Estate Planning Opportunities Created by the New Tax Law

The Tax Cuts and Jobs Act (“The Act”) passed by Congress and signed by the President at the end of last year included significant changes in the Estate and Gift tax provisions of the Internal Revenue Code that open planning opportunities for limited time. For clients looking to insure their estates take advantage of every opportunity it is now time to review whether more advanced planning strategies are appropriate.

With the adoption of the Act, Congress changed the Estate, Gift, and Generation-Skipping Transfer (GST) tax exemptions under the Internal Revenue Code. The prior law exempted the first $5 million (as adjusted for inflation in years after 2011) of transferred property for each taxpayer from Estate and Gift Tax. This allowed a married couple a total exemption of  $10.9 million of assets in 2017.

Under the new law, for estates of decedents dying and for gifts made during lifetime after December 31, 2017 and before January 1, 2026, the exclusion amount is doubled from $5 million to $10 million (again as adjusted for inflation occurring after 2011) and is expected to be approximately $11.2 million per person or $22.4 million per married couple in 2018. The Act does not make changes to the tax rates for Estate, Gift, and GST, which remain subject to a maximum tax rate of 40 percent. Additionally, the current basis step-up under Code §1014 for property inherited from a decedent remains in place.

Despite the early discussions regarding the Act, it is important to note that there is no provision in the final legislation for ultimate repeal of the Estate, Gift, or GST taxes, and the increased exemptions remain in place only until December 31, 2025, at which time they revert to the current $5 million level (indexed for inflation).  These circumstances open a significant, once in-a-lifetime opportunity for clients with estates above the above the exemption limits to protect more assets from taxation. Some clients may be tempted to take a wait and see attitude given that the new limits do not expire until December 31, 2025, but delaying this discussion comes at their peril as the tax legislation may be modified significantly if the 2018 midterm elections or 2020 Presidential election bring changes in the control of Congress and the White House. In addition, although death is inevitability, none of us knows when, so planning is important.

The tax changes, when combined with valuation discounting, open the door for strategies that can shield significant assets from Estate and Gift taxation through the use of direct gifts, gifts in trust, and gifts of business interests (such as family partnerships, LLCs and corporations). Such gifts will also shift future appreciation of the assets to children and grandchildren, who may also be in lower tax brackets for income tax purposes. It is also possible to make use of legislation adopted in 2017 by the Michigan legislature to create self-settled trusts which are likely to provide creditor protection and allow clients to take advantage of the higher exemptions. 

While clients may initially be reluctant to make larger gifts immediately, a review of the options and strategies to protect assets from Gift or Estate tax while still providing some control of the assets should be considered immediately. As always, the tax rules are complex and retaining attorneys experienced in complex estate planning is important because errors in implementation of sophisticated strategies can be very costly if done incorrectly.

Al and Matt

Estate Planning that Grows with the Family

Since restarting the blog, we focused on the basics of estate planning with an emphasis on how the documents work. Our next few blogs will focus on the how having an estate plan can be a benefit under a variety of circumstance. All of these examples come from our work, though we have changed the details to protect attorney-client privilege.

As part of an estate plan, a Living Trust provides substantial flexibility to evolve over the lifetime of a client. Take for example Amy and Brian who began working with us shortly after they had their first child Cassie. At that time, both Amy and Brian were young adults with no particular health concerns, so their initial estate plan addressed what would happen to Cassie if Amy and Brian both died. We designed a plan to take into account the next 3-5 years, as in that time it was likely that Amy and Brian’s lives would continue to change.

We drafted Wills for Amy and Brian, primarily to Appoint Guardians that ensured Amy and Brian chose who would raise their child in the event of their deaths. We also established a Living Trust that contained broad general authority for a successor Trustee to provide for Cassie’s financial well-being in the event of Amy and Brian’s death. The Living Trust also contained provisions for distributing any remaining Trust funds  to Cassie when she reached age 25. Finally, we worked with Amy and Brian to “fund” their Living Trust making sure that their home, bank accounts, and mutual fund accounts were all owned by the Living Trust.  We also made sure that their life insurance and retirement accounts named the Living Trust as a beneficiary. This funding ensures that in the event of Amy and Brian’s deaths the Trustee would control all of their assets without any probate.

This “simple” plan ensured that the Probate Court would have no part in administering Amy and Brian’s assets, that Cassie (and her Guardians) would have funds to provide for her care, and that upon reaching age 25 Cassie would receive the remainder of her inheritance outright and free of trust. While this plan did not consider  every possible contingency, it did create a groundwork for protecting Cassie in the event of Amy and Brian’s unexpected deaths and built in Trustee flexibility. The plan also created the groundwork for more expansive planning as Amy and Brian’s lives changed.

Over the next fifteen years, Amy and Brian’s lives changed substantially. Three years after our initial meeting Cassie got a little brother, David, five years after our initial meeting Amy and Brian bought a new home, and ten years later Brian’s mother Edna moved in with Amy and Brian after the death of her husband. As these changes occurred in Amy and Brian’s lives we assisted them in making small changes (to ensure that assets were split between Cassie and David), kept funding up to date (by making the Living Trust the owner of their new home), and made significant changes to their trust to address their role as caregivers for Edna.

Throughout the years, we amended or restated Amy and Brian’s initial Living Trust, making the desired changes without needing to re-fund all of their assets. We additionally were able assist them in adding assets to their Living Trust as they acquired those assets over the years. Had it been necessary, we could also have changed the people named as successor Trustees or Guardians.

It has now been twenty-five years since we began working with Amy and Brian, their children are adults, and as we review their planning they continue to have options. We always hope that our client’s families thrive without problems, but if Cassie or David appeared to have risk factors that a sudden influx of wealth could exacerbate, Amy and Brian could adjust the distribution terms of the Living Trust to allow their successor Trustees more authority over funds. As it is, Cassie and David have done well for themselves and in their most recent documents Amy and Brian decided to name their children as their successor Trustees and distribute all of their inheritance to them immediately.

This example of a “simple” plan that evolves through a client’s lifetime demonstrates the flexibility of estate planning to adapt to changing circumstances. Over the next few blogs, we will lay out how a Living Trust can protect clients and their loved ones over more complex circumstances. We implore you to remember our warning that a Living Trust is a complex legal document and it is important that you work with an experienced attorney and not attempt to DIY a document designed to protect your family’s future.

Matt and Al

'Tis the Season for Gifting

Since restarting the blog we have focused primarily on basic estate planning concepts, explaining the various documents and how they work together to create a plan to address the uncertain and unexpected changes that come along during life. Over the next few blogs we are going to move into some more complex planning issues and address how they can be part of an estate plan. In the spirit of the season, we will start with the topic of gifting.

