Tuesday, October 30, 2012

Irrevocable Life Insurance Trusts

Our prior posts have focused solely on Living, or Revocable, Trusts. However, as a client’s assets increase so does the potential complexity of their estate plan. A frequent concern of higher net worth clients is the prospect of paying estate taxes on the assets they choose to leave to their beneficiaries. Due to the present large estate tax lifetime exclusion of $5,120,000.00 (due to expire on December 31, 2012), planning strategies that address this concern have become less common in the past decade. However, for those clients with a net worth large enough to create an estate tax liability (a group that could increase in size dramatically should the Lifetime Exclusion decline to $1,000,000 or some other amount in 2013) the Irrevocable Life Insurance Trust may be a valuable tool. The greatest benefit of the Irrevocable Life Insurance Trust its ability to provide liquidity and finance a fund to offset expected estate taxes. 

The Irrevocable Trust
An "Irrevocable Life Insurance Trust" is a Trust designed to have as its only asset a life insurance policy on the life of a Grantor or a Grantor and his or her Spouse. It is drafted to provide that the proceeds from the insurance policy will not be a part of the Grantor's estate upon death and will pass to beneficiaries income tax-free. If the Grantor owns an insurance policy and retains control over the policy, then the proceeds from that policy are included in the Grantor's estate even if the proceeds from that policy are payable to someone other than the Grantor. For example, if the Grantor owns a $1,000,000.00 policy, and dies, that policy will be includable in the Grantor's estate and be subject to federal estate tax (taxed at a 35% rate this year and potentially a 50% rate next year), if the Grantor's estate exceeds the Lifetime Exclusion. If the Irrevocable Trust owns the $1,000,000.00 life insurance policy, and the Grantor dies, the policy proceeds are not includable in the Grantor's estate and will not be subject to the estate tax.
The Irrevocable Life Insurance Trust is commonly part of an estate plan when the Grantor's estate exceeds the value of the Lifetime Exclusion and there will be taxes owed at the time of the Grantor's death. Rather than having the taxes paid on a dollar for dollar basis from the Grantor's estate, an Irrevocable Life Insurance Trust holds an insurance policy and receives the proceeds from that policy. Those proceeds offset the taxes paid to the federal government and are distributed to the beneficiaries pursuant to the terms of the Irrevocable Trust, which may be the same or different from the terms of the Grantor’s Living Trust. The benefit to the estate comes from the fact that the cost of the annual insurance premiums are a fraction of the cost of the taxes paid on a dollar for dollar basis from the estate. 
In situations where the estate exceeds the value of the Lifetime Exclusion, an Irrevocable Life Insurance Trust is a good strategy. However, many of my clients are reluctant initially because of their lack of knowledge of life insurance policies and premiums costs. I suggest they consider this strictly from an economic standpoint. If the payment of the premiums will reduce their lifestyle, do they really want to give their children a greater lifestyle at the expense of their own inconvenience? However, the reality for most clients considering this technique is that the payment of premiums will come from excess assets, not assets otherwise used to support a client's lifestyle, and therefore the decision to use an Irrevocable Life Insurance Trust becomes an easier one.
A second use of an Irrevocable Life Insurance Trust is to provide for the needs of a special needs child while preserving any existing government benefits. The proceeds of the life insurance policy held by the Irrevocable Trust are used as appropriate for the child while the remainder of the Grantor's assets can benefit the Grantor's other beneficiaries. When used for this purpose the Trust will include language to ensure that distribution of the proceeds occurs at the Trustee's complete discretion so that the funds are used in addition to and not in lieu of any government benefits. In a similar fashion, an Irrevocable Trust can protect a second spouse by providing funds for him/her while distributing the rest of the Grantor's estate to children of prior marriage. In the alternative, the Irrevocable Trust can protect the Grantor's children by guaranteeing a specified amount, with the remainder the estate going to a second spouse or other beneficiaries.

