Estate Planning Really is For Everyone

It has been a long time since we last posted anything new here, but after seeing a number of different articles in the news media and other publications we felt that it was time for us to come back and revisit some important issues in estate planning and to discuss some of the changes to the area that have transpired over the past two years. We look forward to hearing from our readers if there are particular questions you or your clients have had about estate planning, because as always one of our major goals is to make the process of estate planning approachable and understandable.

We'll start off with a subject that both of us constantly attempt to help people understand, the question of "Who needs an estate plan?".

Estate planning is not just for older, wealthier individuals. Estate planning covers a number of areas that can be of great benefit to a person of any age. While often estate planning is associated with planning for one's eventual death and the transfer of property to loved ones, estate planning is much more than that.

A person of any age, whether or not owning significant assets, can benefit by writing a Will. Estimates vary, but surveys regularly indicate that less than 50% of adults have a Will and even fewer have documents protecting them in the event of a disability. 

A Will is a basic estate planning document that can provide specific instructions about how your property is to be distributed. But if you have minor children, a Will is important because it will designate your choice for Guardians to take care of the physical well-being of your children in the event of a premature death. The Will also name a Personal Representative (sometimes called an Executor) to administer your estate for the benefit of the beneficiaries you have named. While it will not eliminate the probate process under state law, a Will at least allows you to designate your beneficiaries rather than allowing a complicated state statute to determine how your assets are distributed. For example, the Michigan intestacy statute provides for six different potential distributions to a surviving spouse and an additional four potential distributions to other beneficiaries, all dependent on who survives the decedent. Based on the complexity of these rules, it is easy to see that failure to specifically designate those beneficiaries who are to receive your assets can result in unintended and undesirable results. For some people, especially younger adults, it may be even more important to consider documents protecting you in the event of disability rather than death.

A Patient Advocate Designation (PAD) is a document that allows you to specify the person or persons you want to make medical decisions on your behalf in the event you become disabled and unable to make your own medical decisions because of illness or accident. If a PAD has not been executed and a person becomes incapacitated through illness or accident, someone must file a petition with the local Probate Court to have a person appointed to make medical decisions. This process is time-consuming costly and public.

A Durable Power Of Attorney (PoA) is a document that allows you to specify the person or persons you want to make legal decisions on your behalf in the event you become disabled and unable to make your own legal decisions because of illness or accident. If a PoA has not been executed and a person becomes incapacitated through illness or accident, someone must also file a petition with the local Probate Court to have a person appointed to make legal decisions. Again, the process is time-consuming costly and public.

You may also want to consider a Living Will which, although nonbinding, is an expression of your intent that you do not want to be kept alive by extreme measures if doctors indicate that such measures will only prolong the dying process rather than lead to a recovery. This document and allow those designated to more quickly make medical decisions you would want if you could make them.

While these documents are applicable for all adults, parents with children who have reached age 18 and perhaps going off to college or another state for job opportunities may want to have these children execute a PAD or PoA, because otherwise medical personnel will likely not allow parents to make decisions on behalf of their adult children.

While there are other estate planning documents that are beneficial as an estate gets more complex, the documents discussed here are the basics which are important for all people. To ensure that you have planning that is appropriate for your needs please consult with an experienced estate planning attorney.

Alan and Matt

How do Powers of Attorney and Patient Advocate Designations Fit into an Estate Plan?

While people generally understand that a Power of Attorney and Patient Advocate Designations protect them if they become incapacitated, many people are confused about how these documents work and what their designees are obligated to do.

     Often, after signing their estate plan documents, our clients will ask, "now that I have a Durable Power Of Attorney and Patient Advocate Designation, what does my designated person have to do?” The simplest answer is they do not need do anything, nor can they do anything unless and until the client is declared incapacitated under the definition normally set forth in the document. The definition we use in our documents requires that two doctors certify in writing that the client is unable to care for his or her "financial or physical well-being". Once the designated person obtains those certifications, only then are they authorized to act on behalf of the incapacitated client. Upon obtaining the authority to act, the designees gain the authority and responsibility to make decisions that are in the client’s best interest.

     Under the Durable Power of Attorney, the designee should determine the assets of the incapacitated person and take action to protect those assets. This may include such actions as meeting with an investment advisor to ensure the assets are properly invested, paying bills, maintaining the house or other real estate, and making sure the incapacitated person receives care. While performing these tasks, the designated person should also keep complete financial records to show what actions they took and how they spent funds. In the course of the designee’s actions, any party shown the Durable Power of Attorney can rely on the fact that the designated person has authority to act with respect to all of the legal decisions the incapacitated person might otherwise have been able to make. 

     The person designated under the Patient Advocate Designation has the authority to make any necessary medical decisions, including treatment, selection of doctors and facilities, rehabilitation, and decisions regarding end-of-life care. We recommend that clients discuss what care he or she wants or does not want with their designees so that those people are better able to make decisions should the time come. Often, a Living Will is executed in conjunction with the Patient Advocate Designation as a declaration of those desires, especially of the intent not to be kept alive by heroic measures if it would merely artificially prolong the dying process.

     The responsibility given to another person under a Power of Attorney or Patient Advocate Designation is significant and should not be taken lightly. However the designee does not need to handle matters alone, they are allowed to employ professional advisors to assist them in caring for the client’s interests. As we always tell our clients, if it ever comes time for your designees to act, we will be there for them just like we are here for you.

What's the Difference between Living Wills & Living Trusts?

