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.

New Year, New Blog

In 2014 we took a break from writing Plainly Legal, but in 2015 we are recommitted to providing you with insights that are useful to planners and clients alike. We'll start the year off with some thoughts from Alan regarding the importance of regularly reviewing estate plan documents.

     I am a firm believer that one of our New Year’s resolutions should be to review and, if necessary, update our estate planning. It came as a surprise to me that it has been three years since I have taken a close look at my own estate planning. In those three years:

• Federal estate tax law has changed dramatically,
• A number of relatives and passed away,
• Both my sons have passed their 30th birthday,
• One of my sons has brought a wonderful daughter-in-law to our family and two amazing grandchildren,
• My oldest son has joined me in our law practice and made my life much easier, and
• My wife and I are three years older.

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

1. Review estate planning documents especially if they have not been updated in the last two or three years. If you have no documents, it is time to consider getting them. Pay special attention should be paid to:
   
   a. Guardians named to care for minors in the event both parents pass away. If you have previously named guardians, are these still the people you trust?
   b. Distribution provisions for children and grandchildren --when should they receive money and how much?
   c. People named to act as trustees and personal representatives after your death to protect your children and other loved ones. Are those people you named to administer your trust and estate still the ones you want to accept that responsibility?
   d. People named to make legal and medical decisions under your Durable Power Of Attorney and Patient Advocate Designation, in the event you become incapacitated. If you have previously named people, are they still able, and willing, to make these decisions on your behalf?
2. Review how you titled your assets to confirm you can avoid the high cost, time delays and public exposure of probate under Michigan law at your death.
3. Inventory your assets, so that a complete list is available for your administrators in the event of a sudden death.
4. Consider making a list of personal property designations, so that items you value can go to the desired beneficiaries.
5. Consider making a list of important people and contact information, such as your attorney, accountant, financial planner, or investment advisor, to save your family time and aggravation.
6. If you have any particular desires, write a letter indicating your personal burial preferences, so your loved ones will know how to handle arrangements at your death.
7. Consider starting Section 529 education accounts for your children or grandchildren so the funds can grow tax-deferred, and be distributed tax-free, to the extent they are used for higher education.
8. For those of you with unmarried children over the age of 18, encourage them to execute their own patient advocate designations and durable powers of attorney so that if something were to happen to them, decisions can be made without involving the probate court.

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