, even if it goes unchallenged ten-year statutory period. For example, scenarios that involve property rights which cannot be taken without proper statutory notice and parties who were not given a fair opportunity to claim their property interest could present issues for situations in which an Affidavit of Heirship was used. Until properly accomplished notice happens, the period for challenging distribution of an estate via affidavit of heirship will theoretically never expire. 

Contact the attorney at Skillern Law Firm, PLLC today at (918) 805-2511 or contact@skillernlaw.com to discuss if an Affidavit of Heirship is the right avenue for your to pursue to establish ownership to property or minerals.

How Does The New Federal SECURE Act Affect Your Estate Plan for IRAs & 401(k) Plans?

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) was signed into law on December 20, 2019 and became effective on January 1, 2020. The SECURE Act makes over two dozen changes to the law affecting retirement benefits and inherited IRAs (Individual Retirement Accounts). The revisions also apply to other defined contribution retirement plans, including 401(k) accounts. As a result, the changes impact estate plans that include assets in an IRA or 401(k) account.

When there are changes to the legal infrastructure of estate planning, such as this, some estate plans will require modification to accommodate the new rules. Whether that is the case for a particular estate plan depends on a number of factors that must be evaluated on an individual basis. If you have an IRA or 401(k), you should consult with a knowledgeable estate planning lawyer about how the SECURE Act affects your estate plan provisions for inheritance of those assets.

Lifetime Payout Period Replaced by Mandatory Full Distribution Within 10 Years for Inherited IRAs and 401(k) Plans

IRAs that have been inherited from a participant who died before January 1, 2020, should be grandfathered and thus free from the new SECURE Act requirements; however, Section 401(b) includes a provision that would apply the SECURE Act payout requirements to a successor designated beneficiary when a designated beneficiary dies before life expectancy.

For example, Father died in 2018, and daughter (age 50) was the designated beneficiary. Daughter dies in 2021, with her son as successor designated beneficiary. Under the old law, because original designated beneficiary died before her life expectancy, the successor designated beneficiary could have continued the stretch-out using the life expectancy of the original designated beneficiary. However, the language of the SECURE Act suggests that the successor designated beneficiary would now be subject to the 10-Year Rule and would not be able to continue the stretch-out even through the original account holder died prior to January 1, 2020.

Elimination of the “Stretch” IRA

The ability to stretch certain inherited IRAs over a designated beneficiary’s life expectancy has been eliminated. An IRA now must be distributed by December 31st of the tenth year following the year in which the retirement account owner dies (herein referred to as the “10-Year Rule”). As a result, designated beneficiaries—the definition of which is unchanged—can no longer stretch an inherited IRA over their lifetime.

Exceptions to the 10-Year Distribution Requirement for an Eligible Designated Beneficiary (EDB)

Though the definition of designated beneficiary has not changed, a new category of five beneficiaries has been created, each known as an eligible designated beneficiary (EDB). An EDB is an exception to the 10-Year Rule. The five EDBs are:

  • A surviving spouse;
    • A surviving spouse still benefits from life-expectancy withdraw from an IRA or 401(k) account, as an exception under the new law. In addition, RMDs for a surviving spouse who inherits in 2020 or later must begin in the year the deceased spouse would have turned 72 (rather than the previous age of 70½).
  • The child of the decedent who is a minor (note that this exception is narrowly drawn; for example, it does not apply to grandchildren even if the child predeceased the participant—so, no “predeceased child step-up” rule as exists);
    • A minor child of the account owner is also an EDB. However, when the minor reaches the age of majority, the exception ceases to apply, and the account assets must be distributed within 10 years of the child reaching the age of majority.
  • A disabled person;
    • A “disabled” beneficiary is eligible for life-expectancy distributions, but the law provides a very limiting definition for a “disabled” beneficiary, as follows:
    • “[A]n individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require.”
    • In order to qualify as an EDB under this provision, if a beneficiary is able to engage in “any substantial gainful activity,” the exception does not apply.
  • A chronically ill person; A “chronically ill” beneficiary also is eligible for lifetime distributions, but the law includes a specific and complex definition for this category that is restrictive and limiting.
  • An individual who is not more than 10 years younger than the decedent. If the account owner names a beneficiary who is not more than 10 years younger than the owner, the beneficiary is exempted from the 10-year requirement.

