What are Will Substitutes?

A good estate plan makes the transition of assets desired by the decedent an easy process. Even in the absence of good planning, the Probate Court will attempt to follow the wishes of the deceased if it is possible to establish by clear evidence what the decease wanted to happen. Establishing that by clear evidence, when potential beneficiaries disagree about intent can be very time consuming. 

Jan had two sons, Ken and Luke. Ken has three children, while Luke never married and has no children. While Jan lived comfortably and was generally well organized but never saw the need to work with an attorney to prepare an estate plan. Instead, she made lists of items in her home that she wanted distributed to her sons, daughters-in-law, and grandchildren, and prior to her death wrote a letter to Ken and two of her grandchildren telling them what she wanted to happen to her home and money after she passed away.

While Jan had good relationships with all of her family members, she was particularly close to two of her grandchildren who lived close to her in her later years. These two grandchildren provided helped Jan a great deal so in her letter Jan indicated that, with the exception of the items she listed for each of the other family members to receive from her home, she wanted these two grandchildren to inherit her remaining assets. Following Jan's death, Ken and his family engaged our firm to assist them with the probate of Jan's estate and the enforcement of her wishes.

Since Jan never created a will it was necessary to petition the Probate Court to appoint a Personal Representative (the “PR”) for her estate and to grant that person the authority to follow Jan's wishes. Normally when a decedent lacks a formal Will the intestacy statutes control the appointment of the PR and the distribution of an estate. Michigan law also allows the submission of other writings to the probate court, including letters, as evidence of the decedent’s testamentary intent (their wishes regarding the distribution of assets after their death) for the Court to rule that those writings are to be treated as a "Will Substitute." In our Petition to the Probate Court we included copies of the letters written to Ken and both grandchildren, requesting that the Probate Court appoint Ken as the PR and authorize him to distribute Jan's assets pursuant to the wishes articulated in her letter.

While under the best of circumstances it is possible to establish a document as a Will Substitute with only a single Hearing, in this case the process was complicated by Luke's desire to have his mother's assets distributed pursuant to intestacy statutes. Under the intestacy statutes Ken and Luke, as Jan's surviving children, were entitled to divide Jan's property equally between them. Since the proposed Will Substitute would result in Luke inheriting only a small number of family photos and other personal items he had substantial incentive to question and challenge the use of that document.

As a result, in order achieve the Probate Court’s permission to make distributions pursuant to Jan's letters, we undertook a lengthy process of litigation. This process required a number of hearings and delays in the administration caused by Luke's need to represent himself after the attorney he initially hired to pursue the matter requested the court's permission to stop representing Luke. While self-representation is not uncommon in probate matters, it has the potential to increase significantly the amount of time needed to resolve the matter because the self represented party may not fully understand the actions they need to take but also because in any family conflict the emotions involved may result in parties pursuing a matter well after it is clear that they lack a chance of prevailing.

Fortunately for Jan's grandchildren, Michigan law encourages judges to consider any form of a person's expressed wishes to serve as a Will Substitute. Despite our success in achieving Jan's stated goals, it is important to note that much of the complication here could have been avoided with a small amount of proper planning. While there are few barriers to a disgruntled heir, like Luke, attempting to challenge the validity of a Will or Will Substitute, it is much easier to achieve the desired results with the proper documentation. In those circumstances, being able to present Luke with a Will articulating his mother's wishes likely would have ended his efforts to overturn Jan's wishes with significantly less effort.

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

The Right Plan for Senior Clients

While there are some aspects of estate planning that feature more prominently when dealing with an older client, it is important to remember that each client is unique and that their needs must be addressed on a case by case basis. There is no one size fits all package of estate planning documents that is right for every client and while there are many proactive strategies that an older client may employ, much of that planning is designed to address specific circumstances which never come to pass.

