Michigan Estate Planning Blog

What Estate Planning Documents Should I Have when I Retire?

Research shows that most retirees (53%) have a last will and testament. However, they don’t have six other crucial legal documents.

Money Talks News’ recent article entitled “6 Legal Documents Retirees Need — but Don’t Have” says in fact, in this pandemic, 30% of retirees have none of these crucial documents — not even a will — according to the 20th annual Transamerica Retirement Survey of Retirees.

In addition, the Transamerica survey found the following among retirees:

• 32% have a power of attorney or medical proxy, which allows a designated agent to make medical decisions on their behalf
• 30% have an advance directive or living will, which states their end-of-life medical preferences to health care providers
• 28% have designated a power of attorney to make financial decisions in their stead
• 19% have written funeral and burial arrangements
• 18% have filled out a Health Insurance Portability and Accountability Act (HIPAA) waiver, which allows designated people to talk to their health care and insurance providers on their behalf; and
• 11% have created a trust.

The study shows there is a big gap that retirees need to fill, if they want to be properly prepared for the end of their lives.

The coronavirus pandemic has created an even more challenging situation. Retirees can and should be taking more actions to protect their health and financial well-being. However, they may find it hard while sheltering in place.

Now more than ever, seniors may need extra motivation and support from their families and friends.

The Transamerica results shouldn’t shock anyone. That is because we have a long history of disregarding death, and very important estate planning questions. No one really wants to ponder their ultimate demise, when they can be out enjoying themselves.

However, planning your estate now will give you peace of mind. More importantly, this planning can save your heirs and loved ones a lot of headaches and stress, when you pass away.

Talk to an experienced estate planning attorney today to get your plan going.

Reference: Money Talks News (Dec. 16, 2020) “6 Legal Documents Retirees Need — but Don’t Have”

What Happens If Trust Not Funded

Revocable trusts can be an effective way to avoid probate and provide for asset management, in case you become incapacitated. These revocable trusts — also known as “living” trusts — are very flexible and can achieve many other goals. Point Verda Recorder’s recent article entitled “Don’t forget to fund your revocable trust” explains that you cannot take advantage of what the trust has to offer, if you do not place assets in it. Failing to fund the trust means that your assets may be required to go through a costly probate proceeding or be distributed to unintended recipients. This mistake can ruin your entire estate plan. Transferring assets to the trust—which can be anything like real estate, bank accounts, or investment accounts—requires you to retitle the assets in the name of the trust. If you place bank and investment accounts into your trust, you need to retitle them with words similar to the following: “[your name and co-trustee’s name] as Trustees of [trust name] Revocable Trust created by agreement dated [date].” An experienced estate planning attorney should be consulted. Depending on the institution, you might be able to change the name on an existing account. If not, you’ll need to create a new account in the name of the trust, and then transfer the funds. The financial institution will probably require a copy of the trust, or at least of the first page and the signature page, as well as the signatures of all the trustees. Provided you’re serving as your own trustee or co-trustee, you can use your Social Security number for the trust. If you’re not a trustee, the trust will have to obtain a separate tax identification number and file a separate 1041 tax return each year. You will still be taxed on all of the income, and the trust will pay no separate tax. If you’re placing real estate in a trust, ask an experienced estate planning attorney to make certain this is done correctly. You should also consult with an attorney before placing life insurance or annuities into a revocable trust and talk with an experienced estate planning attorney, before naming the trust as the beneficiary of your IRAs or 401(k). This may impact your taxes. Reference: Point Verda Recorder (Nov. 19, 2020) “Don’t forget to fund your revocable trust”

Should I Add that to My Will?

In general, a last will and testament is an easy and straightforward way to state who gets what when you die and designate a guardian for your minor children, if you (and your spouse) die unexpectedly.

MSN’s recent article entitled “Things you should never put in your will” explains that you can be specific about who receives what. However, attaching strings or conditions may not work because there’s no one to legally enforce the terms. If you have specific details about how a person should use their inheritance, whether they are a spendthrift or someone with special needs, a trust may be a better option because you’ll have more control, even from beyond the grave.

Keeping some assets out of your will can actually benefit your future heirs because they’ll get their inheritance faster. When you pass on, your will must be “proven” and validated in a probate court prior to distribution of your property. This process takes some time and effort, if there are issues—including something in your will that doesn’t need to be there. For example, property in a trust and payable-on-death accounts are two types of assets that can be distributed to your beneficiaries without a will.

Don’t put anything in a will that you don’t own outright. If you jointly own assets with someone, they will likely become the new owner. For example, this applies to a property acquired by married couples in community property states.

Property in a revocable living trust. This is a separate entity that you can use to distribute your assets which avoids probate. When you title property into the trust, it is subject to the trust’s rules.  Because a trust operates independently, you must avoid inconsistencies and not include anything in your will that the trust addresses.

