Long Delayed Probate

One of the common complaints about the Probate process is that it takes a long time. This can be true and, even more frustrating for clients, sometimes those delays are not caused by action but rather inaction. Today’s example shows how the process can drag on despite a Personal Representative’s best efforts.

When Donna’s mother, Edith, passed away, Donna hoped that everything related to Edith’s estate would be simple. Edith owned a home and had both a checking and savings account. Edith had also taken the time to write out a simple form Will, leaving everything she owned to Donna, and have this Will witnessed and notarized as required by Michigan law. By any estimation this was to be a simple Probate and we were happy to assist Donna in completing it. Unfortunately, Donna and Edith had one problem-- they had not anticipated, Edith’s son Frank. 

Frank had not been active in his mother’s life and therefore Edith had chosen to make Donna the sole beneficiary and Personal Representative under her Will, leaving nothing to Frank. However because of the rules of Probate administration, Donna was required to give Frank notice of the proceeding, which is where problems began. Under Michigan law, while an informal Probate is favored, any interested party (which includes heirs of the decedent who were excluded under Will) may Petition the Probate court to seek a formal probate. In this matter, Frank filed such a Petition challenging the validity of Edith’s Will. 

When a Probate proceeding becomes formal it means that there must be Hearings before the Probate Judge, and when the Probate court schedules Hearings it does so based on the assigned Judge’s calendar. Unless there are extenuating circumstances, such as a time-sensitive emergency, these hearings are scheduled for a date weeks in the future so that the Parties involved have time to file written information with the Court and give the other Parties involved the required Notice. When Frank caused the informal Probate of Edith’s estate to become a formal proceeding the simple process of administering a relatively small estate transformed into a saga that Donna would not soon forget. 

The first Hearing on the matter was scheduled for six weeks from the date that Frank had filled his Petition challenging the validity of the Will. During the intervening time, we prepared a Response to Frank’s Petition evidencing the proper execution of Edith's Will and provided Frank and the Court with that Response. Three days before the scheduled Hearing we received Notice that Frank had hired an attorney to represent him and this attorney had promptly filed a Motion to Adjourn the scheduled Hearing in order to have time to properly prepare. While inconvenient, this type of request is common in Probate litigation and the Court willingly allowed the delay, moving the Hearing forward four weeks. 

In the next four weeks we attempted to communicate with Frank’s new attorney, but after an initial conversation received no replies. Nothing further was filed with the Court and the day of the scheduled Hearing the attorney did not appear in Court. As a result of the missing attorney, but the presence of Frank in the Court, the Judge further adjourned the Hearing for two weeks and we provided Notice to the Attorney who finally responded to communication indicating that he had never been paid a Retainer Fee by Frank, therefore had stopped working on the matter, and had never filed an Appearance with the court. Frank unfortunately neglected to tell the Court that his attorney had “fired him”. Nearly two weeks later we received another Motion requesting an Adjournment, this time due to Frank’s illness. The matter had not yet grown to the point where the Judge felt that delay was unwarranted and the matter was delayed five more weeks. This five week delay become nine weeks when Donna needed to travel for work and then the Judge was on vacation. 

Thankfully in the interim we were able to convince the Judge to grant Donna limited authority over Edith’s Estate in order to at least maintain the status quo of the property. We had been able to provide Notice to Creditors and prepare an Inventory of the Estate’s assets. All of this was beneficial when 26 weeks later we again appeared at the Probate Court for a Hearing to discover that Frank had a new attorney, retained the prior day, requesting a further delay. Thankfully, by this the Judge was able to see the chain of events, review our Response to Frank’s initial threadbare Petition as well as the additional work done by Donna in her limited capacity, and see through all of Frank’s excuses.. 

Since Parties are entitled to due process in the Court, the Judge could not simply reject Frank’s attorney’s request out of hand, but another Hearing was scheduled for two weeks later with the caveat that no further delays would be granted in the matter. As the Hearing day drew near, we received a phone call from the newest attorney indicating that he intended to withdraw from the representation because Frank had failed to communicate further information to him that would support Frank’s claim that Edith’s Will was invalid. When the day of the Hearing arrived, Frank failed to appear in Court. 

The Judge, after a seven month delay, quickly allowed Frank’s attorney to withdraw from the matter and named Donna as Personal Representative of the Estate. Normally this would be the point where Donna was able to proceed with the remainder of the Administration without further ado, but Frank was unwilling to let the matter drop. Over the course of the following year Frank filed a number of spurious motions with the Court forcing Donna to spend substantial additional time and effort in the administration of her mother’s estate. 

The moral of this story is that in the end the right party triumphed, but that there are more efficient ways of reaching the same result. Had Edith taken the time to speak with an experienced attorney she could have learned about deeds that would transfer her home to Donna automatically at her death and been instructed to name Donna as the beneficiary of her bank accounts. These two actions, which collectively cost almost nothing, would have saved thousands of dollars in fees and hours of time because the assets would then have passed to Donna without having to go through the probate process. This is just one example of how a small amount of planning now can result in huge future savings. 