Any time of the year, but especially during the holiday season, clients often consider how they can help their loved ones by gifting cash or other property to them. Obviously the inclination to gift is important, but in the context of estate planning, gifting is generally associated with the tax implications of transferring assets, be it money, real estate, business interests, or any other property. The tax implications of gifting are a pressing issue because the Internal Revenue Code (the “Code”) imposes a Gift Tax on any gifts above a certain level.
The Code treats gifts during lifetime and at death in a similar manner considering them both transfers of wealth that may be taxable if the gifts exceed a certain value. The general rule is the Code imposes a tax on the transfer of wealth, but there are a number of exceptions to the general rule. First, gifts to a spouse are not taxed, unless the donee spouse is not a U.S. citizen. Second, gifts to anyone (relatives or otherwise) to pay for education or medical services are also exempt from gift tax as long as those gifts are paid directly to the school or provider. Third, there is an “Annual Exclusion” amount that allows a person to make as many gifts as they want, to as many people as they want, as long as the total gifts to a single person in a year are under a certain amount known as the Annual Exclusion (currently $14,000.00 and rising to $15,000.00 in 2018).

If a gift to any one person exceeds the value of that Annual Exclusion it counts against the giver’s Unified Credit which can be used during lifetime or at death. The Unified Credit translates into an “Exclusion Amount” which is currently $5,450,000.00 and set to rise to $5,600,000.00 in 2018. The Exclusion Amount can be used to protect transfers at death from Estate Tax or gifts during lifetime from Gift Tax. Each dollar of the Exclusion Amount used by a person during their life reduces their Exclusion Amount at death. If a married person does not use their full Exclusion Amount during lifetime or against Estate Tax at death their surviving spouse can add any unused portion of that Exclusion Amount to their own Exclusion Amount. The result of all of these exclusions is that a married couple can give away in excess of $11,000,000.00 in their lifetime without ever paying any tax on those gifts, which currently make the Gift Tax a very low impact tax, except in the case of high net worth individuals. Congress is currently debating changes in estate and gift taxation. If changes become law, we will discuss this then.

Because for the majority of the population has little worry about making taxable gifts, why is gifting a concern in estate planning? In our experience, issues with gifts revolve more around the personal impact of gifts to the donee rather than the legal impact. People commonly express concerns about gifting different amounts to different children, the impact of making gifts to children who may not make good use of the assets, their own financial security if they choose to make gifts, and the impact of gifting on other aspects of planning, including Medicaid. The stress and anxiety of these questions frequently outweighs a person’s concern about writing a check or turning over control of another asset.

When assisting clients navigating these issues we focus first on the client and ensure that the gifting is both the client’s desire and that the gift will not have a negative impact on the client, either currently or long-term. We remind our clients that they worked hard to accumulate the assets they have and that they should not give away anything that would result in a negative impact to their own lifestyle. Once the client is comfortable their own needs are taken care of, we can then discuss with them their particular situation on how to make gifts to assist loved ones, yet attach strings to protect against the known failings of those loved ones.

It is possible to use Trusts to make gifts to children or grandchildren, but place limits on the use of those gifts and also protect those gifts from creditor problems. One can also structure an intra-family loan that uses gifting to return loan payments to children at the end of the year (or simply provide children with the funds to make the loan payments). It is possible to structure the terms of a Living Trust to take into account gifts made to beneficiaries during lifetime and offset distributions from the Living Trust by the value of the lifetime gifts so that children ultimately receive the same distributions whether during their parent’s life or at death.

Gift planning, as with any other type of tax planning, should never let the “tax tail wag the dog”. By this we mean while it is important to consider the tax ramifications of the gift, it is more important to make sure the gift makes sense after a sound analysis, and then consider strategies enabling the avoidance of taxation. As we always stress, working with an attorney experienced in the legal obstacles and solutions is critical to avoiding mistakes and unanticipated consequences.

Matt and Al

Having a Trust is Half the Battle

As we discussed when we wrote about Living Trusts, one of the benefits of a Living Trust as part of an estate plan is the ability to change the distribution terms of the trust without needing to make changes to all of the assets. Once assets are funded to a trust they remain part of the trust property until they are specifically removed. This raises the question, what does it mean to fund assets to a trust? The funding of a trust requires making the trust the owner (or beneficiary) of an asset. This may sound simple but it is an aspect of estate planning that is often lacking, even with people have taken the time to prepare all of the documentation. Any assets not funded will be required to go through the probate process before the assets can be transferred to the trust and be administered and distributed pursuant to the terms of the trust, Depending on the assets requiring probate, the process can be relatively simple, but may be complex and require a lot of time and fees before the assets reach the trust.

Some assets are very easy to fund to a trust. For example, tangible personal property (including pots, pans, furniture, jewelry, etc.) is assigned to a trust with a one page document that declares those assets are property of the trust. This Assignment even works prospectively so that as a person acquires more “stuff" it all becomes property of their trust. The Michigan Probate Court has accepted these assignments of personal property as transferring assets of trust and therefore not requiring they be probated. Assignments are also commonly used to transfer ownership of business assets, such as L.L.C. Member Interests and partnership to the trust, though in that case it is necessary to review the terms of the company’s Operating Agreement or Partnership Agreement to ensure that those transfers are allowed under the entity’s controlling documents. Transferring stock of a corporation requires the canceling of an old stock certificate and the issuance of a new stock certificate in the name of the trust.

For bank accounts, investment accounts, stock, bonds, and other intangible financial assets a person must generally contact the company that holds the assets or accounts and inform that company of the person’s desire to transfer ownership of the asset to a trust. Many companies have specific types of accounts to hold assets owned by a trust so that the company follows the proper procedures when there needs to be a change of trustee. In most cases this change is simple, requiring a bit of paperwork and providing the company with proof of the trust’s existence (in the form of a Certification of Trust). Occasionally there will be additional requests for information about the trust because a company has particular record keeping requirements. While these requests are common, no company should need a full copy of a trust in order to allow a transfer of an asset to that trust. If a company does ask for such information it is best to have them communicate with the attorney who drafted the trust to ensure that you privacy is maintained and the company follows the law.

While funding a normal investment account to a trust is simple enough, it is important to remember that retirement accounts (IRA, 401k, 403b, etc.), operates differently and must be funded differently. Since you cannot generally change the ownership of a retirement account without negative tax consequences, you must change the Beneficiary Designation on the account in order to fund it to the trust. For married couples it is usually best to name a spouse as the Primary Beneficiary, because a spouse can “roll over” a retirement account into their own name at the death of the first spouse, and delay taking distributions until they reach age 70½. Naming a trust as a Contingent Beneficiary is often an excellent tactic to minimize the number of people involved in administering assets after death and to potentially create better creditor protection for beneficiaries (we will talk more about this in the future). Ultimately, the decision about whether to fund retirement assets to a trust is one that should be discussed with the attorney who drafted the trust and a trusted financial advisor. These people are best equipped to understand the circumstances and help you make good decisions.