The Insurance Policy
In order to ensure that the insurance policy is not included in the Grantor's estate, the Grantor must first execute the Irrevocable Life Insurance Trust and then the Trustee of the Trust applies for the policy on behalf of the Trust. It is important to use a new insurance policy to fund the Trust, because if an existing policy on the life of the Grantor is transferred to the Trust, and the Grantor dies within three years of the transfer, the insurance policy is considered part of the estate of the Grantor and subject to the estate tax. If at the time the Trust is established, the Grantor is not insurable and an existing policy must be used, as long as the Grantor survives for three years the policy will not be included in the Grantor's estate.
An additional requirement of an Irrevocable Life Insurance Trust is the requirement that the Grantor normally make annual gifts to the Trust in order to pay the annual premiums. The Grantor typically wants these annual gifts to count as "present gifts" to take advantage of the Gift Tax Annual Exclusion (presently $13,000.00 per donee). For that to occur, the beneficiary or beneficiaries must have at least a short period of time in which to be able to request that his or her portion of the annual premium be distributed to him or her rather than held in the Trust. For this reason, "Crummey Notices" generally are given to each of the beneficiaries, or their guardians if a beneficiary is a minor. The Crummey Notice, named for a tax case, Crummey vs. Commissioner, explains it that each beneficiary has a right to take his or her pro rata portion of the annual gift. If the beneficiary does not exercise that option within 30 days, that option expires, the gift is considered a “present gift’, and the Trustee can then pay the insurance premium.
An insurance policy taken out by the Trustee can be either a permanent policy or a term policy, except that if the policy is on the life of the Grantor and Grantor's spouse, only permanent policies are available. As with other life insurance policies, there are many funding choices. Some Grantors prefer to front-load premiums (pursuant to allowable insurance guidelines) so as to be able cease gifts to the Trust at a certain point in time and have the policy continue indefinitely. Others, who seek to keep gifts to a minimum, may actually use a term policy. The problem with the term policy is it will end after a certain number of years and if the grantor is uninsurable at that time, the strategy fails. Practically speaking, if there is an insurance need to offset estate taxes, that need is probably always there and a permanent policy should be considered. If there is no longer a need for the policy, or if the Grantor decides not to make additional gifts, the Trustee can cease making premium payments and the policy will lapse. 
Even though the trust itself is irrevocable and its terms cannot be changed, the Trustee and the Trustee's advisors should consider reviewing the life insurance policy on a regular basis to determine if the policy is still appropriate. It is possible a new policy with better provisions or with lower premiums would be a better choice for the situation. The duties of a Trustee of an Irrevocable Life Insurance Trust extend beyond simply providing the Crummey Notices and paying the premiums.
A strategy which is available now but which will expire on December 31, 2012, is to make a large gift to an Irrevocable Trust using the current $5,120,000.00 Lifetime Exclusion and purchase a large single pay premium policy. In the event changes in the law reduce the Lifetime Exclusion to $1,000,000.00, the Grantor has already fully funded the policy and need not make any large gifts thereafter. The strategy melds the time-tested strategy of the Irrevocable Life Insurance Trust with the short-term availability of making large gifts currently in the event that the Lifetime Exclusion is reduced significantly.
Just like the other strategies we have discussed, the Irrevocable Life Insurance Trust is another tool to be used where appropriate and can provide significant protection for specific beneficiaries and offset (at a much lower cost) estate taxes that will likely be paid at the death of the Grantor and Grantor's spouse. As is the case with these other tools, it is important to discuss what options are appropriate with a licensed attorney prior to taking any action.