Matt and Al

Understanding Informal Probate

Our recent blogs have focused on the benefits of estate planning. As we have indicated in the past, even if an individual does not do any of their own planning, there is a default plan under Michigan law that addresses the distribution of assets in the absence of other instruction. While this is only one aspect of the Probate process, it is a good place to start a series of the examples focused how an estate plan, or lack of one, affects post-death administration. 

Alice was the wife of Bill, the mother of Carole and Don, and the grandmother of six loving grandchildren. She stayed active in her later years volunteering with a number of organizations and was well respected in the community. After her husband, Bill, passed away, she became the sole owner of all of their joint assets and never felt the need to do any additional estate planning to address the distribution of her home, bank accounts, and the IRA she rolled-over to her own IRA after Bill’s death. She never saw the need to worry about what would happen after she died. Despite Alice's lack of concern, her estate was valued at more than $500,000.00 and required a fair amount of work.

Since Alice owned all of her assets individually and did not have a Will, it was necessary to open a probate estate in order for Carole and Don to gain the authority to gain access to and manage Alice's assets. Michigan law allows for three forms of probate administration, the small estate affidavit (for states with a total value of under $20,000), the informal probate proceeding (a simplified form of probate requiring more limited involvement of the probate court), and the formal/supervised probate proceeding (used to handle any litigation involving an estate). To administer his mother’s estate, Don retained our firm to assist him with the informal probate process. 

When opening an informal probate proceeding without a Will it is necessary to provide the court with a variety of information, including the identity of all of the decedent’s heirs, the identity of the proposed Personal Representative (as well as any other individuals with equal priority to serve in that role under the law), and a statement that the person applying for the informal probate is unaware of the existence of any Will belonging to the decedent. Don’s application for informal probate requested that the court appoint him as the Personal Representative though he had equal priority under Michigan law with his sister Carole. Upon receiving the Probate Court's appointment and his Letters of Authority Don then had 28 days to inform Carole of his actions. It is at this point in the estate administration process that it is first possible for an “informal” probate to become a “formal” probate. Had Carole chosen to challenge Don's appointment as Personal Representative the Probate Court would hold a Hearing on the matter and the administrative process would, at least temporarily, transition to a formal probate.

Fortunately, Carole and Don have a strong relationship and Carole lived outside of the state, so it made sense to everyone for Don to serve as the Personal Representative negating the need for a more formal probate proceeding. As Personal Representative, Don was then obligated to fulfill certain duties, including informing any known creditors of Alice of her death, publishing a notice to unknown creditors, assembling an inventory of the estate assets and keeping the Court and Carole informed of the status of each of these actions. As he proceeded with his duties, Don also became responsible for paying Alice’s outstanding bills, closing her accounts, and eventually selling her home. After he completed these duties, Don divided the remaining assets equally between himself and Carole as required by the Michigan Intestacy Statutes. Because of the various notice requirements, the minimum time for completion is 6 months and maybe longer depending upon the types of assets in the estate

It is worth noting that not all of Alice’s assets passed through the Probate process. While inventorying Alice’s assets Don learned that Alice had designated beneficiaries of her IRA many years earlier, naming her grandchildren to receive equal shares of that account. This beneficiary designation superseded the intestacy statute because the IRA custodian was contractually obligated to pass the IRA to the grandchildren, and the court had no jurisdiction in that asset. Thankfully, all of Alice’s grandchildren were over the age of 18 so this distribution was able to happen without any additional complication. If any of the grandchildren have been under the age of 18, the Probate Court would have required that a guardianship and conservatorship proceedings be instituted to protect the interests of the minors. This proceeding would have continued until all of the grandchildren reach the age of 18, necessitating annual accountings and hearings with the Probate Court. Consider how the children would have felt if Alice had spent most of her other assets maintaining her lifestyle and the only significant asset was the IRA. Was it really Alice’s intent to essentially “disinherit” her children in favor of her grandchildren?

The probate of Alice’s estate was a relatively simple process without any conflict between heirs, without the discovery of unknown creditors, and without difficulty in distributing assets to heirs. Even with that simplicity it took nearly a year to complete the process. With a little bit of planning on Alice’s part much of the work done by Don could have been significantly simplified and it certainly would have decreased the cost in both attorney’s fees and Don’s time. We recommend that everyone put some form of planning in place, because the value of that planning is worth many times its cost. Keep in mind that estate planning is not a one size fits all process, you should take the time to work with an attorney who will assist you in preparing the plan that is appropriate for your circumstances.

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

Estate Planning Impact During Life 2.0

In our previous blog, we began unravelling the mystery that is Estate Planning by focusing on what happens when a person dies without a Will. Today’s blog focuses on how an Estate Plan can help avoid problems and complications during lifetime. While planning for an orderly transition at death is a major component of Estate Planning, a person is more likely to become disabled due to injury or illness rather than die, and planning can be critically important for these situations. Today’s blog discusses the “here” component of Estate Planning when someone becomes disabled but does not die.

When we discuss the “here” of Estate Planning we are talking about Powers of Attorney and Patient Advocate Designations that allow a person to designate who will have control of their lives in the event they are unable to control their lives. Each of these documents serves a different role, so it is important to understand what each does, when they work, and who should be named to handle the decision making responsibility. As you continue reading, keep in mind the person who signs and has these documents is known as the Principal and the person named to act on the Principal’s behalf is the Designee.