A third major asset that needs to be funded into a trust is real estate. This includes primary residences, vacation property, vacant land, and any other buildings you might own. These transfers are made through the use of deeds that are recorded with the County Register of Deeds. The exact form of deed used may vary by circumstance, but again this is an area of trust funding where an experienced attorney’s assistance can be invaluable. That attorney should not only be able to recommend the proper form of deed, but also prepare the deed so it is ready to sign in conjunction with the estate plan and handle the recording of the document with the county.

There are many different types of property that need to be funded to a trust, so it is impossible to discuss them all here today, but as we have recommended repeatedly in this blog the help of an experienced attorney can be invaluable. If a person only receives a set of documents and brief instructions on the need to fund assets to the trust they are being done a disservice. In those circumstances, people frequently fail to fund to the trust and then probate remains necessary after the person’s death. Trust funding is as important to the estate planning process as the documents. Keep in mind that trust funding is part of the estate planning process. It is ongoing and must be updated as a person acquires new assets to ensure a smooth administration of the trust.

Matt and Al

Exactly What is a Living Trust?

Since restarting the blog we have mentioned Trusts as part of estate planning but have not explained what a Trust is, how it works, and the different types of Trusts. Trusts are a useful tool in assembling an estate plan, and one we frequently recommend for a variety of reasons. Most of the time when discussing Trusts we are referring to Living (also known as Revocable) Trusts. In the context of Trusts, the terms “Living” and “Revocable” both mean that the Grantor (Signer) of the Trust may change the terms of the Trust after it is initially executed. We use Living Trusts in estate planning, because a Grantor can amend or restate their Living Trust as needed when the Grantor’s circumstances change. Under most circumstances, a Grantor can change a Living Trust at any time up to their death, at which time it becomes an Irrevocable Trust and the terms cannot be changed (Irrevocable Trusts are different from Living Trusts in many ways but we will discuss those at a later date when we write a blog on Irrevocable Trusts).

A Living Trust is a written document that establishes a legal entity, similar to a Corporation or L.L.C., which owns property on behalf of a person, which is the Grantor while alive and the Trust Beneficiary after the Grantor has died. The person responsible for managing the property the Trust owns is the Trustee. A simple way to look at a Living Trust is to imagine a large empty bucket that Mr. and Mrs. Jones (the Grantors of the Trust) create by signing the Trust document. The document provides that Mr. and Mrs. Jones are the Grantors of the Trust and name themselves as initial Trustees who get to control what goes into the bucket. As Grantors and Trustees they get to transfer assets into and out of the bucket at any time, and as the beneficiaries of the Trust during their lives they get to use the assets in the bucket however they wish. This collection of circumstances means that there is almost no difference between the Joneses owning the property and the Jones Living Trust owning the property. In both cases, the Joneses can do anything they want with the property.

During their lives the Joneses put all of their property in the bucket, including, homes, bank accounts, investments, and other personal property. They can also provide that assets with beneficiary designations, such as insurance policies and retirement accounts, can designate the Trust as the beneficiary. When the Joneses die, the Trust Document provides detailed instructions of how the assets in the bucket are to be administered. The first instruction is a list of people who can pick up the bucket (the Successor Trustees). The Successor Trustees then pick up the bucket and follow the rest of the Joneses instructions regarding how the property in the bucket is to be distributed.

A major advantage of a Living Trust in the context of estate planning is the ease with which a Successor Trustee can take over the management of the Trust. If you recall from our early posts, when a person owns property at their death, that property must pass through the Probate Court before anyone can do anything with the property. This is not true for a Living Trust, because a Living Trust is not a person and the Probate process only affects individuals. Instead, the named Successor Trustee (or Trustees if more than one person is named to act) sign an affidavit know as a Certification of Trust and present proof that the previous Trustees are unable to act (usually in the form of a Death Certificate). With those two documents, the successor Trustees can take over the administration of the Living Trust.

Now the successor Trustees still have a fiduciary duty to act in the best interests of the Beneficiaries, meaning that the Successor Trustee must administer the Trust in the best interest of the Beneficiaries and never for their own advantage. The successor Trustees need to take control of the Trust's assets, prepare an inventory of those assets, provide notice to creditors, pay outstanding bills, and handle tax related matters, all before making distributions to the Beneficiaries. However, unlike with a Will, a successor Trustee does all of these things without the supervision of the Probate Court.

While this improved ease of administration is great in general, it is even better when dealing with minor Beneficiaries or Beneficiaries suffering from a legal incapacity or financial immaturity. In cases such as this, a Trust allows the Trustee and the Guardians named to care for those Beneficiaries to work together to ensure there are sufficient assets available to care for the Beneficiaries without the need to report to the Probate Court on a regular basis. This eliminates much of the cost of administration and retains more assets for the care of the Beneficiaries. The Trust can also be used to distribute assets over time to those Beneficiaries who do not have the financial maturity or discipline to manage the assets themselves.

We hope that this simple explanation of Living Trusts helps you to understand how a Living Trust can fit into an estate plan. There is a great deal of information that we just cannot fit into a blog that is less than 1,000 words so please check back for further explanation on the subject. Also remember, a Trust is a complex legal document and must be drafted correctly to function as intended. It is always best to consult with an attorney experienced in estate planning before attempting to make use of a Trust, because as with most subjects, you can find as much bad information as good information about the supposed benefits and drawbacks of Trusts.

Matt and Al

Estate Planning as a Process 2.0

We often refer to estate planning as a process, which confuses some people because they think that an estate plan is just a set of documents. The difference between those two philosophies is important because it gets to the core of how planning should work. When many people think of a plan they think about creating a set of instructions for dealing with a situation, with estate planning that means a set of instructions for addressing incapacity and death. The problem with this mindset, at least with respect to estate planning, is it does not address the changes that begin occurring in a person’s life immediately after signing their plan documents. While for some people those changes may be subtle and have little impact on their estate plan, for others it is important to make changes in the plan to address the changes in their lives. This is why estate planning needs to be an ongoing process.

For younger clients changes in employment, location, and relationship status are frequent motivations to update planning. Making sure clients properly fund new assets to Living Trusts is part of the regular review process. Assets to be funded can include everything from investment accounts to real estate, and consideration of beneficiary designations for IRAs, 401(k) accounts and life insurance policies is important. Events such as marriages and births of children require updates in planning to include these new important people as beneficiaries and designees.

As clients get older, the need for updates continues. A client's original designees for assisting in administrating estate planning documents also age and children become more mature. Many clients choose to update their planning to ensure their children are the primary decision makers. If children fail to mature as expected or encounter other problems, changes to distribution provisions allow the estate plan to evolve to protect those children in the event they need additional guidance.