     A common problem clients have when starting the estate planning process is confusion regarding the purpose of the various documents involved in an estate plan. Legislatures and attorneys augment this confusion by using similar common names for some of the documents. When you have a Will, a Living Trust, and a Living Will, a measure of uncertainty is understandable from clients who do not deal with these documents on a daily basis.

     We have discussed in detail how a Will dictates the decedent's desires regarding property held in their name alone the death, that must pass through the Probate Court before passing to their heirs. Similarly, we have addressed how a Living Trust administers property held in the name of the Living Trust, and deals with many of the same issues, but does so outside of the Probate Process. Today's post addresses the Living Will, what it does, and how it fits into an estate plan., A Living Will deals with what we refer to as the "here and now" . Together with the Patient Advocate Designation, the Living Will helps to address health care issues that arise during a client’s lifetime where, due to incapacity, the client is unable to make medical decisions for themselves.

     When executing a Patient Advocate Designation, clients nominate an individual to make medical decisions on their behalf if they are incapacitated and unable to make those decisions for themselves. A Living Will acts as an instruction manual from the client to their designated patient advocate, stating their wishes to that advocate regarding their healthcare. The choice to have a Living Will is purely voluntary and the Living Will may be as specific or as general about health care wishes as the client prefers. Under Michigan law a Living Will has no legal force. However, if there is a conflict regarding an incapacitated person's care that necessitates Probate Court involvement, written or oral statements, such as a Living Will, are admissible as evidence of the incapacitated persons desires as to their own care.

     The basic Living Will addresses the client’s desires concerning the use of medical devices to artificially prolong their lives. It is our belief that regardless of the client’s other desires regarding health care, it is important the client articulates an opinion regarding their desires for continued care if their lives are being maintained solely by machines. If clients wish to include more expansive directions to their patient advocate, we ask them to provide us with a list of those instructions for inclusion in their Living Will and encourage them to speak with their designated patient advocate so that everyone involved is on the same page regarding care.

     While contemplating our mortality is an uncomfortable topic for almost everyone, some solace can be gained by knowing that those people who we trust to make decisions on our behalf are guided in those decisions by our own instructions.

Matt Ferrara

Protecting Beneficiaries from Experiencing Problems with Their Inheritances

Inherited wealth comes with many advantages, but it also has disadvantages. Depending upon which source you consider, between $10 trillion and $30 trillion will pass by gift or inheritance by the year 2030. More of our clients, be they older with adult children or younger with small children, are becoming increasingly concerned that passing large sums of money may not be in the best interests of their families.

Over the last 30 years, the focus in estate planning has been upon reducing gift, estate or generation-skipping transfer taxes. The intent was to minimize the amount of a client's estate that was "shared" with the IRS. However, with the increased exemption creating a decreased focus on the tax implications of inheritances, more of our clients now focus on how distributions to their children may affect their lives. They worry about children losing the motivation to accomplish something of worth. They also worry about the significant complexity added to their children's lives when they acquire wealth and suddenly have a variety of relatives and strangers trying to tell them what to do with those newfound assets. Some clients even worry about their children engaging in addictive or self-destructive behavior or even a spendthrift lifestyle that causes them to spend their money too quickly.

I believe it was Warren Buffett who said, "You should leave your children with enough money so that they can do anything, but not so much they can do nothing."  With similar thoughts in mind, clients are starting to look at incentive clauses to discourage unproductive behavior and encourage worthwhile pursuits. Access to the trust funds may now be subject to incentive clauses, such as

•      Tying distributions to a demonstration of some type of personal accomplishment, such as receiving educational degrees (but making sure you avoid creating "professional student", contribution to charitable pursuits or distributions to equal income earned.

•      Requiring financial training to be able to manage wealth responsibly.

•      Matching earned income, at least up to a certain point

•      Providing funds for "extended family vacations" to encourage continuation of family relationships after the death of parents

•      Requiring periodic testing to provide knowledge of any substance abuse issues and limitations of distributions therefore

•      Matching contributions to retirement savings to encourage a beneficiary to save for retirement

•      Requiring a prenuptial agreement in order to protect the "family assets" from being lost to an ex-spouse.

Each of these incentive clauses, and many others, can have many benefits, but clients should also consider the drawbacks. Matching earned income with the trust distribution may work against those beneficiaries who have chosen public service, a religious vocation or chosen to be stay-at-home parents. Incentive clauses can be excellent ways to protect and pass on family assets, but should be considered carefully with assistance from qualified professionals.

When discussing such provisions with clients we take the position that it is not our place to tell the clients what action to take. Instead, we serve as an advisor, informing them of the potential consequences of their actions and allowing them to make the decision that they feel is best for their loved ones. This method allows the clients to achieve their goals while minimizing the chance that their intentions will be subverted after they are gone.

Alan Ferrara

Making Changes to Powers of Attorney

     We previously discussed how a Power of Attorney allows another person to make legal decisions on your behalf, whether immediately or only upon your incapacity. However, what happens if, after executing a Power of Attorney, you change your mind about whom you want to act on your behalf? If this happens, you need to take certain steps to make certain you revoke that person's power.

     The first step is to execute a new Power of Attorney, changing the individual designated to act, known as the Attorney-in-Fact. The new Power of Attorney should specifically state that it supersedes all previous Powers of Attorney.

     Next you should notify the person previously named in writing and request the return of any copies of the original Power of Attorney. This notice informs the person that they no longer have the duty or the power to act on your behalf. When you receive copies of the superseded Power of Attorney make sure to securely destroy those copies along with any other copies in your possession.