The Durable Power of Attorney is the document that gives the Designee the authority to make legal and/or financial decisions on behalf of the Principal. While Powers of Attorney can cover a wide variety of circumstances and specific powers, a Durable Power of Attorney for Estate Planning purposes gives much broader authority to make decisions on behalf of the Principal. The word “Durable” in relation to a Power of Attorney means the document is intended to be legally effective even if the Principal becomes incapacitated. Including a Durable Power of Attorney in your Estate Plan provides a tool to loved ones, allowing them a broad spectrum of powers, including, but not limited to, the ability to continue to pay bills, run a business, and even file lawsuits in the event that the Principal become incapacitated.

In the absence of a Durable Power of Attorney, a person wanting to make legal decisions on your behalf must file a Conservatorship Petition in the Probate Court. In addition to dealing with Estate Administration, the Probate Court is responsible for reviewing these petitions, appointing, and supervising those people named to make decisions on behalf of others in the absences of a Power of Attorney. The Probate Court process can be cumbersome and will include multiple hearings, documents, and meetings with attorneys. While it is important that this process exists to assist those who fail to plan, having a Durable Power of Attorney avoids these delays and additional stresses in what is likely already a very stressful time.

The Patient Advocate Designation is similar to a Power of Attorney (and is sometimes called a Medical Power of Attorney or Appointment of Healthcare Surrogate) but this document allows a Designee to make medical decisions on behalf of the Principal in the event the Principal does not have the capacity to make them. A well drafted Patient Advocate Designation grants the authority for the Designee to make a wide variety of decisions, including treatment options in emergency situations and long-term medical decisions such as recovery/rehabilitation alternatives. In the most extreme circumstances, a Patient Advocate Designation also allows the Designee to make decisions regarding end of life care, the so called “pull the plug” decision. These are important and serious powers to grant to another person, which is why we also include a Living Will as part of our Estate Plans. The Living Will (sometimes called an Advanced Medical Directive) articulates a Principal’s desires regarding their care, allowing them to communicate those wishes to their Patient Advocate, even when the Principal is unable to speak.

As the Conservatorship is the Probate Court equivalent of a Power of Attorney, a Guardianship is the Probate Court equivalent of a Patient Advocate Designation. This Probate Court process can determine who has the power to make medical decisions in the event another person cannot make their own decisions, but it is still a much more time consuming and stressful situation, requiring multiple meetings and hearings before decisions can be made. A Patient Advocate Designation ensures that the person you want making decisions about your care can make them promptly without waiting for the Probate Court to weigh in on the matter and select a person the Principal might not otherwise selected.

The Durable Power of Attorney and Patient Advocate Designation are important aspects of the Estate Plan. Choosing a Designee, and a successor Designee if necessary, is an important decision and we strongly recommend that the people chosen to be named in these documents be the people who our clients feel are the most likely to make the decisions that the client would want made. While it is true that many clients worry if children (or parents) will be hurt or offended if they are omitted, but we feel it is better to name those people you feel are able to handle the responsibilities than to include someone who cannot or will not make the decisions that are best for you.

As with much of what we write about, there is a great deal more to this topic. While we strive to provide you with good information, it is important to remember to consult with an attorney experienced in Estate Planning before taking any action in order to avoid potentially expensive mistakes.

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

Planning Ahead for an Unexpected Event

     A short time ago a client of mine passed away unexpectedly. A few days after the memorial service I got a panicked call from his widow who said, "I am sitting in the middle of a circle of papers and documents, I have no idea what to do, or how I am supposed to pay the bills!" 

     While this couple saved, invested well, and kept their estate planning documents up to date, he handled the financial issues and never communicated to his wife where anything was or how to handle the day-to-day financial obligations. I calmed her, assured her that because of their good savings and spending habits she would have no financial issues, and then set an appointment to meet with her and her financial planner to explain to her the extent of her assets and her ability to access them.

     This got me to thinking about preparing for the unexpected and how some clients do a good job of this and some do not. A little preparation can save family members much time and stress at a time when they are already grieving. It is a good idea for both spouses to be familiar with monthly bills and how they handled, and where investment accounts are and how they can be accessed.

     Over the years, to help our clients with this preparation, we have built a list of information we have found useful or important to know when a loved one passes away. This list, or at least its location, should be shared with spouses and children, and updated regularly. 

     We included our list at the end of this post, please feel free to use it and add to it were necessary. Also, feel free to let us know if there is other important information that you feel we should include on the list.   

     It is also a perfect opportunity to remind everybody to "live life to its fullest, but plan for the unexpected.” The planning is obviously more important for those left behind.