Thursday, October 25, 2012

Trust Funding—Filling the Trust-Bucket to Avoid Probate

As we have previously discussed, executing a Trust creates a legal entity that can own property. However unless steps are taken to transfer property to that entity, even the best-drafted Trust will provide very little value. I have previously referred to a newly executed Living Trust as an empty bucket. The Grantor/Initial Trustee carries the trust-bucket around during their life and makes use of its contents. If the trust-bucket does not have any assets in it, then the bucket is not doing its job. Thankfully, the process of funding a Trust, though sometimes complex, can be completed and provide protection.  Examples of  items to place into the trust-bucket are:
Tangible Personal Property Tangible personal property includes all the property a person owns that is movable; this includes clothing, furniture, and other household goods. Tangible personal property also includes items such as artwork, unique collectibles, firearms, and jewelry. These items are added to the bucket (and thus funded to the trust) through the execution of an Assignment of Personal Property. In our office, when we draft a Living Trust we automatically draft an Assignment of Personal Property. This ensures that before the client leaves we know that their Trust is the owner of their tangible personal property.
Real Estate.  The next item commonly funded to a Living Trust is real estate, such as a residence or vacation home. In order to fund real estate to the Living Trust the Grantor executes a quitclaim deed transferring the property to the Trust. Upon signing the deed, the Trust becomes the owner of the property. State law then requires recording of the deed with the county to ensure a complete record of property ownership exists. It is worth noting that in some circumstance it is more advantageous, primarily for creditor protection, not to fund real estate to a Living Trust. The decision to fund real estate to a Trust is a discussion that each individual needs to have with their attorney to determine what the best course of action is in their particular set of circumstances.
Investment Accounts   The third type of asset to place in the trust-bucket is accounts with financial institutions. Funding these assets to a Living Trust ensures that not only do those accounts pass directly to the beneficiaries without the delay of probate, but also that the Successor Trustee has access to those assets upon the death of the Grantor in order to make any payments that need to be made prior to making distributions to the beneficiaries. A subset of financial account assets frequently handled by banks and financial advisers is life insurance policies, IRAs, and other retirement accounts. These accounts are not funded to the Living Trust during the owner’s life but instead the Living Trust is one of the designated beneficiaries of the accounts at the owner’s death. In the case of life insurance policies, we recommend that the Living Trust be the primary beneficiary for the policy. This ensures this ensures that at the death of the insured party the proceeds from the insurance policy are distributed directly to the Living Trust. As for IRAs, if our clients are married we recommend that they designate their spouse as the primary beneficiary of the IRA, because spouses enjoy preferential distribution treatment, and then name the Living Trust as a contingent beneficiary.
Business Entities.  The final assets commonly funded into a Living Trust are interests in Business Entities such as Companies, Corporations, and Partnerships. The funding of these interests to a Living Trust is completed with an Assignment. This Assignment can occur any time after the signing of the Living Trust, and if the Entity issues stock certificates those certificates need to be updated to reflect that the Living Trust is the owner of the interest. When funding a business interest to a Living Trust it is important to review the Operating Agreement for the business entity to ensure that there is no restriction on transfer of stock to a living trust.
After all this funding is complete, the trust-bucket now contains bank accounts, investment accounts, deeds to real estate, and interests in business entities. Insurance policies and IRAs designate that they pay out directly to the Living Trust and thus those assets drop into the bucket at the death of the owner. All of this ensures that when the Grantor/Initial Trustee passes away and the Successor Trustee comes along to pick up the bucket and follows the instructions written inside it, all of the Grantor’s assets are in the bucket and there is little to no need to deal with the Probate Court.
In the event that a Grantor has not funded an asset to the Living Trust prior to the Grantors death, a properly drafted estate plan will include a Will that designates the Living Trust as the sole beneficiary of the entire probate estate. This means that any asset that needs to pass through the probate process will end up as a Trust asset for the Trustee to distribute pursuant to the terms of the trust. While this will act as a safety net, catching anything that happens to be missed in the initial planning process, like all other circumstances involving a safety net the intention is to never need to make use of that net.
Each individual's circumstances are unique and due to those unique circumstances, it may not benefit an individual to transfer an asset into the name of the trust. These circumstances are one of many reasons that it is important to consult a licensed attorney to assist you with estate planning and to share information openly with that attorney.