     It is also important to inform third parties that this person no longer has the authority to act on your behalf. This notice should be done as soon as possible orally, and then follow-up in writing. The third party, such as a bank, is then fully aware of the change and acts at its peril if it allows the original Attorney-in-Fact to act. By providing a copy of the new Power of Attorney, you specifically show that you revoked the prior document and executed a new document in its place. This allows the third party to know not only that it should no longer honor the previous document but also whom you have chosen to replace the previous Attorney-in-Fact.

     Used properly, a Power of Attorney can make difficult situations much easier by allowing someone to make important decisions while you are incapacitated or merely unavailable. However, because a Power of Attorney provides another person with the authority to act on your behalf it is important to review that document periodically to ensure that the people named are still the best people to make those decisions. Finally, it is important to consult with an attorney before signing any form of Power of Attorney. Do-it-yourself books and websites offer broad, general documents that are often insufficient to meet a person’s needs. By speaking with an experienced attorney, you are assured of receiving documents and the support needed to address your specific situation.

Matt Ferrara

Planning for College-bound Children

     With the beginning of a new school year, today is a perfect opportunity to address the subject of Powers of Attorney and Patient Advocate Designations for a client’s adult children. As we previously discussed, despite their parent’s perception, once a child reaches the age of eighteen they are an adult in the eyes of the law, and therefore their parents no longer have the right to make decisions on their behalf should they become incapacitated.

     This can be corrected by having children execute Durable Powers of Attorney and Patient Advocate Designations, naming their parents to make decisions, and parents can continue to care for their children should they become incapacitated. These documents provide both parent and child with peace of mind that, in the event of an emergency that causes the child to be incapacitated, the parent will have the ability to assist their child without needing to petition the probate court for that authority.

     It is important the clients’ children understand how the documents they sign will protect them should their parent need to use them. The Patient Advocate Designation allows their parent to make medical decisions in the event that the child is unable to make those decisions because of illness or injury. A Durable Power Of Attorney is more complex, because it allows the parent to make legal and financial decisions, including paying bills, dealing with landlords, and filing lawsuits on the child's behalf if the child is incapacitated and unable to take these actions for themself. Both the parent and child should know that without these documents, if the child becomes incapacitated, the Probate Court must be petitioned to name a party to make decisions, which can be expensive and time-consuming.

     The process of drafting and executing these documents also has the added benefit of providing the opportunity to introduce clients’ children to the client’s legal and financial advisors. While discussing the importance of these documents with their children the client also has the opportunity to begin to explain their own planning.  This early introduction to both the estate and financial planning can set the children on a path to a more secure future as well as act as a stepping-stone to understanding their parents’ planning. While some clients balk at the idea of introducing their children to the planning process at such a young age, taking the time to execute a patient advocate designation and durable power of attorney can save the client and their child from significant inconvenience, time delays and cost in the event of an emergency.

Matt Ferrara

What Happens When Successor Trustees Take Control?

     In our last blog, we discussed steps a client’s Personal Representative takes as part of the probate process upon the client's death. Today's blog addresses how the client’s Living Trust and their successor Trustee fit into that picture. In most cases, the Successor Trustee plays a significantly larger role in the administration, because a properly funded Living Trust limits the assets that need to pass through the Probate Court.

     Unlike a Personal Representative, the Successor Trustee does not need to wait for the Probate Court to approve their appointment.  The Successor Trustee can sign an Acceptance of Trust indicating acceptance of the trustee position and then take possession of the trust assets on behalf of the trust beneficiaries. The Trustee is responsible for the care and custody of assets and making investment decisions, but may rely on qualified professionals for assistance. It is important to remember that a Trustee is a "fiduciary" and must meet a very high standard of care with respect to all actions.

     One of the first things a Trustee must do is apply for a federal tax identification number for the Trust. While a Living Trust uses the Grantor’s Social Security number during the Grantor’s lifetime, both the Estate of a deceased individual and that person’s Living Trust must have separate tax identification numbers and file income tax returns for as long as the Estate remains open and the Trust continues to hold any assets. In limited circumstances, the Estate and Trust may file a combined return; however, it is important to seek the advice of a qualified professional before filing such return.

     Next, the Trustee should provide the beneficiaries of the Trust with certain information, including informing beneficiaries of the existence of the Trust, the name and contact information of the successor Trustee, and information regarding the scope and terms of their individual bequest. This statutorily required notice serves as a check on the Trustee's powers by giving the beneficiaries sufficient information to hold the Trustee responsible for their actions. The Trust normally provides that the Trustee must provide an annual accounting to beneficiaries during the time the trust owns any assets. Prior to making any distributions to the beneficiaries, the Trustee should coordinate with the Personal Representative to pay the grantor’s creditors as may be required by law.

     When all Trust Matters are completed, the Trustee distributes the trust assets to beneficiaries pursuant to the Grantor’s instructions. In all circumstances, it is important that a successor Trustee seek the advice of competent counsel in order to comply with all of their responsibilities, and to assist in the smooth administration of the trust to achieve the grantor’s goals. Later this week we will discuss how the successor trustee should handle distributions of particular assets, including personal property and investment accounts.

Matt Ferrara

How Estate Planning Works to Protect Your Loved Ones

Recently, while discussing an update to estate plan documents with an existing client, the client stopped me and asked, "What happens when I pass away?” I started to tell him that the documents will minimize or eliminate estate tax, avoid probate, and protect his family. The client stopped me short and said, "I understand all that, but what really happens?". It was then I realized that, my answer to him had been completely precise and yet useless. As professionals, we often focus on the big picture of estate planning, giving little or no explanation as to how clients, or their loved ones, use the estate planning documents we create. Over the course of the next few posts we will discuss what should actually occur when a person dies.