Inventory and Location of Legal Documents:

Will:______________________________________________________________

Trust:_____________________________________________________________

Power of Attorney:__________________________________________________

Living Will:_________________________________________________________

Patient Advocate Designation:_________________________________________

Important Contact Numbers:

Attorney:__________________________________________________________

Accountant:________________________________________________________

Broker:____________________________________________________________

Financial Planner:___________________________________________________

Life Insurance Agent:________________________________________________

Property Insurance Agent:____________________________________________

Doctors:___________________________________________________________

Spiritual Leader:____________________________________________________

Funeral/Burial Arrangements Desired

__________________________________________________________________

__________________________________________________________________

Close Family and Friends to Notify

__________________________________________________________________

__________________________________________________________________

__________________________________________________________________

__________________________________________________________________

__________________________________________________________________

Location of Assets

Deeds to property:___________________________________________________

Bank Accounts and PIN #s:___________________________________________

__________________________________________________________________

__________________________________________________________________

Brokerage Accounts #s and Passwords or PINs:___________________________

Certificates of Deposit:_______________________________________________

Mortgages:________________________________________________________

Safety Deposit Box Location:__________________________________________

Retirement Plans and IRAS:___________________________________________

Annuities:__________________________________________________________

Life Insurance Policies and Beneficiary Designations:

__________________________________________________________________

__________________________________________________________________

Vehicle Titles:______________________________________________________

Collectibles:________________________________________________________

Stock Certificates:___________________________________________________

Service Providers

Gas:______________________________________________________________

Electric:___________________________________________________________

Cable:____________________________________________________________

Internet:___________________________________________________________

Landscaping:_______________________________________________________

Telephone:_________________________________________________________

Newspapers/Magazines:______________________________________________

Plumber:__________________________________________________________

Heating and Cooling:_________________________________________________

Electrician:_________________________________________________________

Handyman:________________________________________________________

Important Passwords

Computer:_________________________________________________________

Email:____________________________________________________________

Router:____________________________________________________________

Creditors

Mortgages on Real Estate:____________________________________________

Other Borrowing:____________________________________________________

Credit Cards to Pay and Cancel:_______________________________________

__________________________________________________________________

__________________________________________________________________ 

The Unexpected Results of Probate Distributions

Last week’s blog discussed the process of probating an estate. This week we will continue that theme and discuss the distribution of an estate when the decedent has and has not left a Will. Later this week we will continue discussing estate administration with a look at the benefits of establishing a buy sell agreement for clients with interests in small (and not so small) businesses.

     As we previously discussed, the probate process can be both lengthy and expensive, but eventually the appointed personal representative is able to make distributions from the estate to the designated beneficiaries. If the decedent left a Will, those beneficiaries are the people named in the Will. If the decedent died without a Will, then state law dictates the distribution of the estate.

     After giving effect to the statutory allowances that we discussed in last week's blog, the personal representative first makes distributions to the decedent's surviving spouse. The size of the share distributed to the surviving spouse depends on the decedent’s other surviving relatives. The spouse is entitled to:

• The entire intestate estate if no descendant (child or grandchild) or parent of the decedent survives the decedent.
• The first $150,000.00, plus 1/2 of any balance of the intestate estate, if all of the decedent's surviving descendants are also descendants of the surviving spouse and there is no other descendant of the surviving spouse who survives the decedent.
• The first $150,000.00, plus 3/4 of any balance of the intestate estate, if no descendant of the decedent survives the decedent, but a parent of the decedent survives the decedent.
• The first $150,000.00, plus 1/2 of any balance of the intestate estate, if all of the decedent's surviving descendants are also descendants of the surviving spouse and the surviving spouse has 1 or more surviving descendants who are not descendants of the decedent.
• The first $150,000.00, plus 1/2 of any balance of the intestate estate, if 1 or more, but not all, of the decedent's surviving descendants are not descendants of the surviving spouse.
• The first $100,000.00, plus 1/2 of any balance of the intestate estate, if none of the decedent's surviving descendants are descendants of the surviving spouse.

For individuals with estates under $150,000.00, the law provides the surviving spouse is entitled to all of the assets. However, for larger estates, the intestate distribution statutes may result in distributions, to parents or children, which the decedent would not have intended.

     Speaking of unintended distributions to children, it is important to note that if an asset in the probate process passes to a minor child, that asset must be held in trust until the minor child reaches age 18, at which point the child, whether mature enough or not, receives the remainder of that asset outright and free of trust. In addition to the potential problem of providing a lump sum of money to an 18-year-old, the probate court requires that the personal representative provide an annual accounting of those assets to the court until the child turns 18. As with every other aspect of the probate process filing these accountings takes more of the personal representative’s time and has a financial cost.

     Clearly, there are potential problems that arise when a decedent does not have a Will. Some of these, such as unintended distributions to parents or children as opposed to the surviving spouse, and large distributions to children upon reaching age 18, may be avoided by executing a. However, other problems such as the financial costs and reporting burdens exist as long as the Probate Court remains involved in the administration of an estate.

     As we have advocated in our writings on this blog and in our practice, clients can avoid almost all of these issues through proper planning and the use of a Living Trust. The Living Trust ensures that the decedent’s decisions govern the distribution of their assets and does not rely on a one size fits all approach that can result in unanticipated consequences. Additionally, because a Living Trust is a private agreement there is no involvement of the probate court, which can expose the decedent's assets and distribution decisions to public scrutiny. Furthermore, the Trust's private nature allows for greater ease in making distributions following death and avoids the costs associated with long-term administration of an estate through the Probate Court if the client desires to hold assets in trust until such time as their beneficiaries can handle those assets responsibly.