Some of the Changes to Retirement Plans Are Taxpayer- Friendly

Under the old rules, once an individual attained age 70 ½, or would do so by the end of the year, no additional contributions could be made. This has been repealed and contributions can continue to be made so long as the participant is employed.

The age at which required minimum distributions (RMDs) must begin has been extended from the year the taxpayer attains age 70 ½ to 72.

An inherited IRA with no designated beneficiary is ineligible for stretch treatment (both lifetime and 10-Year Rule). Such an inherited IRA remains subject to an accelerated withdrawal period. The length of that period depends on whether the participant had died before or after the change to age 72 as the required beginning date (RBD):

  • If the death was before the RBD, then the entire account must be withdrawn before five years after the death (more precisely, by December 31 of the year that includes the fifth anniversary of the participant’s death).
  • If the death was after the participant’s RBD, then the account must be distributed in annual installments over what would have been the remaining life expectancy of the participant had he not died (some practitioners euphemistically refer to this as the ghost life).

Roth Conversions

In 2010 a tax law eliminated this adjusted income cap of $100,00 for conversions from traditional IRA to a Roth IRA. This resulted in many conversions, especially given the safety net of recharacterization (tax-free conversion back to a traditional IRA if done before the tax return due date for the year of the conversion). However, the 2017 Tax Act diminished the safety of conversion by eliminating the ability to recharacterize.

Conversion triggers current income taxation of the IRA, so the typical analysis was whether the participant or the beneficiary would be in a lower income tax bracket. With an accelerated payout under the 10-Year Rule, it now may be more likely that the beneficiary will be in a higher bracket.

Rarely does it make sense to convert if withdrawals would need to be made to pay the income tax. Plus, as an offset, however, we know that if the participant were in a taxable estate, the dollars used to pay the income tax are in a sense discounted by the avoided estate tax. For example, a client has a taxable estate that includes a $1 million traditional IRA and $1.5 million in cash. If, for simplification, we assume her assets are subject to a 40 percent estate tax, her other assets pay the tax on them, and her cash is used to pay the estate tax on the IRA and the cash, her heirs will receive:

Modifications to Your Current Estate Plan

The SECURE Act will be disruptive for many estate plans and the acceleration of payout may be concerning. When there are changes such as this, some estate plans will require modification to accommodate the new rules. Whether that is the case for your particular estate plan depends on a number of factors that must be evaluated on an individual basis. If you have an IRA or 401(k), you should consult with a knowledgeable estate planning lawyer about how the SECURE Act affects your estate plan provisions for inheritance of those assets.

The attorney at the Skillern Law Firm, PLLC can help. For more information, reach out to us today at (918) 805-2511 or contact@skillernlaw.com.

Oklahoma’s Transfer on Death Deeds

home real estate

Keep your house from probate!

Before 2008, there was no way in Oklahoma for real property or mineral rights to skip probate except for a revocable trust. In 2008, the Oklahoma legislature passed 58 O.S. Section 1251-1258. This statute codified Oklahoma’s Transfer on Death Deed (“TODD”), otherwise known as a “beneficiary deed.” This allows the owners of real property, including surface owner or mineral rights, to deed the property to beneficiary(ies), which skips the need for probate to transfer legal title. These have been a very effective and cost-efficient way for real property to skip the probate process and the title to real property to be easily transferred after the passing of the owners.