When a client passes away and their family or other loved ones notify us, we often suggest sitting down with the Personal Representative, Trustee, and any other parties who want to attend, after the funeral has occurred. Generally the personal representative and trustee do not need to take any immediate action and our preference is to let the family complete its grieving period before meeting with them.

At that meeting one of the first issues we discuss is whether the decedent owned any assets in their name alone that will require a probate. If there is an asset that is only in the name of the decedent, the probate process facilitates the legal transfer of that asset to the decedent's beneficiaries. The probate process involves a number of steps, depending upon whether or not the probate is a "small probate" or a "full probate.” If the value of assets needing to pass through probate is less than $20,000, a small probate is sufficient to complete the transfer. In a small probate, the personal representative completes one form, and the process of filing the estate, obtaining an order for the distribution to the estate beneficiaries, and closing the estate takes only one day.

A full probate, where the estate contains assets having a value greater than $20,000, requires a number of steps:

1. The Personal Representative opens a probate file with the Probate Court. This includes a petition to the Court requesting that the personal representative be appointed to administer the Estate
2. Notice of the probate must be given to heirs at law as defined by the statute
3. An inventory of assets must be filed with the Court
4. The Personal Representative must notify known creditors and potential creditors are notified by placing a notice in the local legal news that the decedent has died and the creditors have only 90 days to file a claim against the estate.
5. After settling any debts with creditors, the personal representative distributes the estate to the beneficiaries designated in the Will or in the absence of a Will to the heirs at law
6. The Personal Representative gives a final accounting to the heirs at law and the court
7. A request is made to the court to close the estate when there are no longer any assets owned by the estate.

     The probate process can take from six months to a year or longer depending upon the complexity of the estate and the assets within it. As often discussed, this is one of the primary reasons for implementing a Living Trust and funding assets into the Trust prior to one's death. Next week we will discuss what actions should occur with respect to the Living Trust.

Alan Ferrara

Keeping Powers of Attorney Fresh

     In the past year, we have heard from a number of clients letting us know that banks and other financial institutions are reluctant to accept Durable Powers of Attorney dated more than two years ago. The same is also true of doctors and hospitals when it comes to accepting Patient Advocate Designations. All of these institutions share this reluctance because when a significant amount of time passes between the execution and use of the document , there is a concern that the person may have executed a new document in the intervening time, naming a different person to act on their behalf. For this reason, we encourage our clients to regularly “refresh” their Patient Advocate Designations and Durable Powers of Attorney.

     Another benefit of regularly refreshing these documents is the ability to review the choices clients have made in naming people to make decisions on their behalf.  It is a good idea make sure those people named are still living, able to assist the client, and still whom the client wants to make decisions on their behalf. This review is important because Patient Advocate Designations and Powers of Attorney are documents clients generally do not think about after signing, until something goes wrong and the client needs to make use of the documents. This "sign and put in a drawer" philosophy frequently leads to complacency, and clients are surprised to discover, years later, that their documents contain people whom they have not spoken to in years or who would no longer be suitable to assist the client should they be incapacitated.

     A final benefit of regularly refreshing Powers of Attorney and Patient Advocate Designations is the ability to have documents that comply with the most recent statutory language and best practices for creating such documents. Over the last ten years the specific powers enumerated in a comprehensive Durable Power Of Attorney have increased substantially, ensuring that the person named to act has the authority to deal with a wide variety of situations and institutions that all require specific permission prior to releasing any information to a third party.

     The process of refreshing these documents does not need to be expensive nor time-consuming. An experienced attorney, especially one the client has worked with previously, should be able to review the documents with the client over the phone and have updated documents prepared to sign in a matter of days. It is important to work with an experienced professional rather than using a fill in the blank form or other do-it-yourself method because these documents confer substantial power to another person to act on your behalf. 

Matt Ferrara

Estate Planning Checkup

We periodically get medical checkups to make sure we are physically healthy. It also is a good idea periodically to have an estate planning checkup to make sure your estate plan is in good shape. We often use the following checklist to help our clients review their plans.

• When was the last time your estate plan documents were reviewed and updated?
• Have there been any changes in federal or state law that will affect your documents?
• Have there been any changes in your personal situation requiring any changes, such as:
• an increase in your net worth
• a divorce, death, or remarriage
• children growing older and requiring less or more supervision of assets at your death
• the birth of grandchildren you want to protect
• special needs beneficiaries, including beneficiaries with substance abuse issues needing protection
• concern about a child's marriage
• elderly parents or other relatives now needing assistance
• charitable gifts you desire to make
• Are you still comfortable with the people you have designated to be guardians for any minor children?
• Are you still comfortable with the people you have designated to make legal and medical decisions if you become incapacitated?
• Are all of your personal assets properly titled and funded to your Trust to avoid probate?
• Are all of your business assets properly titled and funded to your Trust to avoid probate
• Have you purchased any new personal or business assets recently, and are they properly funded to your Trust?
• Are the beneficiary designations for any life insurance on your life appropriately designated to your Trust?
• Are the beneficiary designations for any retirement plan accounts and IRAs appropriately designated to your spouse and/or your trust?
• If you have executed an Irrevocable Trust to hold life insurance have you:
• properly gifted funds to the Trust annually for premium payments?
• properly prepared and documented Crummey notices annually
• has the trustee periodically reviewed the appropriateness of the insurance policy and regularly reviewed and updated life insurance as appropriate?

     If the answers to any of these questions cause your client's concern or if they are unable to answer any of these questions, you know it is time to suggest they visit their estate planning professional to discuss and possibly change estate planning documents.

