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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.

Always have an attorney make your estate plan

Like we have discussed before on a previous post, every adult needs a Last Will & Testament or a Revocable Trust in place. However, more than half of all Americans have no planning in place! For simple estates, or at least the bare minimum for everyone, a Last Will & Testament is a good start. A Will is a legal document that tells the probate court your wishes about where and whom your property should be distributed to after death. To skip the probate process all together, one should get a Revocable Trust. A trust has two purposes. First, it is to take care of the creator (Also known as a Grantor or Trustor) while they are alive, and then distribute similar to a will after the Grantor passes away. Another difference is that the distribution part of the Trust skips the court process altogether, which makes the distribution faster, easier, smoother and may help avoid unnecessary taxes and creditors and keeps your wishes private.

It’s easy for people to feel overwhelmed about getting their estate plan done, especially right now during the pandemic. However, at the most basic, it is essential to plan what will happen to your assets after death. it is unavoidable and easily planned, with the help of a qualified attorney. While a lot of people would like to avoid the subject matter altogether, it’s the best way to take care of your loved ones financially (and save them the stress of end-of-life planning) after you’re gone. Also, people do not realize that it’s mostly the attorney doing the work!

Since these are the most important documents you’ll ever get done, it’s important to plan ahead, and hire an attorney to get it done correctly.

Attorney-made vs. Do-It-Yourself Estate Planning

Our attorney sees a lot of online and “DIY” estate planning, and all the simple mistakes that are made via those instruments (read our previous post about why online wills are harmful). A single drafting mistake could make the whole trust invalid, or change the make the distribution different than what you desire. Most of these “DIY” platforms use laws from California, New York, and Texas (none of which follow the type of Trust law that Oklahoma has). These products are unlikely to meet your needs. You do not want to risk your property going to the wrong people, showing up in court to be fought over, or the trust being ambiguous and requiring a court’s interpretation just to save a dollar. All of these things are avoidable with an attorney who know what they are doing.

More complex estate distributions, like ones that include minors, special needs beneficiaries, unequal distributions, and more, absolutely need to have an attorney drafting them.

Four Reasons to Hire a Lawyer to Review Your Estate Plan

  1. Estate planning varies by state.

State laws can be very particular on what may or may not be included in Will, Power of Attorney, or Trust. It can even get as localized as the county judge and his/her requirements for a Will to be valid. Location may affect who may serve as personal representative; be a witness, where and how they need to sign the estate planning documents. Like referenced above, Oklahoma does not follow a unified Trust code like most states, so it’s important to recognize that we do things differently here than you see on most online blogs and sites.

  1. Online estate planning programs are limited and not specialized.

Online wills and trust drafting don’t support common complexities you find in Wills and especially Trusts like minor children, unequal distributions, complex real estate planning, and graduated distributions. They also cannot account for your personal situation in the family, like family dynamics (including infighting, drugs, and spendthrift family members). With simple software and templates, if you make an error, the document can become invalid or misleading. Additionally, these options don’t always update or upgrade to account for new changes in estate planning laws.

  1. Most people have certain complications that can affect your estate plan.

Unlike what most people think estate planners do, we do not just pop in names on our forms and call it a day. Every plan at the Skillern Law Firm is specialized, and created specifically for the client at hand. Not only do we not just go off of one form for all clients, but we do specialized planning outside the documents – like making sure our client’s beneficiary designations and business planning are done as well. Various circumstances can affect how you’ll draft your plan. As mentioned before, any mistakes can cause additional complications, expenses or make it invalid altogether. Some of these scenarios include:

  • Multiple marriages
  • Business ownership
  • Mineral Rights
  • Inheritance
  • Minor Beneficiaries
  • Real estate in multiple states
  • Incapacity or disability needs
  • Bequests to charity
  • Substantial investments
  1. You don’t see the whole picture – and that’s okay!

Here’s the thing: you’re not an attorney, and that’s okay! You probably don’t know which questions or scenarios to be ask or think about. You don’t know how to find the big problem areas (and sometimes the smaller issues that creep up on you in the estate plan). An attorney will also make sure to document your intent and state of mind, which is important if a dispute arises after death. An attorney will also listen to your goals and concerns and provide counsel based on your specific situation. We will make sure your estate plan is explained, detailed, and done correctly to reflect your wishes.

Have an Attorney That is There to Work for You

If you’re are interested in getting your estate plan done (and done correctly), make sure to guarantee its validity with the help of an attorney. Although educating yourself is wise, you’re hardly expected to be an expert in this complex area of law. Attempting to create your own estate plan without qualified legal representation can leave you in the in a much worse position. Plus, you’ll enjoy peace of mind knowing you’ll have ongoing support during the process, and after. We are just one phone call away for all of our clients.

If you’re ready to craft an individualized estate plan, 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.

Reasons to Choose Going to Probate

Law: Gavel, books, wood

As an estate planning attorney, most of my clients are meeting with me to help avoid probate as much as possible. I have written previous posts all about how to avoid probate. However, sometimes, probate can be beneficial in certain circumstances.

A lot of estates go through probate, which is the court process to distribute assets and pay off debts when someone has passed. Unless there was planning ahead, when most people die where they leave behind real property and assets, their estate will typically go through the probate process. A Personal Representative will be appointed, and the Will will be filed with the court. If there is no will, the assets will be distributed through the state’s “will” – which is called intestate.

If you are a beneficiary of the estate, you may be surprised by the long, drawn-out court procedure which you are at the mercy of. In Oklahoma, a typical probate now lasts around 4-6 months unless it is contested or if selling real estate is involved (which can prolong the process). However, the probate proceeding serves several purposes and once you understand them, it can make it easier to accept the waiting period.

Once the will is validated, the next step in the probate process is to appoint an executor whose responsibility will be to collect the estate’s assets, appraise the assets value, pay creditors, file taxes (if necessary) and finally, distribute the property to the beneficiaries or heirs according to the Will or the state statutes. What is beneficial about Probate is that is a court-monitored proceeding in which the Personal Representative is not only supervised, but he or she must comply with specific procedures and legal requirements. For estates where there may not be a trustworthy person to take control, this is a huge benefit. Even for estates where everyone is honest, having a court oversee everything makes it to where there cannot even be the appearance of impropriety. The court won’t allow dishonorable or unethical conduct by personal representatives/executors.

There are more benefits to probate, though. Personal Representatives are required to provide accountings, unless waived by all the beneficiaries/heirs. The court requires all of the beneficaries’ names, ages and residences, and all the beneficiaries are legally required notice of the court proceedings and any and all court dates. Probate also allows any person interested in the estate to contest the Will.

One note about contesting a Will should be made, however. A beneficiary or heir can contest a Will for reasons which include: 1) mental incapacity of the decedent to make a will, 2) duress, 3) fraud, 4) undue influence, and 5) any other reasons questioning the validity of the will. Beneficiaries and heirs cannot contest based solely on that they do not like what the Will says, because will-makers are allowed to make a will that includes their wishes, but they can be contested based on that the will-maker was not in the right mind to make a Will.

For more information regarding the probate process and how it can protect the rights of beneficiaries, contact our attorney at the Skillern Law Firm, PLLC.

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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