As clients reach retirement, and beyond, regular review of a plan continues to be important to address the changes life brings. From periodically reviewing funding to ensure that all of the assets accumulated throughout life are titled correctly to ensuring that designees have the authority to address the unique challenges that come with aging, estate plan review can catch issues that become more pressing as a client gets older.

As you can see, no matter what stage of life a client may be in presently there are many changes that should cause them to update their planning. If an estate plan is just a set of documents they sign and put in a filing cabinet, those updates may not occur and cause problems in the event of an emergency. When estate planning is a process, where an experienced attorney works with you to review life events and update your plan accordingly, that plan becomes stronger with each review. Even if a review results in no immediate changes, open communication allows the attorney client relationship to grow and makes it easier on all involved to discuss some of the more challenging aspects of estate planning.

With the holiday season approaching and the end of the year on the horizon, now is a good time to take a few minutes to review current planning and reach out to trusted advisors to discuss the need for updates. For those without a current estate plan, it is also a great time to put a plan in place for the first time. No need to wait for a New Year’s Resolution, start the process now.

Matt and Al

Making Choices 2.0

Since relaunching the blog, much of our focus has been on ability for an individual (the Principal) to choose other people (the Designees) to have the ability to make decisions in the event that the Principal becomes incapacitated. For almost every client this gives rise to the question, "who should I choose?" As with all of the decision-making aspects of estate planning, the answer to that question lies with the person who is creating the plan. As advisors and counselors, we can provide some insight into that decision, but ultimately it is one that must be made by the client.

Many of our clients struggle with choosing a single individual to name as a Designee, sometimes out of concern that the responsibility will create too heavy a burden for one person to handle. The good news in these circumstances is it is possible to appoint multiple Designees to work together to serve in any given role. This means that two or more people may be named to work together, either by unanimous consent, by majority rule, or each acting independently, in order to manage the responsibilities of serving under a Power of Attorney, Will, or Trust. While naming multiple Designees is always an option, it may not be the most efficient way of managing affairs, as naming multiple Designees normally requires those individuals to work together to achieve results. Further, with respect Designees named to make medical decisions under a Patient Advocate Designation, we generally recommend that our clients name a single person to serve as the Patient Advocate at any given time, in order to avoid creating a situation where multiple Designees cannot agree on a course of medical treatment, so doctors require that the Probate Court name a Guardian to remove uncertainty. The goal of implementing a Patient Advocate Designation seeks to avoid the Probate Court, not create a situation that requires it.

We make clients aware that they have the freedom to name anyone they desire to serve as a Designee, but all too often clients delay estate planning decisions due to concerns about their Designees. A common worry is someone who is not named will feel disappointment or even anger because of their omission. In those circumstances we find it helpful to remind our clients it is in their own best interest to choose the people that they believe have the capacity to fulfill the responsibilities of the role, especially as it pertains to them. If that means that a single child is named as the primary Designee in all of the documents because the child is more responsible, so be it, because that child has the ability to manage the responsibility. If the person named as the Designee in the Power of Attorney for making legal and financial decisions is different from the Designee in the Patient Advocate Designation for making medical decisions, that too is acceptable because the goal of naming Designees is to have the people best equipped make decisions making those decisions. Ultimately it is important to consider the consequences of naming someone less capable simply to avoid hurt feelings. Under those circumstances most people are able to trust their instincts, name the individuals who will do the best job and have enough peace of mind to set aside the worry that someone not named will be offended.

The bottom line in all of this is that the Designees named in an estate plan are essential to the success of that plan. While it is possible to name multiple individuals to work together, that is not always the most efficient way to administer a plan. The success of the plan is the result of naming the best people for the job. These decisions are not always easy and every planning situation is unique, which is one reason why it is especially useful to work with an attorney experienced in estate planning. That attorney should take the time to assist and guide you through the process of choosing Designees that meet the standard.

Matt and Al

What's the Worst that Can Happen 2.0

"I need to take care of estate planning, but I keep putting it off. 

What's the worst that could happen?"

Estate planning is a mystery for many people, and they do not know where to start to unravel the mystery.  They are not sure what information they need to begin the estate planning process or what questions to ask. People have a vague understanding of what a Will is, and they have heard the terms Living Trust, Patient Advocate Designation or Power of Attorney, but do not understand what those documents do. They get the impression that having an estate plan is a good thing, but never truly understand how that plan can protect them and their loved ones. When those people speak with us, or other attorneys, and begin to learn more about the estate planning process, they are frequently relieved to discover that the process is neither as costly nor as time-consuming as they initially believed. But as they learn the benefits of an estate plan they also become curious about the consequences of not having a plan. Over the next two blogs we will review the consequences of failing to have an estate plan.  We can then move on to discuss the benefits of estate planning and specific strategies for various situations.

First, the good news, it is impossible to die without an estate plan. An estate plan, at its core, is a set of directions regarding the distribution of a person's assets at their death. The Probate Court is the government body responsible for ensuring that a person's directions are carried out. The most common tool for articulating these directions to the Court is a Will. The Will tells the Court who the deceased wants to distribute assets to and who should be responsible for making those distributions (the "Personal Representative" or PR for short). 

When a person dies without a Will, the Probate Court defaults to Michigan's intestacy (legal speak for “dying without a Will”) laws which imposes a distribution plan on that person's assets. This default plan can be sufficient for some people, but in many cases the intestacy laws create unfavorable results because there is no flexibility to distribute other than to “family” members in relatively equal proportions. 

The Probate process, when using the intestacy laws, is lengthy, public and cumbersome because the Probate Court must act as a decision maker and supervisor throughout the whole process. The Probate Court has the responsibility for approving a Personal Representative and then supervising the PR as he or she navigates the process of locating all of the deceased's property, handling claims from creditors, determining who is entitled to distributions, and finally making distributions. Throughout this time there will be multiple hearings, filings, and Orders needed to finally resolve the process and allow the appointed PR to make distributions. 

In a best-case scenario, where all of the heirs are adults, creditors are known, and there are no substantial conflicts among heirs, probate may be completed within 8 to 16 months depending on the efficiency of the PR and the Probate Court. If there are any issues with the estate, the probate process can be ongoing for several years. During that time, each visit to the court will have both a financial and time cost for the estate. In a simple uncontested Probate Court costs are likely to add up to 3 to 5% of the estate's assets. The longer the probate process drags, on the greater the amount of assets consumed by court fees and expenses.

When a person dies with a Will, the Probate Court is still involved in the transfer of asset but unlike an intestacy situation, the Court has clear instructions from the contents of the Will as to whom the deceased wants to serve as the PR and to whom assets are to be distributed. Additionally, through the Will, the deceased can request an informal probate of the estate, which dramatically simplifies the process. The informal probate process limits the number of hearings and filings needed in the event of an uncontested estate. While the Probate Court is still involved in the administration of the estate, the involvement is limited to a more supervisory capacity thus limiting the costs in time and money for the PR and the estate. 