However, Transfer on Death Deeds are not a good instrument to use in a variety of situations, and usually a revocable trust is recommended to skip probate in these situations. These are generally situations where a Transfer on Death Deed are not advisable:

  • Complex distributions: Transfer on Death Deeds are very good for very simple distributions, like you want to transfer your home to your children, split equal. When you want distributions to be gradual, over time, with strings attached, creditor protected, or any other complication to a distribution, then a TODD is not a good idea.
  • Per Stirpes distribution: When you want your children to inherit, but if one of them passes away, you want their children to receive their share of the real estate. Essentially, if you want your grandchildren to inherit if their parent does not survive you, then a Transfer on Death Deeds are not good for this type of distribution.
  • Unequal distributions: When you want beneficiaries to receive unequal shares of the home. TODDs are great for equal distributions, but nothing more complex than that.
  • Minors as beneficiaries: Minors cannot own real estate in Oklahoma, so you cannot leave a piece of property to a minor through a TODD. It would need to be held in trust for the minor until he/she reaches the age of 18.

If you have a piece of land or mineral rights that you want to leave to one or more people, split equal with no strings attached, then a Transfer on Death Deed is a great option.

There is a catch to Transfer on Death Deeds that must be said: First, the Transfer on Death Deed MUST be filed before the passing of the Grantor, or owner of the real estate. If the deed is filed after, it is not effective. Second, after the passing of the owner of the deed, the beneficiar(ies) must file a Transfer on Death Deed affidavit within nine (9) months of the passing of the Grantor. If this affidavit is not recorded within this time frame, the deed is voided and it would pass via the probate process. This is an easy thing to accomplish, but it is a time-sensitive action that is widely overlooked.

If you are interested in getting a Transfer on Death Deed done in Oklahoma, please call or contact the Skillern Law Firm today! They are inexpensive and easy to accomplish with the help of an attorney.

Estate Planning for Your New Expanded Family

child momThe attorney of Skillern Law Firm, PLLC, Penni Skillern, recently had a baby girl in January of 2015. Yes, that is why there was a lack of blog posts and updates on our website. The first thing she did when she was able to go back to work was update her estate plan to reflect her new expanded family. Not only is it important to set up guardianship in your will, but its important to look at structuring your estate plan distribution for your new infant.

We have previously written about how to handle a minor infant in your estate plan before. Please read the blog post here.

For this blog post, we are going to discuss what to get done for your estate plan once you have the new baby. Having a child or children complicates life in many ways, and your estate plan is no exception. If you had an estate plan written when you were childless, it is important to reflect the monumental change in your situation in life in your estate planning. Most likely, you would want to leave part or all of your estate to your new child(ren).  You do not have to have anything fancy like a revocable trust, however, it does need to be done. Here are four simple steps to take.

1. Write or Amend a Will or Trust

Even without children, having an estate plan in place is important. Generally, most young people do not think about getting an estate plan done until they have children. That is understandable, as most single young adults do not own a lot of assets to be distributed at their demise. However, once you have a child, it becomes not only important to write a will to discuss distribution, but also to name a guardian for your child(ren). Make sure to read a previous post about how to chose the right guardian for your child.

Once you have a will with a guardian appointed in place, if your children ever needed a guardian, the court would appoint the person you nominated in your will, absent a serious problem with that person. You can even name a separate guardian for different children if you wish. If you have not made plain in your will or estate plan who you wish to be the guardian of your children, and you pass away unexpectedly, the probate court will have no idea what your wishes were. That can cause fighting among the families of the two parents, each wanting the child. This can be stressful for the families, and especially the children left behind. The court would have no way of knowing which family member of friend who you wished to watch over your children if you were to pass.

The other main reason to write or update your will is that if you do not, and then you pass away, a portion of your estate may not go to your spouse, but may go to your children. If you pass away and have a young child, most people prefer that the money go to their spouse, who will use it to support their children.

Getting a will written and signed is easy, quick, and inexpensive. You can easily set up an appointment with an attorney and have one done and signed within a couple of weeks or a month. This important step can help your new family in unexpected ways and can alleviate an amazing amount of stress in the future if something unforeseen were to happen.