Tuesday, October 23, 2012

How a Trust Works

Over the past few posts, we have done our best to give you an idea of what a Living Trust can do and how such a Trust can be advantageous to a wide variety of people. For many of our clients, having this information is all they need to make the decision to move forward with the Estate Planning process. However for other clients, learning that a Trust can provide these advantages leads them to the inevitable question of how does a Trust make these things happen.
Trusts have been in use for hundreds of years and the law that controls their use is substantial and complex. In Michigan, where we practice, the Michigan Trust Code (part of the Estates and Protected Individuals Code (EPIC)) governs the use of Trusts. Each state has their own law governing Trusts and it is important to consult an attorney who is familiar with that law before engaging in any planning. Today however, we will discuss the broad concepts that allow a Trust to provide benefits to those who include one in their Estate Plan.
Owning Assets
The law allows for the creation of a number of different types of Entities, including Trusts, Corporations, and Companies that have rights and privileges similar to those of Individuals. One of these rights is the ownership of property. Business Entities use this ownership option to spread the cost, liability, and profits of their ventures amongst investors. A properly drafted Living Trust uses this ownership option to create an Entity that owns the property for purposes of control and transfer while subjecting the property to be taxed as if an Individual owned it. This dual natured ownership creates one of the largest advantages of including a Trust in an estate plan, the ability to avoid probate.
Avoiding Probate
Assets owned by a Trust avoid the probate process because the only assets regulated by Probate Courts are those owned by Individuals when they die. Since a Trust is not an Individual and cannot die, it is not subject to the probate process.
The concept that the Trust Grantor may use all of the Trust assets as they see fit during their lifetime yet not be treated as the owner of the assets at death is often one that confuses clients. It is helpful to think of the Living Trust as a bucket containing the Grantor’s assets that the Grantor/Initial Trustee carries around during lifetime. The trust-bucket contains a list of instructions that says that the Grantor/Initial Trustee may use the assets contained in the bucket as he or she sees fit. When the Grantor/Initial Trustee passes away, the Successor Trustee picks up the trust-bucket and uses the assets according to the Grantor’s instructions.
An additional benefit of avoiding the probate process, besides the time and cost involved, is the ability of the Trustee, and not court, to control distributions to Beneficiaries who may be unprepared to handle an influx of assets. While the probate courts can provide a measure of protection for minor children, that protection ends at age 18. For adult beneficiaries in need of additional assistance due to addiction, disability, or other difficult circumstance, the probate courts only have the extreme option of imposing a guardianship or conservatorship if circumstances warrant it.
Enforcing the Grantors Wishes after Death
Legally, the Trust is a contractual arrangement between the Grantor and the Trustee. Upon the death of the Grantor/Initial Trustee, the contract provides the Successor Trustee with the authority to take actions on behalf of the Trust needed to comply with the Grantor’s instructions. This authority is not limitless and the Successor Trustee owes a fiduciary duty to the Beneficiaries (those people who the Trust says will receive the Trust assets).
A fiduciary duty requires the Trustee to act solely for the benefit of the Beneficiaries in taking actions in relation to the Trust and avoid any conflict of interest between the Trustee and the Beneficiaries. A fiduciary duty is the strictest duty of care recognized by the legal system and a Trustee who breaches this duty is subject to removal and a civil lawsuit. A Beneficiary who proves that a Trustee has violated their fiduciary duty may recover profits made by the Trustee, even if the Beneficiary has not suffered any actual harm.
Additionally it is illegal for a Trustee to conceal the existence of a Trust from a Beneficiary of that Trust. While the terms of the Trust may limit the amount of information the Trustee must provide to a Beneficiary, certain information must be provided to a Beneficiary and a court may always order a Trustee to provide information to the Beneficiary or to the court. This requirement ensures that a Beneficiary has the information required to protect their interest in the Trust assets.
The complexity of trust law in the wide variety of trusts in existence make it understandable that an individual would not want to blindly accept that a Trust is able to provide them and their loved ones with all of the promised benefits. As attorneys, we strive to provide our clients with all the information they need to be understand how the documents we draft for them are able to protect them and their loved ones. If you have specific questions regarding how part of a Trust works, please leave us a comment or e-mail us and we will be happy to address that in later posts.

Thursday, October 18, 2012

Planning for Incapacity

           None of us can foresee when an accident or a medical emergency might leave us unable to make our own decisions regarding medical treatment or legal issues. Rarely do we consider things like who will handle the everyday tasks, such as paying bills, renewing car insurance, or maintaining our homes? Even more importantly, what medical procedures are doctors performing on you, how far will doctors go to keep you alive, and who will know your wishes as to when to make that all-important decision to end all life-saving procedures? While we all hope never to experience this situation, it is important to plan for it to make sure that your wishes are known and are carried out.
           In the absence of any advance planning on your part, your loved ones will have no authority to make decisions for you and will need to petition the Probate Court to appoint a Guardian or Conservator to act on your behalf. "Guardian" and "Conservator" are the legal terms for individuals who can make legal and medical decisions on behalf of another person. However, the Probate Court may not appoint a Guardian or Conservator who would be the person you would choose to take on that responsibility if you had the opportunity to name someone. Another problem with Probate Court involvement is the cost, in both time delays and dollars, of using the court system.
           By simply taking the time to execute a Patient Advocate Designation (which names the person or persons designated to make medical decisions on your behalf) and a Durable Power Of Attorney (which names a person or persons designated to make legal decisions on your behalf) you can name the people you want and trust to making decisions on your behalf should you become incapacitated. You avoid arguments among family members and Probate Court involvement is eliminated.
           The Durable Power Of Attorney names a person, known as an Attorney-in-Fact, to make legal decisions on your behalf. A well-written Durable Power of Attorney lays out what authority your Attorney-in-Fact has over your affairs. At can allow that person to pay your bills, deal with your assets and investments, negotiate and sign contracts on your behalf, and even take care of your pets. It can also allow your Attorney-in-Fact to initiate legal proceedings on your behalf.
           The Patient Advocate Designation grants a person the authority to make medical decisions on your behalf. The person you name as your Patient Advocate has the authority to make decisions on treatment and care, as well as providing guidance as to your wishes concerning life-sustaining procedures.
           The decision to name a person to make legal and medical decisions on your behalf in the event you are unable to make them because of illness or incapacity should not be made lightly. You should choose someone you feel is capable of making these important legal and medical decisions just as you would. It is usually a good idea to name a second person in case your primary choice is unavailable. It is also a good idea to communicate with those persons name so they know that they will have the authority in the event of your incapacity and will know your desires if they are required to execute that authority.
           Both the Patient Advocate Designation and the Durable Power of Attorney are available for everyone over the age of eighteen. With parent/child situations, after the age of eighteen even a parent will most likely be required to petition the Probate Court to name a Guardian should their child become incapacitated. If married, a spouse is able to handle matters involving jointly owned property, but any other issue will require the authority of the Probate Court.
           It is important in creating these documents that you speak with an attorney familiar with the estate planning process. Your attorney will ensure that both the Patient Advocate Designation and Durable Power of Attorney clearly state your wishes and are sufficient for whatever purpose they are needed should you become incapacitated. Your attorney should also take the time to explain the scope of these documents and to advise you as to any additional documents that may be required to ensure that the people you name follow your wishes.