     Keep in mind that each individual's needs are different and estate planning should not become a one size fits all commodity. It is important for clients to meet with experienced experts in planning fields and discuss their desires regarding assets after their death so that the client can receive advice best suited to their particular situation.

Introduction to Probating an Estate

As we discussed last week, the death of a loved one can be very trying. In addition to the emotional weight of the loss, survivors must also contend with the burdens of administering the decedent’s estate. 

     The first step in administering the estate is determining whether there are any assets that must pass through the Probate process. Under Michigan Law, any assets owned by the decedent alone, as well as IRAs and life insurance policies without valid beneficiary designations, must go through the probate process before passing to their new owners. The probate process can be lengthy and is very public. The probate is opened in the county in which the decedent resided at the time of death and a personal representative is named to administer the estate. Unless the decedent executed a Will naming a person to act as personal representative, the Probate Court will appoint someone to that role. Upon appointment, the personal representative receives "letters of authority" which gives them the power to act on behalf of the estate. 

     The personal representative is charged with gathering all of the assets of the estate and protecting them, which includes covering assets with insurance where appropriate, maintaining assets such as real estate, and protecting any other valuables. The personal representative must value the assets in order to file an inventory and regular accountings with the probate court, showing what is being done.

     The personal representative also has a duty to notify all actual creditors and potential creditors of the estate. Once notice is given, the creditors have four months to file a claim against the estate. The personal representative must then determine which claims are valid and then pay those claims, as well as any expenses or obligations of the administration of the estate. 

     The personal representative must also determine the beneficiaries of the estate, either by looking at the terms of the Will or, if there is no will, the state intestacy statute. The beneficiaries must be given information regarding the assets of the estate and their entitlement.

     The Michigan the Estates and Protected Individuals Code ("EPIC") provides for three allowances for either a surviving spouse or surviving children. These allowances take priority over other claims against the estate, except for administration costs and expenses and reasonable funeral and burial expenses:

• Homestead Allowance: The surviving spouse or surviving children are entitled to a Homestead allowance of $15,000, adjusted for inflation. This allowance ensures that surviving family has sufficient funds to pay housing and utility costs. This allowance has priority over all successive allowances.
• Family Allowance: During the period of probate administration, the surviving spouse and any minor children whom the decedent supported are also eligible for a reasonable family allowance to cover the cost of normal living expenses. While this allowance lacks a definitive value, the allowance is limited to a single year when it is clear that an estate is inadequate to discharge all other allowable claims.
• Exempt Property: The surviving spouse is also entitled to household furniture, automobiles, furnishings, appliances, and personal effects from the estate up to a value not to exceed $10,000.

     After completing all of these steps the personal representative can then begin to distribute the remainder of the estate to the heirs. On Thursday we will discuss the factors that impact the portion of an estate each heir receives. 

Working Together to Assist Clients

Today’s blog begins a series focused how attorneys and financial planners can work together to assist clients following the death of a loved one. Over the coming month we will address a variety of areas where clients benefit when their advisors work together as a team to make a very difficult time in their lives a little easier. We invite and encourage our readers to send us their thoughts on these issues so that we can take them into account as we tackle this complex subject.

     The loss of a loved one is one of the most emotionally difficult experiences a person will ever face. Sadly, during our careers as planners and advisors, we face the loss of a client, with unfortunate regularity. When those clients leave behind a surviving spouse or children, it is important to be prepared to assist those survivors while being mindful of their grief over their own loss. This is a perfect opportunity for the attorney and the financial planner to work together for the maximum benefit of their client.

     There are a wide variety of issues that arise after a death, including the administration of the decedent’s estate and trust, updating estate planning documents for surviving spouses, and making financial decisions that take into account their changed circumstances. Some of these decisions must take priority over others and it falls to attorney and planners, who handle these matters with more regularity, to keep clients from becoming overwhelmed by the decisions that must be made, even as the client still grieves for their loved one. 

     Immediately following a death it is important to quickly determine if there are any documents showing the deceased client wished to make anatomical gifts, had a prepaid funeral, or left specific instructions for funeral or memorial services, as well as a specific burial request. This is important first because such instructions elevate the need for survivors to make certain decision, but also because discovering these instructions after the survivors take other contrary actions can be devastating. 

     After addressing matters related to the disposition of the decedent’s remains, the personal feelings of the client are paramount and their mourning should take precedence over meetings with planners and advisors, but when they are able, it is important to begin the process of administering the estate and trust. A first step in the process is to determine a list of assets and values held in the estate of, or a living trust of, the deceased spouse. The client's planner often as this information and is the best person to assist in developing a list of assets. Documents should be reviewed to determine ownership of assets and beneficiaries of any insurance policies or IRAs. A review of estate planning documents will indicate whom beneficiaries are, what are the terms of distribution, and who are the persons chosen to help administer the estate, the personal representative and the successor Trustee.

     In this stage of the process, the attorney can assist the client in determining whether any probate of assets is necessary and whether it is necessary to file a federal estate tax return. If a business was part of the deceased's estate, it is important that the surviving spouse and successor Trustee continue to handle the management of that business appropriately. It is also important to determine if any Buy-Sell Agreements exist to govern the transfer of the business to surviving partners. Finally, if there are any assets outside of the state of Michigan these will also have to be administered. 