2. Buy Life Insurance

While our attorney was pregnant with her new daughter, she and her husband added new life insurance to their financial portfolio. The reason is simple: their lives were about to get more expensive. It’s not surprising to know that life with a child is more expensive than one without one. If you or your spouse were to pass away unexpectedly, are you prepared to take care of your child(ren) without the other person’s income? Life insurance is there as a safety net, to help take care of expenses that your deceased spouse would have helped with if they remained alive.

Obviously, this is more of a financial planning than legal planning. However, it is good to get both done when you are preparing or soon after you have a child. It’s best to have both your financial and legal plans in place, working together, when you have a child.

3. Write Durable Powers of Attorney and a Living Will

Even without children, Powers of Attorney and Living Wills are extremely important documents to have for every adult. If an accident or sudden illness strikes, these documents will make things much easier for your family.The Powers of Attorney (both financial and health), are documents that designate an individual to take care of matters if you are unable to. We have previously written about these documents, and you can read about Powers of Attorneys here.

Living Wills, or Advanced Directives, are also very important to have in your estate plan. If you have been to the hospital recently, you have probably been asked if you have one when you checked in. An Advanced Directive is a document that sets out your wishes for end-of-life choices and care. Oklahoma allows you to set our your end-of-life health care choices for three scenarios. Read about those here.

 

Even if you are young, childless, and healthy, these documents are important to have done. If you were seriously injured, these documents would let your family know what you wanted, sparing them very difficult decisions, court costs, and disagreements. There have been many famous young people whose families have gone through courts and disagreements because these documents were not in place. (Terri Schiavo was 26 when her illness began and she fell into a permanent vegetative state.)

4. Designate Beneficiaries on Accounts

One last simple (and completely free!) action to take is to name beneficiaries on your accounts, whether retirement, banks, life insurance, etc. All you need to do is fill out the beneficiary form provided by the account holding institution. By naming a beneficiary, you make it possible for the funds in the account to go directly to the person (or persons) you name, without probate. It is important to know the repercussions of naming minors as beneficiaries, however, so make sure you keep that in mind when you are planning for your new child.

If you do all of the above after you have a child, you are ready. Having a new child is a huge change in your life, and your estate plan needs to reflect that change. You are doing a disservice to your child if you do not plan ahead in case you are not there to take care of him/her. Your family would want to know your wishes for your child(ren) if you pass unexpectedly. Make an appointment with your local estate planning attorney today!

Oklahoma Small Estate Affidavit

U.S. Coins and Paper Money

Oklahoma permits the distribution of a small estate without probate, if the estate is worth $50,000 or less in total. There are two ways to avoid probate using affidavits in Oklahoma – one for financial accounts, one for personal property.

The first type of “Small Estate Affidavit” allowed in Oklahoma is one for financial accounts worth a total of $50,000 or less. This affidavit is authorized by 6 OS § 906. Banks, credit unions and savings and loan associations are permitted under Oklahoma statutory law to pay out bank accounts under Fifty-Thousand Dollars ($50,000) upon affidavit. The account must be in the name of a sole individual (not two persons) and also have no beneficiary designated. An original certified death certificate must be presented along with an affidavit, and the affidavit must establish the time and place of death and residence of the decedent. Also, the affidavit must state that the decedent did not leave a will. If the decedent left a will, probate will be necessary. The affidavit must set out the names of the heirs of the decedent. The affidavit must be signed and sworn to by at least one of the known heirs of the decedent.