Edna and Frank were married for many years but never considered estate planning. Frank passed away in his mid-eighties and Edna discovered that many of her preconceived notions about how she and Frank owned property were mistaken. We assisted Edna through the probate process and ensured the transfer of her home and a large savings account from Frank’s name alone to her control and ownership. After consolidating that savings account with her primary bank accounts, we began assisting Edna with her own planning to ensure that her children, Brian and Gail, did not have to deal with the stress and difficulties of probate when Edna passed.

Edna’s financial situation was relatively common for a woman of her age. She owned her home free of any mortgage, she had checking and savings accounts, and she owned a number of CDs. She was receiving Social Security, a pension from her work as a teacher, and a smaller survivor’s pension from Frank’s employer. This income allowed Edna to break even with her yearly expenses, but she and Frank were good savers so when Edna needed additional funds she could dip into the savings account.

At first it made sense, due to her uncomplicated circumstances, to keep Edna’s planning simple. We prepared a basic Will to make certain that in the event any assets needed to pass through Probate the court had clear instructions. We then assisted Edna with naming Brian and Gail as the Transfer on Death Beneficiaries of her bank accounts and prepared a Quit Claim Deed with a Reserved Life Estate (commonly called a Ladybird Deed) that allowed Edna to own her home during her lifetime but automatically pass ownership of the property to Brian and Gail at her death. The goal of the plan was to avoid Probate to the extent possible, but to prepare for unexpected circumstance.

Those unexpected circumstances did arise, though not in the way we anticipated. In the years following our work with Edna, her health took a turn for the worse and she was no longer able to maintain her home or safely live alone. Rather than move into an assisted living community, Edna moved in with Brian and his family. This allowed her the ability to sell her home, which had appreciated nicely, and suddenly Edna found herself to have significantly more assets than she realized.

Not wanting to be a burden on Brian and his family, Edna insisted on paying some amount of room and board. In order to avoid any later question of propriety we prepared a simple Rent Agreement detailing what Edna would pay Brian each month. We also prepared a Care Agreement, supported by a doctor’s recommendation, detailing the care that Gail provided to her mother, in exchange for compensation. This planning is useful in avoiding later arguments and addressing issues related to Medicaid that could arise under similar circumstances.

In addition to these agreements, Edna wanted to use some of the proceeds to the sale of her home to help her grandchildren. While initially Edna considered a more complex plan involving holding assets in trust for each of her five grandchildren until they reached retirement age, through lengthy discussions of the merits of the options Edna eventually invested the funds in §529 plans to assist the grandchildren with college costs.

Edna’s situation is an example of how an estate plan does not need a Living Trust to be successful and gives some insight into how a trust could become part of a simpler plan. Had Edna decided to delay distribution of the gifts for her grandchildren until they retired, it would require the creation of trusts to administer those funds for more than forty years. While this is certainly an option that was available, if Edna wanted to make use of it, the simplicity and more immediate benefit of a §529 plan made more sense under the circumstances.

An estate plan should reflect the client’s circumstances and not take a one-size fits all approach. It should take into account what types of assets the client has, not just net worth, to make a plan that works best for the client and their family. Had Edna owned assets that were more diverse or had other major concerns, different planning would be appropriate, but under the circumstances a Will and proper beneficiary designations served to address her needs. This is the benefit of working with experienced attorneys can provide. They have the knowledge to make recommendations that meet your needs without establishing unnecessary complicated plans.

Matt and Al

Pour-Over Wills 2.0

We’ve discussed how both Wills and Living Trusts can serve as important parts of an estate plan and how a Living Trust acts as a substitute for a Will, eliminating he Probate Court interference. With that knowledge, many clients wonder why they should bother to have a Will at all. In most cases, the inclusion of a Will in an estate plan is a form of insurance to protect against the unexpected.

It is important to remember that a Living Trust allows the avoidance of the Probate court because the Trust owns property instead of the individual, but the Trust does not automatically become the owner of property. Clients need to fund (“transfer”) their assets to the Trust (a process that we will discuss in detail in the coming weeks) in order for the Trustee of the Trust to control the assets. While we work with our clients and their advisors to assist with the funding, occasionally there will be an asset the client fails to fund to their Trust. The Will fills the gap in administering such an asset.