     With their more complete knowledge of the assets, the planner is invaluable at this point in the process for determining what assets remain available for the spouse, revising  the surviving spouse’s investment plan and providing a strategy for cash flow for both the short-term and long-term to assist the client in maintaining his or her lifestyle.

     This only begins to scratch the surface of the choices that face clients at this difficult time in their lives. Over the coming weeks we will address a variety of issues in greater detail, paying special attention to how attorneys and financial planners can work together to assist clients in managing these issues. As we continue to explore this topic we must remind ourselves that as important as this planning is to our clients, we must always balance the need to make decisions with the client’s need to mourn their loved ones.

The Worst That Can Happen

In today's blog we present some of the most common problems that arise when a person passes away without an estate plan.

“What’s the worst that can happen if I don’t do any estate planning?”

     Many people ask us that question, thinking there is little harm if the unexpected happens and they have no plan in place. The fact of the matter is even if the worst things do not happen very few things that happen when a person fails to plan are beneficial.

     When you pass away, any assets in your own name alone are required to go through probate under Michigan law. The probate process requires opening up of a file with the Probate Court in the county in which you had resided. The court requires significant amount of information, including a list of assets, beneficiaries, and actual and potential creditors before even beginning the probate process. Once the process begins, if you do not have a Will, the court decides who will be responsible for administering your estate and eventually distributes your assets according to the rules put in place by the legislature. The benefit of probate is that there is a legal process specifying the distribution of your assets. The downside of probate is that:

1. The costs of probate may reduce your estate by 3% to 5%, taking money away from family members
2. Probate takes a minimum of six months, and may take much longer depending upon the types of assets in the estate and if there are any disputes among beneficiaries
3. The probate process is totally public. Anyone can review your probate file and see your assets and the distributions going to the beneficiaries

     Through planning, it is possible to avoid all of these problems. If you have a Living Trust, you decide who is responsible for administering your estate, who receives your assets, and you decide how those assets are distributed. If that is not sufficient reason to plan, in addition to the negatives stated above, a host of other common problems exist, which may be alleviated during the estate planning process.

     Without clear direction, family members may have significant disagreements regarding major assets. How is a jointly owned vacation home handled, when one family member may want cash and the remaining family members want to keep the home for future use? Who controls the operation of a family business, especially when only some of the family members are active in the business and others are just looking for additional income?

How is personal property, whether of significant value or merely sentimental value, divided between children? What if one family member claims the "family grandfather clock" was promise to her by mom and dad, yet there is nothing in writing?

     What if the parents place bank and investment accounts in the joint name of one of their children for convenience purposes? While parents may intend to divide everything equally between their children, under Michigan law those jointly held assets become the property the joint owner at the death of the parent.

     Even if none of these events happen, without an estate plan you cannot prevent beneficiaries from rapidly dissipating assets due to poor decision-making. Nor can you prevent family members with whom you had a falling from receiving a portion of your estate after your death. Additionally, if there are minor beneficiaries, the probate must remain open and the count requires continued administration until all of the minors have reached the age of 18.

     While it is true that you will not have to worry about all of these problems because you will be gone, they are likely to impact your loved ones. By taking the time to establish an estate plan, including properly drafted Will and a Revocable Living Trust, you can alleviate many of these problems.

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

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

Estate Administration

     Sometimes, despite our best attempts to completely fund a Living Trust, a person dies and has assets in their own name. When this happens Michigan law requires that those assets pass through probate. In prior posts we discussed the process of probate in general, but if you have a client whose estate will be subject to probate, it is important to deal with the specifics of probate on a timely basis.     The biggest challenge often is getting the client to understand the probate process and the need to collect information quickly. The client is often a grieving family member and occasionally not in the best position to give their full attention to completing the work of probating the estate. While it is possible to delay some aspects of the process some matters must be handled quickly. For example, there may be a need to manage and preserve some of the assets. Securing real estate or protecting and storing other valuables demands immediate attention. In order to deal with these matters, there must be a Personal Representative for the estate and that is where the Probate court normally first gets involved.
     The probate process usually begins by petitioning the Probate Court for the appointment of a Personal Representative. The Personal Representative is the person designated to administer the Estate and has the legal authority to do anything necessary with respect to estate administration. Parties interested in the probate (such as the spouse, children and grandchildren) must be listed on the petition, which also needs to include an inventory of estate assets. If the interested parties all waive the right to a formal hearing, the court can appoint a Personal Representative immediately upon filing of the petition. In order for the process to proceed quickly, the person desiring to be the Personal Representative should collect specific information prior to the first meeting with the attorney in order to avoid delays in starting the probate process. That information includes:

1. Original of the Last Will and Testament, if there is one
2. Names and addresses of all "interested parties" which include spouse, children, grandchildren, and any other potential beneficiaries named in the Will or by the state intestacy statute 
3. A list of all "probate assets". 