This is only a brief synopsis of the differences between dying with or without a Will, one that does not even begin to address the problems that can arise if everything does not move smoothly. Additionally we have not discussed yet some of the other documents that may make up an estate plan which can simplify the administration and distribution process to eliminate the involvement of the Probate Court completely. Further, today’s post only addresses events after a person dies, estate planning also includes preparing documents, such as Durable Powers of Attorney and Patient Advocate Designations that simplify decision-making in the event that a person becomes incapacitated and cannot make decisions for himself or herself, 

 With all this in mind, it is important to remember that the "worst that could happen" will have very little effect on a person who fails to plan because they will be gone. The cost in time, money, as well as the stress and problems, will all fall on the shoulders of their loved ones, who are already dealing with a loss. The worst that could happen to them is potentially devastating but with some relatively simple planning it is possible to greatly decrease the issues and problems loved ones will need to address. 

Matt and Al

Why You Need an Estate Plan 2.0

Congress is currently engaged in the task of revising tax law, including provisions relating to estate tax. The current proposal calls for raising the estate tax exclusion amount (the threshold over which a person incurs estate tax liability) from the current $5 million per person plus annual cost of living increases to $10 million per person plus annual cost of living increase. Additionally the estate tax would eliminated entirely in 2024. While we am personally skeptical that this is a “middle-class” tax cut, whether the current exclusion is retained, doubled, or entirely eliminated, it will have no effect on the estate planning for 99.98% of taxpayers or our clients. 

Over the last 40 years there has been an overemphasis on trying to avoid estate taxes when talking about estate planning. This has fueled the misconception that estate planning is only for the wealthy who want to control their fortunes from beyond the grave and minimize the amount of taxes their estate might have to pay. The reality is, as the estate tax exclusion has increased over time and eliminated the concern of estate taxes for most people, protecting one’s family and avoiding the state probate process has become much more important. Estate planning creates your blueprint for taking care of your loved ones in those hardest of times after your passing, and taking care of yourself and the ones you love if you are incapacitated because of illness or accident.. 

There are four common documents that make up an estate plan, two of those documents address concerns about the "here" while the other two address what happens in the "hereafter." The "here" refers to a situation where a person becomes incapacitated and unable to make their own decisions while the "hereafter" documents address the administration of assets following a person's death. We will address each briefly in this blog and discuss each and more detailed in future blogs.

The "here" documents include the Durable Power of Attorney and the Patient Advocate Designation, which allow you to appoint others to make decisions for you in the event of sickness or incapacity. This ability is important because it allows a trusted family member or friend to make immediate financial, legal, and medical decisions if you become incapacitated, rather than having to go through a long and costly court process. 

The Durable Power of Attorney names a person who, usually upon your incapacity, has the authority to deal with your financial well-being, including arranging for payment of bills, filing insurance claims and lawsuits, and handling other business matters on your behalf. 

The Patient Advocate Designation appoints a person to make medical decisions on your behalf, up to and including “pull the plug decisions”. Anyone over the age of 18 should have these documents because absent the existence of these documents it becomes necessary to Petition the Probate Court for the authority to make financial, legal, or medical decisions on behalf of another person, this process can be time consuming and cumbersome especially when a loved one needs assistance immediately.

The “hereafter” documents, Wills and Trusts, are documents that serve to enforce your asset distribution wishes after your death. These documents create an organized distribution scheme for your assets that you can modify as your situation and assets change, and if funded properly, can avoid the cost and time delays of probate under state law. The similarities and differences between a Will and a Trust, as well as how they work together, will be discussed in greater detail in future blogs.

At this point, if your answer to any of the following questions is “yes”, you should consider estate planning: 

1. Do you have minor children? A Will and/or a Trust will allow you to name Guardians you are comfortable with to raise you children and ensure that any assets you can pass along to your children are used to their greatest advantage.
2. Do you have assets?  Whether the value of your assets is large or small, a properly drafted estate plan allows you to determine who will receive your assets and under what terms or conditions, rather than having your assets distributed pursuant to a state statute.
3. Do you want to determine who will be able to make legal and medical decisions on your behalf in the event you are incapacitated? Knowing who will make decisions on your behalf is very important because it allows you to guide those people with respect to the decisions you would want them to make. It also eliminates the stressful need to involve the Court when decisions need to be made promptly.

It should be clear that regardless of the size of one’s estate, proper planning is necessary for a number of reasons besides estate tax concerns. An attorney experienced in estate planning can answer your questions and help guide you in preparing a plan that fits your needs, being available to work with you to change your plan as your needs change, and being there to assist and guide your loved ones through those difficult times after your death.

Matt and Alan

Introduction to Plainly Legal 2.0

Estate planning is an area of law that is constantly evolving and adapting to a variety of influencing factors. While the impact of changes in the law are a significant driver of change in estate planning it is important not to underestimate the impact of judicial decisions and development of new technology on the field. Over the course of the last 20 years, we have seen a refinement of the law to address some of the issues that have arisen due to other societal changes during that time, but often it is the responsibility of estate planning professionals and their clients to attempt to resolve situations in the absence of clear statutory guidance. This ongoing evolution is one of the many reasons why we consider estate planning an ongoing process that requires a strong attorney-client relationship built over the course of many years. In the coming days and weeks we will be reviewing and revising many of our previous blog posts in order to update and improve the information contained on our blog and to begin addressing potential changes that could result from Congress's current push to reform the tax code.

We normally encourage our colleagues and clients to review their estate planning as the year comes to a close, this year is no different because, no matter what comes from the legislative efforts in Washington, changes in individual lives generally have a much greater impact on an estate plan than changes in the law. Regular review is essential to confirm that the terms of your estate plan still aligned with your goals for managing your affairs in the event of your incapacity or death. As often as a client contacts us to update a designee or beneficiary in their estate plan, we also hear from clients who need to make significant changes to their estate plan because the goals of their planning have changed over time. We hope that the information we provide to you through the end of the year will prove useful, answering your questions and concerns regarding estate planning and to assisting you in a review of the current state of her planning (or lack thereof).

As you read through our posts, if you find yourself stuck with questions that we have not answered or topics that you would like us to address, please do not hesitate to contact us directly and we will do our best to assist you.

Matt and Alan

New Year - Resolve to Review your Estate Planning

Today we reprise a New Year's blog from 2015 because we feel that it is important that planners and clients add a commitment to review and update their estate planning to their list of New Year's resolutions.

The importance of this resolution really struck home with me when I reviewed my own estate planning on New Year's Day and realized there were changes I wanted to make even though the most recent revision had occurred less than two years ago.