Assets with named beneficiaries. Some financial accounts are payable-on-death or transferable-on-death. They are distributed or paid out directly to the named beneficiaries. That makes putting them in a will unnecessary (and potentially troublesome, if you’re inconsistent). However, you can add information about these assets in your letter of instruction (see below). As far as bank accounts, brokerage or investment accounts, retirement accounts and pension plans and life insurance policies, assign a beneficiary rather than putting these assets in your will.

Jointly owned property. Property you jointly own with someone else will almost always directly pass to the co-owner when you die, so do not put it in your will. A common arrangement is joint tenancy with rights of survivorship.

Other things you may not want to put in a will. Businesses can be given away in a will, but it’s not the best plan. Wills must be probated in court and that can create a rough transition after you die. Instead, work with an experienced estate planning attorney on a succession plan for your business and discuss any estate tax issues you may have as a business owner.

Adding your funeral instructions in your will isn’t optimal. This is because the family may not be able to read the will before making arrangements. Instead, leave a letter of instruction with any personal wishes and desires.

Reference: MSN (Dec. 8, 2020) “Things you should never put in your will”

Should I Consider a ‘Life Settlement’?

Even in this volatile environment, many seniors may have an option for more retirement income available in the sale of their life insurance policy. A “life settlement” could provide them with an average of four or more times the cash surrender value of their policy.
The Street’s recent article entitled “Is Your Life Insurance Policy Worth More Than Its Cash Surrender Value?” explains that anytime a senior isn’t going to keep a life insurance policy, they should look into a life settlement to bring them the most money when they terminate the policy.
When a policy is lapsed, the policy owner gets nothing. When a policy is surrendered back to the insurance company, the policyowner receives little, if any, cash surrender value. So, in instances where a policy is being lapsed or surrendered, a life settlement makes financial sense.
According to 2019 life insurance industry data, over 90% of life insurance policies (by face amount) that terminated in 2018 were lapsed or surrendered. In 80% of those cases, the policyowners received nothing in return for years of premium payments to the insurance company, because they lapsed their policies.
Over the next decade, more than $2 trillion in life insurance policy death benefits that could qualify for a life settlement is anticipated to be lapsed or surrendered—about $850 billon is projected to be policies between $100,000 and $1 million.
To qualify for a life settlement, an individual must usually be at least 70 years old and own a whole life, universal life, or convertible term insurance life insurance policy, with a death benefit of $100,000 or more.
Traditionally, life settlements have been available only where the insured has developed a significant health impairment since the policy was started, but now even those insureds without a change in health can qualify for a life settlement, depending on their age and the type and size of the policy.
Some life settlement companies take several months to make an offer to purchase a policy, asking for full medical records and independent underwriting. However, recently, life settlement companies have shortened the time in evaluating a policy and making an offer.
Reference: The Street (Dec. 22, 2020) “Is Your Life Insurance Policy Worth More Than Its Cash Surrender Value?”

What Do I Need to Know about Creating a Will?

A simple or basic will allows you to specifically say the way in which you want your assets to be distributed among your beneficiaries after your death. This can be a good starting point for creating a comprehensive estate plan because you may need more than just a basic will.
KAKE’s recent article entitled “What Is a Simple Will and How Do You Make One?” explains that a last will and testament is a legal document that states what you want to happen to your property and “worldly goods” when you die. A simple will can be used to designate an executor for the will and a legal guardian for minor children and specify who (or which organizations) should inherit your assets when you die.
A will must be approved in the probate process when you pass away. After the probate court reviews the will to make sure it’s valid, your executor will take care of the collection and distribution of assets listed in the will. Your executor would also be responsible for paying any debts owed by your estate.
Whether you need a basic will or something more complex, usually depends on a few factors, including your age, the size of your estate and if you have children (and their ages).
Having a will in place can be a good starting point for estate planning. However, deciding if it should be simple or complex can depend on a number of factors, such as:
The size of your estate
The amount of estate tax you expect to owe
The type of assets and property you own
Whether you own a business
The number of beneficiaries you want to name
Whether the beneficiaries are individuals or organizations (like charities)
Any significant life changes you anticipate, like marriages, divorces, or having more children; and
Whether any of your children or beneficiaries have special needs.
With these situations, you may need a more detailed will to plan how you want your assets to be distributed. In any event, work with an experienced estate planning attorney. With life or financial changes, you may need to create a more complex will or consider a trust. It is smart to speak with an estate planning attorney, who can help you determine which components to include in your plan and help you keep it updated.
Reference: KAKE (Nov. 23, 2020) “What Is a Simple Will and How Do You Make One?”