"Probate assets" are only those assets that are in the name of the decedent alone and/or in the state of Michigan. Any assets owned jointly with another person, owned by a revocable trust, or that pass by a beneficiary designation are not included in the probate process. It is important to review assets because occasionally assets are titled differently than expected. 
     The Personal Representative’s responsibility is to find all of the estate’s assets. To assist in that process, once the court names a Personal Representative, that person can request information from banks, brokers, life insurance companies, and other financial institutions. Sometimes the however the client it is at a loss to determine the scope of the decedent's estate or where such assets might be located. In addition to reviewing a decedent's financial papers, one good place to start locating assets is by reviewing the prior year's income tax return. The return will list any assets that generated income, including bank accounts and property. In addition, many people now initiate all their financial transactions through the Internet. Determining and gaining access to a decedent's electronic accounts has become very important. Checking property tax records and local register of deeds records is also a way to discover other assets. If the decedent owned assets in another state, the Personal Representative may have to institute an ancillary probate for those out-of-state assets. Finally, the Personal Representative should also change the decedent's mailing address to the Personal Representative's mailing address so that information about accounts and creditors will be readily available.
     Another of the Personal Representative's duties is managing and preserving all of the assets of the Estate. The Personal Representative has a fiduciary duty to prudently manage these assets. The Personal Representative can appoint a qualified professional investment manager to oversee investment decisions. Another part of this duty is insuring assets of the estate against lose. Appraisals of various assets may be necessary in order to ensure fairness and equity in dealing not only with beneficiaries but also with creditors.
     In addition to collecting and preserving assets, the Personal Representative is charged with notifying known and unknown creditors on a timely basis. Known creditors must receive an actual notice and unknown creditors are notified by publication in the local legal news. If there is proper notification, creditors have only 63 days to file a claim against the estate, otherwise their claim is forever barred. 
     While completing all of the previous tasks, the Personal Representative must also determine and notify beneficiaries of their interest in the estate. If there is no Will, the state intestacy statute controls the beneficiary designations. When there is a Will, the provisions of the Will control who is to receive assets of the Estate. In any event, potential beneficiaries should receive initial notification and be advised on a regular basis of the process prior to the eventual distribution of assets. If there is any dispute as to who are beneficiaries, the Personal Representative can ask the Court for ruling on that issue. The Personal Representative should provide an annual accounting of the estate administration to keep the beneficiaries fully advised. 
     Unfortunately, there is no convenient time to institute probate proceedings because it often involves the death of a loved one, but proper communication between the attorney and the Personal Representative, and then between the Personal representative and the interested parties can make the process easier for all involved.

Statutory Distributions Under a Will, Part 2

     On Tuesday, we addressed the provisions of the Estates and Protected Individuals Code (EPIC) that establish allowances for surviving spouses and dependents that take precedence over other creditors’ claims against the probate estate. We also addressed a surviving spouse’s right under Michigan law to elect a statutorily mandated portion of the probate estate in lieu of the distribution scheme articulated in the decedent’s Will. Both of these statutorily created exceptions to the distribution provisions of a Will come as a result of legislature’s desire to ensure that surviving spouses are not left destitute upon the death of their spouse because the spouse "disinherited" them. Today's blog takes a further look at EPIC’s statutory provisions, this time regarding the distribution of the probate estate when a decedent dies "intestate" (without executing a Will) and when the decedent marries or has children following the execution of the Will. Clients are frequently surprised that the statute provides very different distribution provisions for family members than they would actually want. 
     The State statute determines intestate distribution of an estate, and the distributions vary depending on who survives the decedent. Different provisions of the law apply to surviving spouses, surviving dependents, and other surviving relatives. In determining intestate distribution, EPIC first addresses the decedent’s surviving spouse. Presuming that there is a surviving spouse, the share distributed to that individual is dependent on the decedent’s other surviving relatives. If the decedent is survived by a spouse but no parents or descendants, the spouse receives the entire estate. The share for the surviving spouse decreases when the decedent is survived by either parents or descendants (typically children or grandchildren). Tuesday's post details the variety of circumstances and values for the surviving spouse's distribution in the circumstances. 

     When a spouse does not survive the decedent, EPIC provides that the descendants (children, grandchildren, etc.) split the estate by "right of representation". Under Michigan law, "right of representation" means that the estate is divided per capita at each generation. This means that if the decedent had three children who are all alive at his death then the estate is split into three equal shares and distributed to those children. If, however, only one of the decedent’s three children remains alive at his death, the living child still receives a one-third share of the estate while the shares for the two deceased children are recombined and then divided equally between all the children of the deceased children. For example, if children A, B and C are all alive, and the estate is $900,000, they each receive $300,000 of the estate. If B and C have predeceased the decedent, and B has two children and C has five children, each of those children of a predeceased child will receive 1/7 of 600,000, or approximately $85,000. B's children receive a total of $170,000 (rather than splitting $300,000) and C's children received a total of $430,000 (rather than splitting $300,000). If used, EPIC can dramatically skew estate distributions among family members. 

    If the decedent has neither spouse nor any living descendants, EPIC then distributes the estate to the survivor or survivors of the decedent's parents. If there are no surviving parents, the estate then passes to the decedent’s living siblings, followed by living grandparents, then to living descendants of grandparents. If none of these potential beneficiaries are alive, the probate estate escheats (is distributed) to the State of Michigan. 