Alan Ferrara

Extra Privacy Gained from Trusts

     Increased privacy is one of the major benefits of using a living trust in estate planning. The Trust allows you to avoid public disclosure of the assets of the estate and the distribution provisions of the Will in the Probate Court. It also allows the Grantor to provide Beneficiaries with information that applies to their own distribution but not the distributions for other Beneficiaries. 

     The Michigan Trust Code (MTC), which governs the duties and powers of the trustee along with the rights and interests of trust beneficiaries, requires that a trustee of an Irrevocable Trust or a Living Trust which became Irrevocable upon the death of the Grantor inform a trust beneficiary of the following information:

• That a trust exists that names the person as a beneficiary 
• The identity of the Grantor of the trust. 
• The Trustee’s identity, including address and telephone number 
• The court, if any, in which the trust is registered The terms of the trust that describe or affect the beneficiary’s interest and relevant information about the trust property.

     The MTC also mandates that the trustee must provide an annual accounting of the Trust property to everyone who receives, or may receive, a distribution from the Trust. The Grantor of a Trust may override that statutory requirement and dictate whom, if anyone, the Trustee must provide with an accounting. It is important to note that even when the terms of the trust waive the annual accounting, a Probate Judge has the authority to order the Trustee to provide the court, or other parties, with an accounting.

     The benefits of these statutes to a Grantor include the ability to provide bequests of different values for children without revealing the differences in gifting. Alternately, it allows the Grantor to make equal gifts to multiple children, but under different terms, without creating strife because one child receives their bequest outright while other gifts continue in trust with restrictions on distribution. 

     The Michigan Trust Code strikes a balance between the Grantors’ right to privacy and the Beneficiary’s ability to confirm the Trustee meets their fiduciary duty. The information that Trustees must provide to a beneficiary gives that person sufficient information about their rights to the trust assets to determine whether the Trustee is doing their job. If the beneficiary suspects something is amiss, the information gives them a basis for the Probate Court to order a complete accounting. 

     It is important for successor trustees to understand the law and review the terms of the trust in order to determine the scope of their duty under the trust and applicable law. Often the attorney who drafted the trust document is the most useful resource for successor trustees in determining what information the trustee must provide to beneficiaries. A responsible attorney will provide clients with contact information and assurances that they will be available to help the successor trustees administer the trust when the time comes.

Matt Ferrara

Recent Changes in Michigan's Power of Attorney Law

As our clients get older and making decisions becomes more of a challenge for any number of reasons, it becomes even more important to have a properly drafted Power of Attorney authorizing others to make financial decisions on their behalf. Last year, the Michigan Legislature adopted a new Durable Power of Attorney (POA) statute, MCL 700.5501, effective after October 1, 2012, which while not invalidating documents executed prior to that date, applies to documents created after that date.

The requirements of the new statute include:

1. The POA must be signed in the presence of two witnesses, neither of whom is the attorney-in-fact, both of who must sign the POA, or the POA must be acknowledged before a notary public.
2. The attorney-in-fact must now sign an acknowledgment or acceptance, with statutorily prescribed language, before the attorney can act. This acknowledgment includes an understanding that there are specific limitations to the attorney-in-fact's powers, that the attorney-in-fact must maintain proper records with respect to receipts, disbursements and investments, and that the attorney-in-fact may be liable for any damage or loss to the principal.
3. The attorney-in-fact cannot make a gift of any of the principal's assets, unless specifically provided for in the POA.
4. Unless the POA specifically provides that, the attorney-in-fact cannot create an account or transfer an asset in joint tenancy between the principal and the attorney-in-fact.
5. The POA may exonerate the attorney-in-fact of any liability to the principal for breach of fiduciary duty, however the statute specifically exempts actions committed by the attorney-in-fact in bad faith or with reckless indifference.
6. The new statute specifies that it does not apply to a POA executed before October 1, 2012 or executed in a business setting.

     The Michigan Trust Code (MCL 700.7602 (5)) also contains language that with respect to a Trust the "settlor's powers with respect to revocation, amendment, or distribution of trust property may be exercised by an agent under a durable power of attorney only to the extent expressly authorized by the terms of the trust or the power of attorney".

     With the changes in the law, more thought and effort will be needed to determine what a client wants or needs with respect to the provisions drafted in the client's POA. These changes will become especially important if the POA is intended to be eventually used for Medicaid or other sophisticated planning. As always, a thorough review by experienced advisors is highly recommended..

Alan Ferrara

The Importance of Talking about your Estate Plan

     One of the more difficult aspects of working with clients to develop their estate plan is helping clients become comfortable discussing their goals and concerns for what happens to their estate after they pass away. This comfort is important because it is impossible to draft documents that truly achieve the client's goals when the client is unable to articulate those goals. Once clients have an estate plan it is also important that they become comfortable discussing that plan with those people whom they have trusted with its administration.

     After going through the initial process of creating an estate plan, many clients put those documents in the drawer and never mention them to their children to the people they have named in the documents to make decisions, except perhaps to tell them where the documents are located. This failure to discuss the client’s posthumous wishes can cause unexpected difficulties in administering an estate and hurt feelings of beneficiaries who do not understand why their parents made certain choices. For example, a client may choose to provide that assets are held in trust for their grandchildren as opposed to making gifts to their children. This may leave the children wondering if they've done something that made their parents reluctant to trust them, when the clients goal was to remove the burden of saving for college costs from their children in order to make their lives easier.