Our message from that 2015 blog continues to be relevant:

"While we all have full lives that often get in the way of planning, the beginning of a new year is a great time for our clients, friends, and me, to make a resolution to review or consider estate planning.   It is particularly important to: 

1.    Review estate planning documents especially if they have not been updated in the last two or three years. If you have no documents, it is time to consider getting them. Pay special attention should be paid to:

a.    Guardians named to care for minors in the event both parents pass away. If you have previously named guardians, are these still the people you trust?

b.    Distribution provisions for children and grandchildren --when should they receive money and how much?

c.    People named to act as trustees and personal representatives after your death to protect your children and other loved ones. Are those people you named to administer your trust and estate still the ones you want to accept that responsibility?

d.    People named to make legal and medical decisions under your Durable Power Of Attorney and Patient Advocate Designation, in the event you become incapacitated. If you have previously named people, are they still able, and willing, to make these decisions on your behalf?

2.    Review how you titled your assets to confirm you can avoid the high cost, time delays and public exposure of probate under Michigan law at your death.

3.    Inventory your assets, so that a complete list is available for your administrators in the event of a sudden death.

4.    Consider making a list of personal property designations, so that items you value can go to the desired beneficiaries.

5.    Consider making a list of important people and contact information, such as your attorney, accountant, financial planner, or investment advisor, to save your family time and aggravation.

6.    If you have any particular desires, write a letter indicating your personal burial preferences, so your loved ones will know how to handle arrangements at your death.

7.    Consider starting Section 529 education accounts for your children or grandchildren so the funds can grow tax-deferred, and be distributed tax-free, to the extent they are used for higher education.

8.    For those of you with unmarried children over the age of 18, encourage them to execute their own patient advocate designations and durable powers of attorney so that if something were to happen to them, decisions can be made without involving the probate court.

Like all of our other resolutions, these may be hard to keep but, if completed, can provide us peace of mind that if the unexpected occurs, our loved ones will be prepared to deal with whatever comes their way."

Estate Planning and Dementia

We hope that everyone enjoyed the long holiday weekend and is ready to return to work refreshed and prepared for a successful week. Today's blog addresses the difficult subject of preparing for a time when we are unable to make our own decisions due to the onset of disease. We know how difficult these times are for families and encourage our clients to consider these possibilities in their planning in order to limit the problems that will arise if they are unable to make decisions for themselves.

I read an article recently about Dementia Awareness Week in the United Kingdom which got me thinking about how people can prepare for the impact of dementia long before any signs of the condition are apparent. A diagnosis of dementia can be devastating to a person and their loved ones. The symptoms of dementia are progressive and its time frame is unknown, but can include memory loss, communication problems, and mood changes.

While dementia can be a horrible diagnosis, with proactive estate planning you can ensure that someone with dementia is protected and properly cared for making that challenging time a little easier. As a person becomes less able to handle their affairs, it becomes more important to put documents in place that will allow designated people to make legal and medical decisions on behalf of that person as they become medically incapable of handling their own affairs.

A Durable Power of Attorney is a good place to start. This document allows a person to name another person or persons to make legal decisions for them immediately or upon a determination of. This ensures that whether because a person no longer wants the burden of making decisions or because they are unable to make decisions for themselves, that those decisions will be made by a person of their choosing.

A Patient Advocate Designation is similar to a Durable Power of Attorney, in that it is used to name another person to make decisions when a person is unable to make them for themselves, but names people to make medical instead of legal decisions. This is especially important in cases of dementia because ensuring that your desires surrounding healthcare are followed even when you cannot articulate them for yourself is important.

Without these two documents, loved ones will not be able to readily make decisions for a person who becomes incapacitated, requiring the family members to turn to the Probate Court to have a Conservator and Guardian appointed to make medical and legal decisions. The process is costly, can take valuable time, and is a public process. By executing a Durable Power of Attorney and a Patient Advocate Designation, a person can avoid the probate process and provide for immediate decision-making and protection of the person with dementia.

Establishing a Living Trust (a revocable trust) can also protect a person with advancing dementia. If ownership of assets have been transferred to the Trust, the person named as successor trustee can use those assets to care for a person with dementia without any cost, delay or public scrutiny by the probate court. 

Additionally. while they are able, a person diagnosed with dementia may also want to consider an Ethical Will, which is a way to share one's values, life lessons, and hopes with family and friends. The Ethical Will does not transfer material wealth, but can be a statement of what truly matters in life and a hope that those who receive eventual inheritances will take to heart the values and hopes laid out in the document.

While all of these documents are especially pertinent for a person diagnosed with dementia, we should all consider implementing them in order to protect ourselves against an untimely incapacity.

Alan and Matt

Planning to Protect Children with Special Needs

We've previously addressed how estate planning can be used to protect minor children in the event of unexpected events. For those parents whose children have special needs this planning is even more important, as it can impact eligibility for programs that assist their children with their day to day lives. Thankfully it is possible to protect children with special needs and maintain their eligibility for such programs through the use of a Supplemental Needs Trust.

The birth of a special needs child changes the lives of a family dramatically. In addition to the lifelong challenges, parents must also plan for the child’s care and well-being in the event of their deaths or inability to care for their child. It is important for parents address these issues in their estate planning, failure to do so can have serious implications for their child’s future care.

A supplemental needs trust, also known as a special needs trust, can be an important planning tool for parents of children who are likely to need special care and support for their entire lives. A supplemental needs trust protects assets for the benefit of a special needs child without jeopardizing eligibility for means tested benefits such as Medicaid, Medicare, and Supplemental Security Income. If properly drafted, assets in supplemental needs trusts do not count toward eligibility calculations for these and other potential benefits.

As indicated by the name, supplemental needs trust assets can be used to supplement governmental benefits by paying for care and items that are not covered under those programs. Funds can also be used for enrichment purposes, such as costs of visiting family members, specialized education programs, and allowing the child to live in the similar manner as when the parents are alive.

While a supplemental needs trust can be established at any time, parents risk not providing protection to their special needs child in the event of an untimely death prior to completing appropriate estate planning. The supplemental needs trust can be funded immediately with discretionary assets or funded with assets from a parent’s Living or Revocable Trust at death. A supplemental needs trust is not only for wealthy families with significant assets, but also for others who may not currently have significant assets but still have a desire to protect their child. Often a supplemental needs trust is funded with a life insurance policy so that funds are available for use for the child on the death of parents. By working with a qualified financial planner and/or insurance professional, a parent can determine the type of policy and amount that best protects their child.

Once parents establish a supplemental needs trust it is important to inform grandparents and other family members of the existence of the trust so that funds otherwise available or to be given to the child can be directed into the trust for the benefit of the child rather than to the child directly, avoid a potential error that would interfere with government benefit eligibility.