Oklahoma also allows an affidavit to take the place of probate for the distribution of tangible personal property (property other than money or land) or an instrument evidencing a debt, obligation, stock, chose in action, or stock brand belonging to the decedent upon the presentment of an affidavit. This form of affidavit is authorized by 58 OS § 393. The limit is also $50,000, so any debt or personal property worth more than that must go through probate. Any person indebted to the decedent is authorized to accept the affidavit and make the distribution, so this affidavit can also be used for creditors as well as heirs at law. Anyone who is a successor to the decedent may sign the affidavit. The affidavit must state (1) the fair market value of property located in this state owned by the decedent and subject to disposition by will or intestate succession at the time of the decedent’s death, less liens and encumbrances, does not exceed Twenty Thousand Dollars; (2) No application or petition for appointment of a personal representative is pending or has been granted in any jurisdiction; (3) Each claiming successor is entitled to payment or delivery of the property in the respective proportions set forth in the affidavit; and All taxes and debts of the decedent’s estate have been paid or otherwise provided for or are barred by the statute of limitations. Like the first affidavit mentioned, you must also present an original certified death certificate along with the affidavit. This affidavit would be useful for the transfer of household contents, a vehicle, a stock brokerage account or the transfer of private or public corporate stock which does not exceed $50,000.

The attorney at the Skillern Law Firm, PLLC can help you get these small assets out of probate by drafting a valid Small Estate Affidavit that can keep you out of probate. Call our office today!

HIPAA Authorizations – Why They Are Important

blank prescription pad

In 2003, the United States Department of Health and Human Services enacted regulations under the Health Insurance Portability and Accountability Act of 1996, or as it is more commonly known, “HIPAA”. Under this new law, medical providers can face serious sanctions and monetary fines for releasing unauthorized  “Protected Health Information,” usually meaning medical records. As a result, medical providers are very reluctant to release records to anyone other than the patient.

What does HIPAA protect?

Under HIPAA, protected health information includes everything and anything created or received by a “covered entity” relating to an individual’s mental or physical health condition, and that could be used to identify the individual. Health care providers, pharmacies, nursing homes, and insurance companies are all included in the definition of “covered entities.”

However, since the definitions under HIPAA are so broad, medical providers will not release information to anyone other than a patient without a HIPAA release form, a complete estate plan should always include a HIPAA authorization.

How to Authorize Release of Protected Information

A a stand-alone HIPAA authorization is now viewed as the preferred methods to use, and the attorney at the Skillern Law Firm prefers this document in estate plans.Without a signed HIPPA authorization, even a spouse or adult child of an incapacitated patient will not be able to receive information on the patient’s condition, since the HIPAA law is so strict and the sanctions are severe.

HIPAA authorizations allow individuals to name specific people to whom medical providers may release records. An authorization should allow medical providers to release records to an individual’s agent under a Health Care Power of Attorney. An authorization may also include an agent under a Durable Power of Attorney, a trustee of a trust or an individual’s attorney for the purpose of determining incapacity. The HIPAA authorization should be a document that is always included in your estate plan, because the people that you have nominated in many of your estate documents may need to get a hold of medical records to satisfy their fiduciary duties under the other documents.

Conclusion

If you would like to make sure that your family members or appointed trustee, power of attorney or guardian will be able to access your medical records so that they make informed decisions on your behalf in the event of your incapacity, it is imperative to have both a valid Health Care Power of Attorney and HIPAA authorization. Have an estate planning attorney prepare the documents for you ensure that they are properly drafted and signed. The Skillern Law Firm specializes in estate planning documents and would love to help you organize and create a well-drafted and complete estate plan.

 

The Problems of Successor Co-Trustees in a Trust

trusteesA creator or grantor of a normal revocable living trust usually serves as the trustee of a trust until their incapacity or death. After one of those events, a successor trustee takes over the trust to manage and administer the trust assets. Some trust creators have two children or have two people they trust enough to make them successor co-trustees of their trust, which puts two people in charge of the trust simultaneously. This can create problems if the co-trustee duties are not clearly spelled out.

One common problem associated with co-trustees is if the two trustees have to act jointly with each other, meaning they need to sign deeds, checks, and other financial documents together. This can slow down the process, especially if one or both trustees do not live near one another or are not communicating with each other. This can also slow down or cause problems when one trustee goes out of town for vacation, is incapacitated, etc.  A well written trust agreement should provide for replacement of a co-trustee who cannot serve for some reason, or state that the remaining co-trustee can act alone in this scenario.