     A different rule applies if the decedent has executed a Will at some point in their life, but never updates the document after being married or having children. Michigan law provides in that case, that a surviving spouse is entitled to the share they would receive had the decedent died intestate, unless from the Will or other evidence it is clear that the Will was made in contemplation of the marriage and the spouse was purposefully omitted, in which case the surviving spouse receives nothing. 

     Children omitted from a Will are treated similarly to an omitted spouse, but the omitted child's share is dependent on whether or not other children of the decedent were provided for in the Will. If the decedent had no living children when the Will was executed and did not provide for children, an afterborn child is entitled to a share equal to that they would receive had the decedent died intestate. If however the decedent had one or more living children when the Will was executed, the omitted afterborn child is entitled to a share that is equal to the share for the non-omitted children. As with an omitted spouse, if the decedent’s Will provides clear evidence that the omission was intentional, the omitted afterborn child receives nothing 

     As this week's discussion of the probate statutes demonstrates, EPIC may provide for estate distributions significantly different from what the decedent might have provided for if the decedent had planned. Thankfully, proper planning protects loved ones and insures against accidentally disinheritance. Appropriately drafted documents can ensure that the spouse and descendants receive the share of an estate that the deceased spouse or parent actually wanted rather than what a state statute provides for. A client can avoid the probate process entirely by executing and properly funding a living trust guaranteeing that their assets are distributed to those people and institutions that are named in the trust document.

The Effects of Divorce on Estate Planning

     Divorce is frequently a difficult and painful experience for the parties involved. By the time the proceedings are complete, most people want to go their separate ways and interact with their former spouse as little as possible. Unfortunately, as with other major life events, divorce is also a time where it is important to review and update an existing estate plan.

Under Michigan law, divorce has a substantial effect on existing estate plan documents, including:

• automatic revocation of any potential disposition of property made by a divorced individual to his or her former spouse as a beneficiary under a Will or Trust;
• automatic revocation of provisions conferring powers of appointment on the divorced individual’s former spouse so that the former spouse can no longer appoint beneficiaries under a Will or Trust; and
• revocation of any nominations of the divorced individual’s former spouse to serve in a fiduciary or representative capacity rendering the former spouse unable to act as Personal Representative or Trustee even though named in the document.

     Additionally, divorce severs interests of a former spouse in property held at the time of divorce as joint tenants with rights of survivorship, and it is important to retitle real estate following a divorce. While all of these changes result in a change in the distribution of assets via estate plan documents, they do not negate the documents themselves, therefore the documents continue to function and successor beneficiaries, including minors, may become the primary beneficiaries because of the divorce. If there are no successor beneficiaries, then the Intestacy Statute dictates distribution of those assets.

       Presuming that successor beneficiaries are named, the change in beneficiary is important because in many documents there is a presumption that should something happen to the Grantor their now former spouse will receive such distributions and the terms of the trust did not adequately provide for direct distribution to minor children. Further, even when there is adequate provisions for maintain assets in trust for minors, it is important to ensure that the trustee named to administer that trust is a person the Grantor believes will look out for the best interests of any children and ensure funds are available for their long-term care. It is worth mentioning that a decree of divorce may contain provisions requiring the inclusion of certain provisions in an estate plan, including the purchase of life insurance to cover alimony or child support payments should something happen to the Grantor. Failure to comply with such requirements can have adverse consequences.

     While a review of the terms of the Trust, the beneficiaries, and the successor trustees is important, it is just as it is important to ensure those individuals who are designated to make decisions upon incapacity are also the people the Grantor now wants to make decisions on their behalf. Many people execute Patient Advocate Designations and Durable Powers of Attorney naming their spouses as the sole designee to make decisions on their behalf. Following a divorce those documents are revoked and the grantor is left without a designate to make medical decisions. Even if those documents name other successor designee, it is important to ensure that those individuals are still the best people to be making decisions should the Grantor become incapacitated. Frequently successor designee's are close friends of the couple, who may not continue to be actively involved in their separate lives following a divorce.

      As a side note, it is important to remember that in addition to revoking all the above interests held by former spouses, divorce also revokes interests held by former spouse’s relatives. Thus if after a divorce an individual wishes to continue to leave assets to a relative of the former spouse or name their former spouse’s relatives as a designee, it is necessary to execute new documents reaffirming that desire. While this may seem like an unlikely scenario, is important to remember how many people meet their spouse through a friendship with siblings, grow close to extended family during the course of a marriage, or feel that a former spouse’s sibling or parent is still a good trustee for minor children.

      Also related to updating estate plan documents, is the importance of updating beneficiary designations of assets that transfer outside of the probate process. This includes such assets as insurance policy proceeds and retirement benefits. Updating beneficiary designations are important because these beneficiary designations are a contractual agreement between parties, and divorce does not negate such designations. It is possible for a former spouse to receive large amounts of assets that the deceased certainly would rather have distributed to the beneficiaries of their newly updated estate plan.

      With all of the changes following the dissolution of the marriage, the updating of an estate plan can easily get lost in the shuffle. However due to the substantial impact that a divorce has upon an estate plan, it is important to take the time to review documents for necessary changes. When contemplating making changes be sure to consult an attorney to ensure that changes are made properly.