When a person has a Living Trust and still owns assets in their own name at death, the terms of their Will, commonly termed a Pour-Over Will, provides instructions to the Probate Court regarding the distribution of the person’s assets. In this case, the Will instructs the court to distribute all of the person’s assets to the successor Trustee of the person’s Living Trust, ensuring that the Trust remains the vehicle for controlling the final distribution of assets. Having a Will in place to give the Probate court these instructions simplifies the Probate process and assures that a person’s wishes for asset distribution are used instead of the intestate statute under Michigan law.

While Probate is never a desirable option for administering an estate, a Probate using a Pour-Over Will is much better than a Probate without any Will. In the absence of a Will, assets not funded to a Living Trust would be subject to the Michigan intestacy statutes, requiring a formal Probate proceeding and appointment of a Personal Representative who is required to distribute assets directly to the deceased’s heirs at law under the intestacy statute rather than what might be they specific desires of the deceased. In addition to distributing significant amounts of assets to heirs the deceased would not want to benefit, such distributions may be inefficient or undesirable if the heir is a minor or under some form of incapacity and unable to responsibly manage their own affairs. This type of situation could contradict the terms of the deceased’s Living Trust and require the ongoing supervision of a court appointed Conservator for many years.

Even when a client is meticulous with their funding, a Pour-Over Will can protect against the unexpected. The Pour-Over Will ensure that all of a person’s assets, even those they do not know exist, become part of the Trust assets. It also allows assets that only arise after a person’s death, such as the proceeds from a Wrongful Death Lawsuit, to become part of the Trust assets. 

A Pour-Over Will, coupled with a Living Trust, serves as a safety net to an estate plan. It makes sure that the Living Trust remains in control of asset distribution even when circumstances do not go as expected. In this way, it is just one of many forms of protection that make up a properly drafted estate plan designed to ease the difficulty of an already trying time for family and friends. There are other more complex methods of using a Will in conjunction with Trusts but we will discuss such things in future blogs.

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

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.

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

Avoiding Conflict when Distributing Personal Property

      One of the primary reasons that a client prepare an estate plan is to ensure that there is a minimum of disagreement and turmoil for their loved ones following their passing. Client frequently spend significant time contemplating the distribution provisions for the bulk of their assets, but often give little thought to the distributions of their tangible personal property. In our experience, dividing jewelry, artwork, furniture, and other items of personal property can often cause discord among beneficiaries. A client should consider how personal property, whether of significant value or simply sentimental value is distributed

      While our primary concern is focusing on the monetary aspects of estate, we encourage our clients to consider who should receive items of personal property. Children or grandchildren may have an emotional connection to Aunt Jane's ring, Grandma's mantle clock, or even dad's golf clubs. We suggest our clients spend time with their loved ones, discussing if there are items of property they would each like to receive. Often clients come back to us surprised by the emotional value that their children attached to items of relatively insignificant monetary value. It may be a collection of cookie cutters that hold memory of holiday baking or hand tools that will always remind the loved one of their parent’s self-reliance. The small physical objects are often the most important items that a loved one inherits. By spending time learning about their loved ones strongest memories, it is possible for our clients to prepare a memorandum distributing specific items of tangible personal property to the beneficiary who will most appreciate the significance of those items.

      A client may also learn which items may cause the most conflict among their beneficiaries when the time comes to divide personal property. If two children express substantial interest in the same piece of furniture, jewelry, collectible, or any other object, clients can use the same memorandum they created to make special gifts to their loved ones to preemptively sidestep disagreements. These conversations allow the client to make decisions about distributions of personal property understanding why particular beneficiaries feel an attachment to particular property. For example, if two children express interest in the same wooden chest, clearly both cannot inherit the item. However, if through discussions the client learns that one child is actually attached to the smell of the quilts contained in the chest, while the other has strong memories of sitting on the chest, a client can distribute the chest and quilts separately and provide both their children with items they will cherish without creating any rift in the sibling relationships.