Another common problem with co-trustees is what happens if there is a disagreement between them about the administration of the trust.  It is amazing how many problems and family strife can occur when the matriarch or patriarch of the family passes away. If co-trustees do not trust one anther, do not get along, or just do not agree with the decision of the other co-trustee, it may require court intervention to break the disagreement. For example, if one trustee wants to sell some property and distribute cash and a co-trustee wants to retain the property, there is a stalemate. If there are three co-trustees, the majority prevails, so an odd number of co-trustees are not such an issue in regards to disagreement.  However, if co-trustees are assigned equal authority and responsibility in the trust agreement, some third-party intervention will be needed, and that can get costly.

A common way to avoid common co-trustee problems is to name a trust administrating institution, like a bank or trust company, as the principal trustee, with children or other beneficiaries as co-trustees. That essentially places control of trust with an independent third party, who can be an mediator if the co-trustees cannot agree. Another way is to just name one sole trustee, like your oldest or most responsible child or friend.

One of the best ways to avoid this problem is to talk to a qualified estate planning attorney who can help solve problems like this. Consider getting your estate planning done by the attorney at the Skillern Law Firm. She can help make sure your estate plan is well written and will not problems in the future that can be easily avoided.

(Minor) Children in Your Estate Planning

Travelers with Baby in StrollerWhen handling people’s estate plans, I am often asked how life insurance, retirement accounts, and other “beneficiary” property should be handled with regards to the young children. More often than not,  people with children want some or all of the proceeds of these accounts to go to their minor children.

For example, if a client has a $100,000 life insurance policy and has a minor child of 5 years old, she would most likely tell me or the insurance agent that she wants her child to be the beneficiary of the life insurance. The questions presented in this situation are:

  1. What happens to the money and any other property when her minor child inherits or receives it?
  2. Is there a better way to handle life insurance proceeds or other property that you want to leave to a child?

To answer the first question presented, let’s look at Oklahoma’s law on minors. Children or minors are legally incapable of holding and managing that property until the reach the age of majority, which, in Oklahoma, is the age 18. While they are still considered minors in Oklahoma, any property or money a minor owns must be managed by another person, such as a guardian or custodian. IMPORTANTLY, for the most part, the financial institutions will require the guardian to go to court and receive Letters of Guardianship  before the institution will release the funds into the guardian’s control. This applies to parents. Therefore, if a grandparent left a minor as a beneficiary of an account, the minor’s parent would have to go through the court process of Guardianship (which can be expensive), before the parent will gain control of the minor’s assets. This is an expensive complication to leaving an asset to a minor child, because court processes comes with attorney fees, accounting fees, filing fees, just to name a few.

In the above scenario, when the child turns 18, he or she can take over the management and control of the property or money. Oklahoma law generally does not require a specific level of financial literacy, planning, or common sense to manage or control your own property. Thus, the young teenager may squander the monies that was given to them very quickly, since they have full control of it once they turn 18. And how many 18 year old teenagers do you know that would know how to handle a lump sum of $100,000 responsibly?

THE GOOD NEWS is that there are other, more responsible approaches to leaving minors an inheritance. Rather than naming your child directly to receive the proceeds of a life insurance policy, or any other beneficiary account, you can set up a revocable or irrevocable trust that has your minor child as a beneficiary. This allows you to provide for appropriate use and management of the property with certain guidelines and control that will not let the minor child to squander their inheritance, and it won’t include any court process or fees. Unlike custodial arrangements discussed above, a trust does not necessarily terminate at age 18 and can continue to provide supervised management of the property into adulthood, including planning for education and other life-events. To read more about trusts, read a previous article by our attorney here.

The Trustee, or the person who manages the trust’s money and property, can also be empowered to use the Trust’s money for the benefit of the child, without the need and cost of court supervision. This can be helpful because it allows you to have more control over the types of expenses you want to provide for your child, including health, education, and general expenses one might occur as a young adult.