It is important to remember that protecting special needs children is more than simply setting up a trust for their benefit. Another important aspect of this planning is the need to choose the correct trustee to administer the trust. Parents should try to pick a trustee who knows the child and knows and supports their wishes for the child's benefit. Often the trustee is a family member who knows the child well and is able not only to communicate with them but also use the trust assets to provide an appropriate lifestyle. Parents will often spell out their wishes for the child's in a separate letter, giving the trustee a better idea of their wishes for their child.

The rules for government benefits are complex and therefore parents should consult with an attorney knowledgeable with not only those rules and also supplemental needs trusts in order to ensure that any planning provides the maximum protection for their children.

Alan and Matt

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

Protecting Business Assets Through Buy-Sell Planning

In our last few blogs, we have discussed issues that arise following the death of a spouse. A significant concern for surviving spouses during this time is the impact of the death on the operation of a family business, especially when that business is a primary source of income.  This can be an especially thorny problem for the surviving spouse if they were not active in the operation of the business, because they may then be at the mercy of key employees, business partners, or even family members whose interests are very different from their own. The possibility of a surviving spouse facing this situation is the best reason for a business owner to consider Buy-Sell planning. 

    

     Business interests are frequently one of a client’s most valuable assets, so it is important to consider how to handle such assets following the client’s death. A direct transfer of the business interest to a surviving spouse or children, according to the provisions of a client's Will or Living Trust, has the potential to cripple the operation of the business and significantly reduce its value especially if the surviving spouse or children have not been active in the business. Lack of operational experience, conflicts with staff and business partners, or lack of interest in running a business can all reduce the business’ value quickly or even cause the business to collapse completely, rendering it valueless. This is where a well-drafted Buy-Sell Agreement can assist in making a smooth transition following the client’s death 

     The purpose of a Buy-Sell Agreement is to establish how business interests transfer following the death of a business owner. Buy-Sell Agreements can be made between co-owners, between parents and children, and even between a business owner and their key employees. Typically, a Buy-Sell Agreement provides that one of the parties has the right or obligation to purchase the interest of the other party for whom a “triggering” event occurred. The agreement also defines what constitutes a “triggering” event, including death, disability, desire to sell, or retirement, to eliminate questions about when a party’s obligation arises. Additionally the Agreement provides a method for determining the value of the business interest and the terms for the payment of the sale price over a time span fair to all the parties. This ensures that following a death, the people active in the operation of the business know what will happen, allowing them to continue operations uninterrupted, and maintain the value of the company. 

     Often the parties to the Buy-Sell Agreement purchase insurance on the life of the business owners in order to provide funds for the purchase of that owner’s interest at their death. This is especially useful when there are non-family co-owners who may be put in an untenable business situation if the family members have no interest or knowledge in running the business, or want cash now and are unrealistic about the real value of the business. Life insurance proceeds can also be used to ensure that surviving spouses, or other children, receive fair value for the business when only some of the client’s children are active in operations. This allows the active-children to continue running things, without worrying about their surviving parent’s welfare or non-active siblings creating problems with the operation of the business. 

     A well drafted Buy-Sell Agreement takes into account the myriad of unexpected circumstances that may arise following the death of a business owner and attempts to foster a situation where that death has a minimal impact on operations. This allows survivors to either continue operating the business as usual or easily transition of ownership of the business, for a fair price, to those people the client chose as the next owners. 

     As always, it is important to remember that engaging in business planning should not be done without having good advice. A Buy-Sell Agreement is a binding legal contract and thus it is important to discuss Buy-Sell planning with an experienced attorney who can explain the substantial operational, tax, and planning impacts that the Agreement imposes on a client’s business.

Honesty in Estate Planning

     Of all of the reasons to begin the estate planning process, one of the most important for many clients is gain the peace of mind that comes from knowing a plan exists to care for their loved after the client’s death. For some people that means having guardians and trustees who will see to it that their children grow into responsible adults. For others, that plan is as simple as making sure that someone will organize their assets and divide them equally between the beneficiaries. These clients have common situations and it is easy for them to express their concerns for the future. Generally, the client is forthright and open about their desires and therefore we are able to establish a plan to meet those goals.

     For other clients, this process is not as simple. These clients find themselves in a position where they know that their children or other loved ones, for a variety of reasons, are incapable of managing assets for themselves and will need additional assistance. Some of these beneficiaries may have substance abuse problems, others may simply be bad at managing money, and others still may be in relationships that the clients feel are not in the beneficiary's best interest. In all of these circumstances, it is possible to craft an estate plan that addresses the clients concerns, but only if the client is willing to be open and willing to discuss the situation truthfully. 

     For clients with more complex situations, we find that problems often arise due to the clients desire to keep their private lives private. No one enjoys admitting that everything is not perfect, and often clients who need more complex planning will not open up about their concerns, despite our best efforts, until well into the planning process. While this delay is understandable, it is important to remember that attorneys and financial planners can only provide good advice if our clients give us access to all of the pertinent information. 

     There are many tools and techniques which we can use to help a client create a plan that will care for their loved ones’ needs, but only when the client communicates those problems. We cannot talk about options for long-term trusts designed to provide for a loved one's needs without directly providing that person with access to assets if we do not know that a son has spendthrift issues. We cannot prepare documents that take into account the need for substance abuse counseling and testing before making distributions if we are unaware that these issues exist. We cannot prepare documents that address the disparate needs of different children, who may not have good relationships with one another, if we are unaware of these family dynamics.

     For clients in these unique situations there are two pieces of good news. 

1. Your privacy is secure. The things that you discuss with your attorney are privileged and will not be shared with anyone else. We are aware that these are difficult issues and want to help you address them. Therefore, you can open up and discuss your concerns about loved ones without worrying that this information will ever reach their ears. 
2. This is not the first time we have dealt with your situation. While each client’s circumstance is unique, any given client is unlikely to be the only one with these types of concerns, and it is unlikely that their story is something we have never heard before.

     Clients come in all varieties, with all manner of concerns, but regardless of those things they all want to create a plan that protects their loved ones and our goal is to help reach that goal while maintaining their privacy.

      It is important to remember that when you come to an attorney, the advice you receive is only as good as the information you provide the attorney. Like any other professional who provides counsel and advice, an attorney is limited to what the client chooses to share. Therefore, it is important that clients come prepared to discuss all of their concerns in order for them to receive the best representation. When consulting any new professional, take the time to get to know the person and make sure that you can be comfortable sharing all of your concerns with them, so that they can provide you with the level of care that your deserve.