      Repeatedly in this post, we have referred to a memorandum for distributing tangible personal property. The use of the memorandum is a common technique that allows the client to provide a list of items they wish to be distributed to particular beneficiaries following the execution of a Will or Trust. Michigan statutes authorize the use of a personal property memorandum that is read in conjunction with the Will or Trust document. The client can make changes to distributions of these items over the years without needing to amend their Trust or draft a Codicil for their Will. The personal property memorandum is a tool we provide each of our clients to allow them to make gifts to their loved ones and limit family discord. As part of the estate planning process, it is important for clients to take advantage of this tool to gain its full value.

Matt 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.

Statutory Distributions under a Will

We spend a great deal of time in the estate planning process discussing gifts and distributions with our clients. It is worth noting that when a person dies with a Will, Michigan law provides for certain automatic distributions over and above the terms of the Will. These statutorily authorized distributions exist to protect surviving spouses and children by providing them immediate access to funds needed for normal expenses. These provisions also guarantee their right to retain a substantial portion of personal property over the claims of any potential creditor. Before we continue, this is an opportune time to review legal terms commonly used in estate planning, as these terms appear often in legislation.

• Decedent: The individual who died, also known as the Deceased Individual.
• Surviving Spouse: The person married to the decedent at the time of the decedent's death.
• Descendants: The children, grandchildren, great-grandchildren, etc. of the decedent.
• Estate: The individually owned property of the decedent that must pass through the probate process at the decedent's death.
• Intestate: The state of dying without a Will

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.

The property and assets received from these allowances are in addition to any amount that the surviving spouse or child would inherit either by intestate succession or under the decedent’s Will.

In addition to these allowances, a surviving spouse has the ability to elect a statutorily mandated share of their deceased spouse's estate in lieu of what the spouse would receive under the terms of the Will. That election entitles the surviving spouse to one half (1/2) of the sum or share that would have passed to the spouse had the testator died intestate, reduced by one half of the value of all property received by the spouse from the decedent by any means (for example, joint tenancy of assets) other than testator or intestate succession upon the decedent's death.

The intestate share of a surviving spouse varies depending on the other parties that survived the decedent. The spouse is entitled to:

• The entire intestate estate if no descendant 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.

As with the Homestead allowance, the values listed above are adjusted on a yearly basis for inflation. However, keep in mind that when a surviving spouse elects to take this statutorily mandated share, the spouse receives only one-half of the amounts listed above.

When presented with this information, clients often express surprise and wonder why they are not allowed to dispose of their assets in any way they choose. The simple answer is the Michigan legislature has found a compelling interest in ensuring that surviving spouses are not left destitute upon the demise of their spouse because the spouse "disinherited" them. This is not to say that a married couple cannot execute a prenuptial or postnuptial agreement providing that the surviving spouse waives the right to the elective share. Such agreements however require that both parties disclose all of their assets and that separate counsel represent both parties prior to consenting to such an agreement.

It is clear that while there is substantial freedom in designating those individuals who will inherit property upon a decedent's death there are limitations. A further limitation addressed by Michigan statute is the circumstance of a marriage, or birth of a child, following the execution of a Will. On Thursday, we will discuss this limitation in more detail.

An important caveat to all of the foregoing information is that any amounts received by surviving spouses or children under allowances or an elective share of an estate apply only to those assets that are part of the decedent’s probate estate, thus any asset owned by a trust is exempt from attachment under these exceptions. This ability to bypass the statutory limits on disinheritance is another benefit of a properly executed and implemented trust. In the event that an individual seeks to disinherit their immediate family it is important to discuss this decision with an experienced attorney to ensure that all the necessary steps are taken to enforce such a decision.

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.

Protecting Four-Legged Loved Ones

The subject of today's blog started as a joke over the holidays as I discussed with a number of friends my desire to expose more people to the information in our blog. Those friends informed me that the most successful blogs they know of deal primarily with pictures of cute animals and/or celebrity gossip. In honor of that discussion, I start today's blog with this adorable photo.