Remember, selecting a beneficiary for any type of monetary account is an important decision with potentially far-reaching consequences. There are important legal implications depending on your choice. Selecting a beneficiary is part of your overall estate plan, and the attorney at the Skillern Law Firm, PLLC can help plan for your minor children or grandchildren. Call our office at to speak to our attorney today!

Call for a Free Consultation!

 

Penni Skillern, Esq.

Penni Skillern, Esq.

Know you need an estate plan, but don’t know what you need or where to start? Call our offices today for a FREE CONSULTATION with our Attorney, Penni Skillern, Esq.

Our attorney takes a comprehensive and integrated approach to estate planning. Your estate plan should complete your vision, goals, values, and needs for the future. To learn more about how estate planning can assist you in furthering your goals, contact our office in Tulsa, Oklahoma today at (918) 805-2511.

 

Funding A Revocable Trust

funding trustWhenever an attorney creates a Revocable Living Trust for a client, the trust needs to be funded.  “What does it mean to fund a trust?” is a common question that our attorney at the Skillern Law Firm  gets from clients.  It is a very important step in the estate planning process. To see what a Revocable Living Trust can do for you, read our previous blog post about the types of trusts and their advantages. A trust, if funded correctly, will allow its creator(s) to avoid the probate process. An unfunded or partially funded trust does not allow your assets to avoid probate, because only the assets owned by the trust at your death or payable to the trust at your death avoid the probate process.

There are a few common misconceptions about the trust funding process.

Myth #1 – Since you formed a trust and have a Trust Agreement, the trust is complete and there is nothing else that needs to be done. 

When you sign or form a trust with an estate planning attorney, signing to document is only the first step in the trust-creating process.  The attorney, or the client, needs to make sure ALL of the assets held by the trust-creators (or “trustors”) are put in the trust’ss name, or has the trust as the listed beneficiary of the account. Otherwise, the Trust Agreement is an expensive pile of paper that will not help the creator’s avoid probate. The attorney at the Skillern Law Firm funds all of the trusts she helps create, taking this important step out of the client’s hands.

Myth # 2 – When the trust was created, there was a list of all the property on an Exhibit or Schedule that’s attached to my trust, so that transferred my assets to the trust… right?

Many trusts have an exhibit or schedule of property. This is a helpful document that helps a successor trustee in ascertaining what property they should be managing and accounting for. Updating this exhibit or schedule as the “big-ticket” items change is important so that the information on the exhibit is generally up to date. However, merely putting a description of the property on a schedule or property addendum does not legally transfer the ownership of the property into the trust. That needs to be done outside of these exhibits/schedules, most likely by property deeds and beneficiary designations.

How do you fund a trust?

To fund a trust, the attorney or client needs to file the property deeds with the county its located in, and put the trust as the beneficiary on all accounts.  To fund business interest, you will need to assign closely held business interests to your trust. Like all things in life, there can be tax consequences and benefits to each course of action. You should always seek tax advice prior to making a transfer of property, because once transfers are completed, there is often no undo button for tax purposes.  Whenever our attorney create a trust for a client, she makes sure she funds the trust at creation, but it is up to the client to keep the trust correctly funded after signing.

What are the benefits of a fully funded trust?

The biggest benefit of a correctly and fully funded trust is that it allows your beneficiaries to avoid probate. One more important benefit of a fully funded trust is that it allows for easier management of your property in the event of your incapacity. A truse can also can save on administration costs upon your death or incapacity, since your successor trustee and beneficiaries will not have to spend as much time and money locating your property.

Having a revocable trust in your estate planning portfolio is important for those who want to avoid probate and keep their estate administration as easy as possible. Funding your revocable trust is an absolute necessity if you want the benefits of avoiding probate and having management of your property in the event of your incapacity. Funding your revocable trust is a necessity that should be completed and worked on along with the creation of your trust. Call the Skillern Law Firm today to get your estate planning done today!

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