Tuesday, October 16, 2012

How a Living Trust Protects your Loved Ones

               There are many types of trusts and each of them is beneficial in the right circumstances. Today I want to talk about the commonest form of trust, the “Revocable Trust”, also sometimes called the “Living Trust”. 

The first benefit of the Living Trust is that it is revocable—you can change it as many times as you like for any reason, or no reason, as long as you are alive and competent. 

               As your financial situation or family situation changes, your Living Trust can change with it to provide your loved ones with the protection you desire. Living Trusts are particularly useful for the following three reasons:

  1. AVOIDING PROBATE: In Michigan, any asset titled in your name alone, must pass through the probate process at your death. The probate process can be expensive, time consuming and very public. If you transfer assets to your Living Trust, you control them because you are the initial Trustee and only beneficiary during your lifetime, and your successor Trustee administers the assets for your loved ones following your death, without any probate required. 
  2. REDUCING OR ELIMINATING FEDERAL ESTATE TAXES: If your estate exceeds the current exemption from estate taxation (currently $5,000,000 per person but scheduled to be reduced to $1,000,000 in 2013), the Living Trust can be drafted to insure both spouses’ exemptions are used and estate taxes are eliminated or at least delayed until after the death of the second spouse to die. 
  3. PROTECTING YOUR SPOUSE AND OTHER FAMILY MEMBERS: Perhaps the most valuable benefit of a Living Trust is the ability to protect your family by stating in advance how your loved ones receive your assets after your death. Some examples are: 
    • Provide funds to maintain the spouse’s accustomed standard of living, but limit access by creditors or impatient children. 
    • Place limits on distributions in the event the surviving spouse remarries, to insure children of the first marriage will have their inheritance protected. 
    • Place limits on how distributions can be used or when distributions occur for gifts to children and grandchildren. Restrictions can be placed on the use of income and/or principal, such as: 
      • Spreading out distributions over time or at specific ages, such as 1/3 distributions at ages 25, 30 and 35 
      • Distributing specific amounts after reaching certain educational milestones 
      • Allowing distributions only to pay for education expenses, or only partial payment of expenses if child pays the other portion. 
      • Providing for any educational need, purchase of a home, or starting a business, if the independent trustee approves. 
      • Restrictions to insure creditors or divorcing spouses are unable to reach trust assets until actually distributed to children. 
      • Restrictions to protect immature children from spending funds unwisely 
      • Restrictions for children with dependencies to protect them from a worse condition 
    • Provide "special needs beneficiaries” who are entitled to benefits through state and federal programs with funds to provide for additional assistance while protecting them from losing eligibility for government funds because of a sudden influx of assets or income. 
    • Protect elderly relatives relying on you for support by providing a fund for their use if needed. 
    • Allow you to fulfill any charitable inclinations you may have with donations at your death. 
               You have built a legacy of which you can be proud. Let a properly drafted Living Trust allow you to use and distribute it as you see fit.