     In another scenario, a client may choose one child over the others to act as Successor Trustee. While the parent’s goal was to appoint the child who could most efficiently administer the estate, perhaps due to geographic location or flexibility of their schedule, the children are left wondering what they did “wrong.”

     The reasons clients have for distributing their wealth the way they do are as disparate as the number of estate plans. By taking the time to discuss an estate plan with the successor designees and beneficiaries who will be administering benefits from that plan, clients provide guidance and clarity that helps their loved ones achieve the clients' underlying goals.

     Estate planning is a ongoing process and communication is a major part of the process. While clients may not wish for their beneficiaries to know the full scope of the bequests made in their documents, by taking the time to discuss the scope and reasoning behind an estate plan clients can influence the lives of their beneficiaries with more than the monetary impact of their gifts.

Matt Ferrara

Potential Problems with Joint Ownership

     Occasionally we speak with someone who believes they have taken care of the bulk of their potential estate planning issues by including their children as co-owners on their bank accounts or other investment assets. Since assets only pass through the probate process if owned solely by the deceased, these clients have indeed taken steps to minimize their estate's exposure to the Probate process. However, these clients have not considered the potential downside of co-owner arrangements.

     Adding children as co-owners of real property or bank accounts avoids the need for those assets to pass through Probate, but it also gives those children the opportunity to make use of those assets in whatever way they see fit. While parents may make their children co-owners of accounts with the best of intentions, unexpected events arise that can result in the child making use of funds that their parent relies on for day-to-day expenses. Even without the child accessing the funds for their own needs, the account may be subject to the claims of the child’s creditors, thus creating the potential for even greater loss to the parent. Even if there are no problems during the parent's lifetime, co-ownership situations can create problems following the death.

     Presume a parent intends to split their estate between three children, but names only a single child as the co-owner of the bank account that holds the bulk of their estate. Following the parent’s death, that single child is the sole owner of the bank account and has no legal obligation to share the assets contained in the account with siblings. Even presuming that the child desires to follow their parent’s wishes to share the assets in the bank account, distribution of those assets now has tax implications for the child, as opposed to the parent's estate. Some clients understand these negatives, but believe that naming their children as co-owners of an account is unavoidable for other reasons.

     As parents age, circumstances often require a child to assist their parents in the budgeting and bill paying process. If this assistance reaches a point where the child is handling most of the check writing, parents commonly add the child as a co-owner on the account for everyone's convenience. This change, while seemingly innocuous and beneficial to the parent, creates the potential for  the problems discussed above. Thankfully, simple estate planning techniques can easily avoid all of these problems and allow children to assist their parents with the minimum of effort.

     By executing an Immediate Durable Power Of Attorney, a parent can give their child the ability to manage the parent’s finances without becoming co-owners of an account. This allows the child to assist their parent with bill paying while protecting the account from the child's creditors. The same result is achievable by changing the ownership of the bank accounts to the name of the Living Trust and naming the child as a current co-trustee. The additional benefit of using a Living Trust is that assets held in the name of the Living Trust do not pass through Probate after the owner’s death.

     Any time an individual gives another person the authority to act on their behalf, there is the potential for abuse of that authority. This is one of many reasons it is important to consult an experienced estate planning attorney before executing documents that grant someone else the authority to act on your behalf. If you have specific questions regarding the use of Powers of Attorney or Living Trusts for you or one of your clients please feel free to contact us directly and we will be happy to answer your questions. 

Matt Ferrara

Discussing Planning and Finances with Loved Ones

     Discussing estate planning with clients can be particularly challenging, as people are frequently reluctant to contemplate their death or to discuss the state of their personal finances. This discussion likely is more difficult when it occurs between an aging parent and their adult child. As parents age it, becomes more and more important for adult children to understand the state of their parents’ planning or lack thereof. While such discussions may be difficult, they can be the difference between a smooth estate administration and months of problems in a probate court.

     Discussing estate planning is much more than simply learning whether a Will or Trust exists. This does not mean that parents need to share those documents with their adult children, but it is advisable that adult children know the location of the documents, who is designated to handle their parents’ affairs, and contact information for their parents’ attorneys and advisors. It is also important for adult children to know if their parents have other documents to address lifetime issues, such as Durable Powers of Attorney, Patient Advocate Designations, and Living Wills. This knowledge sets the stage for a larger discussion of the parents' finances. This discussion is important because an organized list of assets, income, and expenses allows the people named under powers of attorney or designated to administer the estate to handle the parents’ finances efficiently. As with the discussion of estate planning, this discussion does not need to include a complete disclosure of the parents’ finances. It should at a minimum result in the parent preparing a list of information that includes:

• Information on all bank and investment accounts
• Information on all sources of income, including annuities, IRA, retirement accounts, and Social Security
• Information on all regular expenses, including utility bills, mortgages, car payments, regular donations
• Contact information for financial advisors, insurance agents, and attorneys

As with the estate planning information, the parents’ should keep this list of financial information where it is readily accessible and the location known to those people designated to make decisions or administer the estate.

     Having a discussion with parents and other loved ones regarding the state of their planning, their finances, and organization is never easy, but the information gained from such a discussion makes all the difference when it comes time to administer an estate or make decisions on behalf of a loved one. It is all too common for client to meet with us to prepare an estate plan after experiencing the results of handling a parent’s estate without a plan. It is important for clients to share this information with their loved ones after executing documents and to address these issues with their parents to avoid future issues.

Matt Ferrara

A Lifetime of Planning

     Many perceive estate planning as a tool older, wealthy individuals use to protect their assets. While estate planning offers clear benefits to the very wealthy, a better explanation of estate planning is that it is a lifetime process with different benefits for people of different ages and situations. Many of my clients are surprised when I suggest that the most appropriate time to begin the estate planning process is when a person reaches age eighteen.