Funding: the Next Step in Estate Planning

     When clients finish signing their estate plans, they often have a look of relief on their faces. They realize, after putting off planning for many years, they now have a plan that will make things much easier for their loved ones if something unexpected happens to them. Of course, signing the documents is not the end of the estate planning process. In order to minimize probate delays, unnecessary costs, and gain the maximum benefit from a Living Trust, clients must take the time to fund their assets to the Trust.
     Clients should retitle major assets, such as real estate and business entities, to ownership by the Trust. This allows the client to retain complete control of the asset during their lifetime and ensure that the successor Trustee can easily administer the property within the Trust, in total privacy, after death. Real estate transfers should include residences, vacation homes, vacant land, and commercial buildings. Business interests should include stock in corporations, and ownership interests in limited liability companies and partnerships.
     It is equally as important to transfer broker, bank, and privately managed investment accounts to the Trust. Again, there is no loss of control during the client’s lifetime and the assets will escape probate costs, time delays and publicity.
     For other assets, clients will need to update their beneficiary designations. For life insurance policies, the primary beneficiary of the policy should be the changed to the name of the Trust. This allows the successor Trustee to immediately access the proceeds for the beneficiaries benefit without worrying what happens if beneficiaries get large sums of money without restrictions, or if a beneficiary dies and there are no alternate beneficiaries. Depending on the terms of the trust, clients may also want to name the trust as a contingent beneficiary on their retirement accounts.
     While you are in the organizing mood, you may also want to give attention to the following:

• Notify those you have named to make decisions under your Power of Attorney and Patient Advocate Designation, and provide them with a copy of those documents.
• Make a list of assets, including account numbers and passwords, and keep copies of statements, deeds and business ownership documents in a specific place.
• Consider having children over the age of 18 execute a Power of Attorney and Patient Advocate Designation so you will be able to make decisions for them should they get into an accident or suffer a debilitating illness.
• If you are traveling and leaving minor children with grandparents or others, provide the caregivers with an Authorization for Medical Decisions, so they can give guidance to medical personnel in the event of an emergency.

     These steps can provide you with peace of mind, knowing that things are in place the event of an emergency. Remember to keeps all of these things up to date, then store them somewhere safe, presuming they will not be needed for many years.

The Importance of Personal Property

Today's blog examines an often overlooked part of estate planning. Clients often presume that their children will simply sort out personal property, without considering the potential pitfalls of leaving such decisions up to others. Including a Personal Property Memorandum as part of an estate plan is an excellent way to limit those issues. 

     One aspect of estate planning frequently overlooked by clients is the distribution of their tangible personal property. "Tangible personal property" includes all of the clients possessions that do not otherwise have a title or ownership designation. As part of our estate planning we use an Assignment to designate the Living Trust as the owner of all of these items. We also provide the client with the ability to leave a list of specific gift of tangible personal property.This Personal Property Memorandum may be changed at any time, without amending the Trust, and is read as part of the Trust after the client’s death. Unfortunately, when we bring this to the client’s attention, they often give it short shrift, indicating that they do not have anything of value or that they believe their children will not care about the personal property.

     Treating tangible personal property as an afterthought or unimportant is a common source of discord in the administration of a client’s estate or trust. Clients fail to account for the their loved ones attaching significant emotional value to items that lack significant monetary value. As an example, children may fight over which of them inherits their mother’s KitchenAid mixer because one of them has a strong emotional attachment to the mixture as a reminder of all the times he and his mother baked together for the holidays, while the client’s daughter simply would like a mixer for her own home. It never occurs to either sibling to explain to the other why they place such a high value on their mother’s mixer, thus resulting in misunderstandings and hurt feelings.

     Whenever our clients indicate that they feel their tangible personal property is not significant in their estate planning we encourage them to take time to sit down with their loved ones and discuss which items may hold emotional significance. This conversation, as much as any other conversation, can alleviate surprises and problems after the client’s death. In addition, it allows the client and their loved ones to begin a discussion about what will happen after the client’s death without focusing on difficult matters to discuss, such as illness and the money. Not only do clients gain a better understanding of what their children value, they also have the ability to limit any unnecessary conflict that otherwise might have arisen after their death.

     Tangible personal property often carries the most emotional significance to a client’s loved ones after their death. For a client concerned about maintaining familial harmony and ensuring the smooth administration of their estate, taking time to prepare a personal property memorandum can significantly reduce the chance of problems after their death. 

     It is important to remember that while the personal property memorandum is a common tool in estate planning is not universally included in every document. Different documents will treat the memorandum differently, some give it different priority from the other terms of the trust, and some trusts omit this option entirely. Clients should consult an experienced professional to determine under what terms they can make use of a memorandum in their planning.

Keeping Family Vacation Homes in the Family

A warm day like yesterday often triggers thoughts of summer and good times at the family cottage. With these thoughts in mind, clients often wonder how to structure the transfer of ownership of a family vacation home to their children and grandchildren either during lifetime or at death.

     Gifting or bequeathing a family vacation home is not an easy matter and requires significant planning in order to treat all family members fairly. Clients need to balance their desire to make a well-intentioned gift with the possible unintended burden on beneficiaries, which may cause strife among loved ones. Additionally, the transfer of such high-value assets brings with it potential estate and gift tax implications. While a client certainly must consider tax issues and the possibility of an increase in property taxes because of the transfer, we will leave these for another time and focus primarily on the family issues. 

     While a parent may hope that common ownership of a vacation home will keep their family together, it is entirely possible that not all of their children have the same warm memories of summers at the lake. In addition, those children’s spouses and children may have different ideas on how to spend family vacations. Add to all of this the fact that many adult children have moved away to pursue their careers (or avoid sometimes harsh Michigan winters) and may not be able to enjoy the use of a vacation home. It is important to discuss these issues with all of the family members to determine which children are interested in owning a part of the "family cottage".

     While there is not enough time to discuss all of the issues, important points to consider when transferring the vacation home include:

• What will the ownership structure be? This could include ownership jointly, as tenants-in-common, by a trust, or by an LLC?
• Who will manage the property? Family dynamics are important - not all of the family members may want to get involved in the day-to-day decisions.
• How will use of the vacation home be determined?  A plan should be in place for fairly selecting weeks of use for each of the family members.
• How are repairs and improvements, including cost, dealt with? Some family members may always be looking to upgrade the facilities while others may be happy to keep things simple and inexpensive.
• Should there be rules about allowing guests to use the cottage, especially without a family member present?  Allowing many non-family guests to use the cottage can cause considerable wear and tear on it and create friction among family members.
• Is there a procedure for allowing a family member to sell or gift the ownership interest?  Either during lifetime or at death, family members often desire to transfer their interest to a spouse, or children. If not planned for, this can result in a significant fractionating of a family member's interest and increasing the total number of "owners" for purposes of use and expenses. It might also result in pieces of the vacation home being owned outside the intended family.

     While continuing family ownership of vacation property is a laudable goal, much thought should be put into the process to make sure that the intended result of family harmony does not actually result in disharmony. As with any other tax or gift planning strategy is important to understand each client individual circumstances and consult with their professionals to ensure that the planning will not have unforeseen consequences.