Thursday, October 11, 2012

What is a Trust and Why do I Need One?

What is a trust? 

Why do I need one? 

Aren’t trusts just for rich people? 

Aren’t trusts expensive?

           These are typical questions clients ask when we are discussing estate planning. Let’s start with the easy questions: 
What is a trust? 
           A trust is a written document that creates an entity and provides a set of rules for administering assets owned by that entity, during your lifetime and after your death. It is important to note that executing a trust without funding assets to it is a waste of money. The trust is an “empty bucket” when signed, but if you do not fill the “bucket” with assets the trust is of little use to you. Fortunately, transferring assets to trusts is relatively simple 
Why do I need a trust? 
           The trust states your instructions for how assets transferred to the trust are used. It contains your specific desires about how assets are invested, how income and principal are distributed during your lifetime and how your spouse and children are taken care of after your death. 
Aren’t trusts just for rich people? 

           Many people believe that they do not have sufficient assets to require a trust. While some aspects of a trust are more beneficial to a wealthier client, a benefit of a trust that is useful to everyone is the additional control you have over when your heirs receive their share of your estate. 

           If you have children, minors or otherwise, are you comfortable with the idea they will receive their share of your estate immediately at your death (or when they reach age 18 in the case of minors)? Using a trust to spread out distributions and help them control their assets is a useful tool even if you aren’t “rich”. 

           People with large amounts of assets aren’t the only ones who need trusts. Take a moment to add up your assets. Do you have any of the following? 

  • Home 
  • Cottage 
  • Investments 
  • IRAs 
  • Company retirement plans 
  • Life insurance 
  • Potential inheritances 
           Surprisingly, the value of your assets begins to add up quickly. By placing these assets into a trust, you ensure that when you pass away all your assets are in one place and pass to your loved ones in an orderly fashion according to your instructions. 

Aren’t trusts expensive? 

           The benefits of having a well-drafted estate plan do not come without a cost. However, creating a trust is more than just a one-time transaction with an attorney. The time and money spent creating a trust are an investment in your and your family’s future. A trust can: 

  1. Control your wealth during your lifetime 
  2. Protect your legacy 
  3. Help avoid Michigan Probate 
  4. Protect your loved ones after you are gone 
  5. Protect minors and special needs children 
  6. Help reduce or eliminate estate taxes. 
           A trust can save far more in probate costs and estate taxes, while providing security and protection for your loved ones, than it costs to prepare. 


           If you are not sure you need a trust, or any other estate planning documents, make an appointment with an estate planning attorney. Many attorneys are willing to meet with you, explain estate planning and, after determining your needs, quote you a fee before you have to make any commitment.

Tuesday, October 9, 2012

What You Need to Know about Wills

           The Will is an important but often-misunderstood document. People may tell you that a Will is what the "wealthy" use to give away their money when they die. What is less understood is that the Will is a valuable document for everyone.
           Before addressing why a Will is valuable, it is first important to understand what a Will actually does. A Will is a set of legally binding instructions followed after the death of the Testator ("Testator" is the legal term for the person executing the Will). The Personal Representative (sometimes called the "Executor") is the person the Will names with carrying out the Testator's instructions concerning the Estate ("Estate" is the legal term for a deceased persons assets and possessions). If a person dies without a Will (in the legal parlance, "Intestate") Michigan imposes a set of distribution instructions on that person's property based upon what the state legislature presumes people want. These instructions are sometimes often fail to take into account the unique circumstances of an individual's life.
           Even if you are not "wealthy", anyone with a residence, life insurance coverage, IRAs or retirement plans, bank accounts or other such assets needs a plan for distribution of those assets at death. The Will is the simplest form of that planning.. In a Will, a person can detail a simple or complex plan of distribution of assets for loved ones that is legally binding. The only limitation on your distribution plan is your imagination. While the Will does not avoid the probate process, it simplifies it. Not only can a Will reduce conflicts between a surviving spouse and other family members by providing clear instructions as to the Testator's desires, it also provides guidance and structure in a difficult and chaotic time. Additionally, leaving written instructions for the disposition of your assets is even more important if you are married with children, because the intestacy statute splits assets between your spouse and children, potentially creating financial hardship for the spouse.
           If you have minor children, a Will is the document used for nominating Guardians to care for children should something happen to you and your spouse. Without a Will, the Probate Court must decide between the assorted parties who petition the court to act as Guardians for your children. While your parents or siblings may feel responsible for taking care of family, they might not be your first choice to act as Guardians because they live in other parts of the country or their lifestyles are not compatible with yours or conducive to raising children. The Will allows you to designate guardians you feel are best for your children
           The necessity of Will increases when the Testator is married with or without children. Not only can a Will reduce conflicts between surviving spouses and other family members by providing clear instructions as to the Testator's desires. It also provides guidance and structure in a difficult and chaotic time. Additionally, leaving instructions as to the disposition of your assets is even more important if you are married with children because the intestacy statutes split assets between spouses and children, potentially creating financial hardship for the spouse.
           As your personal situation and asset situation becomes more complex, a Will can work in conjunction with a Trust to minimize the involvement of the Probate Courts in the distribution of the estate. Trusts, and their benefits will be discussed at a later date.
           Clearly, a Will does more than allow the rich to pass on their wealth. The Will allows everyone to decide what will happen to their assets after their death, provides peace of mind in a very trying time to for loved ones, and allows parents to decide who will raise their children should tragedy strike. A Will is only one piece of the estate planning process, but it is an excellent starting point. A well-drafted Will creates a good plan for distribution upon your death. It can also provide the basis for additional estate planning as a person's situation becomes more complex.