     When children reach eighteen, they are legal adults  under Michigan law, and their parents no longer have the authority to make legal and medical decisions on their behalf. By beginning the estate planning process at this time, the newly designated adult can execute a Durable Power of Attorney and Patient Advocate Designation that allow parents to continue to make legal and medical decisions in the event of incapacity. This initial step of estate planning introduces young adults to an attorney and provides them (and their parents) with peace of mind knowing that mom and dad can still help them if needed

     As these young adults move through the next few years, complete their education, join the workforce, and begin to accumulate assets, the estate plan that started with only lifetime documents protecting on incapacity then expands to include a simple Will. At this time the client learns about the probate process and begins to understand how proper planning will make things easier for their loved ones should something happen to them. It also helps to remind the young adult of their own mortality and the importance of preparing for the future.

     As the client marries and starts a family,  their planning expands at the same time as the family. Wills become more complex and include guardianship provisions to protect minor children. Additionally, the attorney-client relationship grows, giving the client access to the attorney's advice regarding employment issues, assistance in starting businesses, and referrals to financial advisors.

     As a married couple’s assets and family continue to grow, at a certain point it will make sense to include a Living Trust in their estate plan. By this time, the couple has experience with their attorney and with estate planning. They are equipped to understand the benefits of expanding their estate plan. From this point forward, as the client’s life changes, their long-standing relationship with their estate planning attorney provides them the opportunity to learn about more advanced techniques if those techniques are relevant to their personal and financial situation.

     When a client treats estate planning as a lifetime process, the client develops a sense of the importance of estate planning at various stages of their life. It can also provide a peace of mind that loved ones are protected in the event of unexpected illness or death.  By establishing a relationship with professionals while they are still young these clients can avoid expensive mistakes in the future.

     For planning to be successful, both the client and the attorney must be engaged in the process on the long-term basis. If either the attorney or the client treats estate planning as a "one-time event", long-term benefits and protection of estate planning will be missing. If both the client and the attorney are proactive in developing the relationship, the client will enjoy the benefits of the long-term planning and the protection and peace of mind that goes with it.

Matt Ferrara

Beneficiary Designations as Part of an Estate Plan

     Recently I sat down with the client who came to see me on the advice of his children. This client had more than a passing familiarity with estate plan documents and came to our meeting prepared to reject most of my advice for updating his estate plan. The client's primary argument against needing even a simple Will was his use of beneficiary designations naming each of his children as the beneficiary for various assets. As I reviewed the situation, the client's beneficiary designations were mostly correct and he had done a good job of naming primary and contingent beneficiaries for his major assets. We still decided to draft a simple Will to help organize the process of probate, but that got me thinking about the effectiveness of beneficiary designations in general.

     In most cases, beneficiary designations are the simplest manner of passing an asset at death without the need for that asset to pass through the Probate Court. Life insurance beneficiary designations, retirement plan beneficiary designations, and even "TOD" (transfer on death) designations used by banks circumvent the probate process. While this is a simple method, frequently requiring only the completion of a form, it may not be the most effective method. Due to the contractual nature of beneficiary designations, the institution holding the assets pays them directly to the named beneficiary. Unfortunately, there are scenarios where this will not happen smoothly, and the courts will become involved anyway.

     For example if your named beneficiary is incapacitated, a court-appointed Guardian or conservator will be required in order to take control of the assets. The same is also likely true if the designated beneficiary is a minor, because all financial institutions seek to avoid the potential liability of paying out to a minor, or even to a parent of the minor for the child's benefit.

Even if the beneficiary receives the assets directly from the financial institution there can still be many unintended consequences. The beneficiary of a tax-deferred retirement account may decide to cash out the asset immediately instead of taking advantage of the tax benefits of a long-term payout.

     Other designated beneficiaries may have creditor problems that consume their entire inheritance.. A spouse in divorce can reach assets received. For beneficiaries receiving federal government benefits, the sudden influx of money will likely cause the beneficiary to lose benefit eligibility.

     Frequently when we discuss beneficiary designations with our clients we recommend naming their Living Trust as the beneficiary so that the protections of the Trust extends to all of the client assets, and the Trust can act as a clearinghouse for the assets. This allows the Trust's "spendthrift" and "incapacitated beneficiary" clauses to protect the beneficiaries whose personal or financial situations might be otherwise disadvantaged by a sudden influx of money.

      This is not to say that beneficiary designations naming individuals are an ineffective form of estate planning. However, anyone relying on beneficiary designations to achieve their planning goals should take the time to review those designations and confirm they have not missed any major assets and that all contingencies are covered by those designations. As with the client who inspired me to consider this topic in the first place, it is also always advisable to execute at least a simple Will to organize the probate process and ensure that any assets passing through the Probate Court go go to those beneficiaries the client prefers.

Matt Ferrara

Dealing with Digital Assets

     In previous posts, we addressed handling tangible personal property after the death of the owner. However, in a world where a person's online presence increases on a daily basis, it is just as important to plan for the distribution of digital assets and securing a person's online presence after death. An online presence includes access to bank accounts, paying bills, viewing photos uploaded to Facebook, and any other online service.

     Certain services, such as Facebook and more recently Google, have begun to take steps to address what happens to their user’s information following that user’s death, and how a personal representative can gain access to such information. In the coming months and years, other services are very likely to follow suit, but this leaves a patchwork of different private organizations dictating the rules for handling an individual's personal information.