While we do not intend to make a habit of luring readership to our site with adorable puppy pictures, we are not opposed to an occasional cute picture in order to educate people about the estate planning process.

-Matt

For most people, the process of estate planning revolves around ensuring that their assets go to the people they care for and that sufficient protections are in place so that those assets are put to the greatest possible use. For some people this means establishing 529 Education Savings Plans to ensure that funds are available for children or grandchildren to attend college. For others it means limitations on the distribution of trust principal to ensure that beneficiaries with spending issues or other personal issues have a source of income over their lifetimes. Often forgotten in the estate planning process is the fact that a person's loved ones sometimes include nonhuman companions that will also require care after their owner has died. While it is certainly possible to nominate an individual to care for a loved pet and leave that person funds for that purpose, the use of a pet trust ensures that those funds are used only for the benefit of the pet and the new owner does not skimp on the pet’s care to supplement their own income.

Currently forty-eight states, including Michigan, allow for the creation of a trust for the benefit of animals. These trusts, commonly known as Pet Trusts, allow people to ensure that assets are available to provide for their furry friends after they are gone. In Michigan, Pet Trusts are governed by MCL 700.2722. This statute formalizes the principle that the care of a pet is a lawful, noncharitable purpose, for which the trust can be created. Furthermore, the statute creates a presumption against construing a bequest for the benefit of the pet as merely precatory or honorary, thus discouraging courts from refusing to enforce such bequests.

The Michigan statute does however place certain limitations on the use of Pet Trusts. First, the statute limits the term of a Pet Trust to the lifetime of the animal or animals named as beneficiaries. However, the statute recognizes that certain animals have extremely long lifespans and therefore exempts trusts created under the statute from the uniform statutory rule against perpetuities, which would otherwise cause such trusts to fail and be unenforceable. It is possible for a pet trust to provide for multiple generations of animals or for multiple animals of varying ages. Second, the statute specifically allows the probate court to reduce the amount of property transferred to the trust if the court determines that the amount designated substantially exceeds the amount required to care for the animal. When a court makes this determination, the amount of reduction passes pursuant to the terms of trust as if those assets were not expended caring for the animal. This means that as in the case of Leona Helmsley, who attempted to leave her dog, "Trouble", $12,000,000 in the trust fund, the probate court is free to determine the amount of assets needed to care for a pet over its remaining expected lifespan. In the case of Trouble, it is worth noting that the probate court determined that a reasonable sum to provide care for the rest of his lifetime was only $2,000,000.

For those people who are not real estate moguls with the desire to keep their Maltese in handmade dog food and fur coats for the rest of their lives, a pet trust still provides an excellent resource for ensuring care of their animal companions and encouraging a two legged loved one to take the pet into their home. When creating a pet trust it is important to remember three things. First, as discussed, it is important to determine how much to leave in trust for the pet’s care. You should also determine what happens to any amount left in trust at the death of the pet. As with any other residuary distribution from a trust, the grantor can determine how such funds are distributed. In the simplest case, any remaining funds are distributed to the other beneficiaries. Alternately, if the grantor is charitably inclined, remaining funds could be used to benefit charitable organizations including the ASPCA, Humane Society, or World Wildlife Fund. In addition, it is important to name individuals who you wish to care for your pets. A pet trust does very little good if there is not a human alive to expend the trust assets for the pet’s benefit. From a common sense perspective, it is preferable to name someone other than the Trustee of the trust as the guardian for the pet, thus ensuring that there is supervision over the use of the assets. Lastly, it is important to remember that pet trusts are not limited to dogs and cats. The statute allows the creation of the trust for any animal, thus it is possible to ensure that funds are available to care for large animals such as horses or long-lived animals such as turtles long after the original owner has passed away.

As with any other form of trust is important to work with a knowledgeable and licensed attorney to ensure the observation of the legal formalities of creating a trust and that the trust is enforceable. Planning for the long-term care of an animal is as complex as planning for the long-term care of any other loved one, but with the proper assistance it is possible to ensure that all of our friends and family, on two legs or four, receive the best possible care even after we are gone.