Thursday, October 4, 2012

Common Mistakes in Estate Planning

           As attorneys, we see many errors that people make regarding their estate planning, which can be very costly. Some examples to consider and watch for are:
  1. Not having a plan. “If you fail to plan, you plan to fail”. Whether you have a large estate or a small estate, planning is important to insure you transfer your assets to your loved ones with a minimum of delay and cost. Failing to plan results in state statutes determining where your assets go at your death and it may be quite different from your actual wishes.
  2. Leaving assets outright to spouse or children. Leaving assets outright to a spouse or children, especially minor children, may subject them to expensive probate proceedings, garnishment by creditors, foolish spending by immature beneficiaries, or make them reachable by a divorcing spouse of a child. There are better ways to protect your loved ones.
  3. Failure to update your estate plan as your life circumstances change. Your life is constantly changing—new children, growing children, new house, increasing investments, elderly loved ones relying on you—and it is important that your estate plan change with life changes to be effective.
  4. Failure to name a guardian and successor guardian for minor children. If you do not name people to care for your children, you open the door for a judge to select someone, and that person may not have been the person you feel would be best to care for your minor children.
  5. Failure to prepare for incapacity as well as death. Statistically, it is more likely that you will become incapacitated than die at any particular time in your life. Having documents in place insures easy administration without having to go to the Probate Court to have someone appointed to take care of you.
  6. Failure to retitle assets to conform to your estate plan. Preparing estate plan documents is only part of the planning process. It is necessary to retitle assets and designate beneficiaries for retirement and life insurance policies to assure quick, easy, and private administration in case something happens to you.
  7. Failure to name recipients for personal possessions. If there are special items of personal property with real or sentimental value that you want a particular beneficiary to have, you should make a binding list so there are no arguments after you are gone.
  8. Failure to have organized information for family members. By collecting your estate plan documents and key information, such as account numbers, passwords, and financial advisor's names, in one location your family will have an easier time with estate administration, and know who to call if any issues arise.
  9. Failure to prepare a Durable Power of Attorney and a Patient Advocate Designation for children over the age of 18 but away at school. At age 18, a person is considered an adult for all purposes in Michigan. Without a written legal and medical designation naming you, if your children are injured, doctors and hospitals may not tell you any confidential information or allow you to make important medical decisions.
           With diligence and periodic updates of your estate planning, you can maximize savings and minimize any problems for loved ones. Depending upon how quickly your assets were family situation changes, your estate planning should be reviewed every 2 to five years.

Monday, October 1, 2012


           Estate planning is an area of law that has significant benefits for those people who take advantage of the planning process. It is also an area of the law that requires clients to contemplate their own mortality and prepare for a time when they will not be there to care for their loved ones, or perhaps even themselves. Facing difficult concepts and decisions frequently keep people who can otherwise derive great benefit from having an estate plan, from engaging in the process.
           Our goal is to provide an entertaining and educational resource that provides people with the information they need to begin the estate planning process without feeling intimidated. In addition, we want to provide insight into the evolving law affecting estate and tax planning as well as provide plain language explanations of the complex legal concepts involved with estate planning. 
           We welcome your comments and suggestions, including your questions about estate planning and guidance as to what information would be most beneficial to you.