     One method to address this piecemeal collection of rules is to include specific language in a Will and Living Trust giving the designated representative under those documents the authority to gain access to online accounts. This is an untested and unknown area of law, but there is substantial legal basis for service providers to work with the personal representative to deal with digital assets.

     A second, and perhaps more practical approach, is to keep a careful record of login information and passwords in a location known to the designated representative, so that in the event of the owner's death, accounts and information are accessible. One commonly used method for creating this repository of passwords is the use of a cloud storage service, such as Google Drive, Dropbox, or  Amazon Cloud Drive, to store a document containing all the logins and passwords. The person then leaves the password to access that cloud storage service in a location with their estate planning documents or known to the designated representatives. While this method has a small chance of creating a security problem if the cloud storage service suffers a security breach, it is the most efficient way to keep track of the ever-growing number of logins and passwords used on a regular basis.

     One way to minimize security concerns is to ensure that the passwords you use, for sites you access regularly and for cloud storage services are strong. Many sites online can provide you with advice on creating strong passwords. My personal favorite is xkcd.com, which demonstrates how to create strong passwords using this comic at its website. Microsoft also provides a tool for checking password strength.

     Our online presence is unlikely to decrease in the coming years, and therefore it is important that we spend as much time securing our digital assets as we spend securing our tangible ones.

Matt Ferrara

Simplifying Estate Planning

     Our last two posts discussed the increase in the applicable exclusion to $5,250,000, which vastly reduces the number of estates with potential estate tax liability, but makes for the possibility of problems for surviving beneficiaries if older estate plans are not updated. At the same time, under the other circumstances, the new estate law allows couples to simplify their estate plan significantly. 

     A common practice, because of lower applicable exclusion amounts in prior years, involved each spouse having a Living Trust and splitting the couple’s assets between the two Trusts. Using this strategy, each spouse’s Trust protected the applicable exclusion amounts at their death and there was only potential tax liability on the second death if the estate exceeded twice the applicable exclusion amount. 

     With the permanent applicable exclusion at $5,250,000 increased annually by the cost of living, couples who expect they will always have less than that amount may decide to simplify their planning by changing to one Joint Trust, where both parties control all the assets during their lifetime and the survivor of them controls all the assets until their death. This simplification is effective where both parties trust each other and where both spouses agree on the final takers under the trust. In these circumstances, the couple only requires one trust and all assets can be funded to that trust to minimize documentation, investment statements, and administration. 

     We would be remiss if we did not remind readers that even if the non-marital trust is not needed for estate tax purposes, the non-marital trust has significant benefits. If the typical marital/non-marital share is kept in place, the surviving spouse’s creditors cannot reach the principal of the non-marital share because it is irrevocable and the spouse cannot change or control the principal. The spouse can use the trustee and the trust terms as a shield against a possible new spouse, while still being able to use the trust income, preserving the principal for children and other loved ones. Additionally, if children are prone to asking for money, the non-marital trust allows the surviving spouse to say “no” due to their limited access. The trustee can also protect from children badgering mom or dad for money prior to the death of the second spouse. 

     Even without a tax concern, the non-tax reasons for maintaining two trusts continue to factor into the planning discussion. A client’s goals and concerns regarding asset protection, divorce and remarriage protection and protecting children remain important. Before making any changes it is important to discuss all aspects of a client’s situation and collaborate with the client’s other financial professionals to avoid costly errors.

Alan Ferrara

Why a Will is only Part of an Estate Plan

     Prospective clients will sometimes arrive for our initial consultation convinced all they need is a simple Will to have a complete estate plan. Sometimes a Will may be all the client needs, but more often after a review and discussion of their situation, we recommend the inclusion of a Living Trust. After explaining how Wills and Trusts work and their benefits, clients will occasionally comment that Wills and Trusts seem to serve the same purpose. Today’s blog addresses the ways that Wills and Trusts vary. 
     While both a Will and Trust can set up provisions for the distribution of a decedent’s assets, there are significant differences. The biggest difference between a Will and a Trust is that property passing to beneficiaries through a Will must pass though the potentially long and expensive Probate process, while property passing via a Trust does not. This is because Probate only attaches to property owned individually by the decedent. A Trust is a legal entity separate from the individual (even though the Grantor totally controls the Trust during lifetime), and cannot die, and therefore assets owned by the Trust almost never require the intervention of a court to facilitate transfer. 

     Before any actions are taken with assets passing through a Will, the Probate must be opened and the Court must approve the Personal Representative. This can take time and create problems if any decisions need to be made quickly. While a Will provides directions as to what happens to assets, the Probate Court stays involved and confirms the Personal Representative’s actions are appropriate and the assets are accounted for properly. A Trust, on the other hand creates a contractual relationship between the Grantor, who creates the Trust, and the Successor Trustee. The Grantor specifies in the Trust the beneficiaries who are to receive assets, when they are to receive assets, and the powers given to the Trustee to administer the Trust provisions. That relationship functions without the intervention of the Probate Court.

     Another difference between a Will and a Trust is that a Will only functions following the death of the person who executed the Will. The Trust on the other hand functions from the moment of its execution. This means that should something happen to incapacitate the Grantor, a successor Trustee can immediately step it to care of the Grantor’s assets and use those assets for the Grantor’s benefit. A Will does not provide this benefit, and absent a Durable Power of Attorney or the Probate court appointing a Conservator, assets may be inaccessible. 

     Estate planning is a personal activity and each person’s circumstances are unique. The insight of an knowledgeable attorney can be the difference between an easy transition following a death and a long drawn out probate process.

Matt Ferrara