Michigan Estate Planning Blog

What’s an Enhanced Life Estate?

First Coast News’ recent article entitled “Deed named for former first lady could be key to planning your estate” explains that a strategy that’s available in Florida and a few other states is called an enhanced life estate or a “Lady Bird” deed, named after former First Lady, Lady Bird Johnson.
This deed states that when I die, you get the property, but until then, I reserve all rights to do whatever I want with it. That contrasts with a traditional life estate where a property owner can plan for one or more others to inherit their house.
Typically, the person with a life estate has a lot less control over what happens in the future, including potentially being thwarted by the very person you’re tapping to receive your property at your death, in case you decide you no longer want the house while you’re still alive.
The problem is, now you want to sell the property, but since they are a co-owner, they can refuse. And there’s nothing you can do about it.
Enhanced life estates are also about protecting property and its eventual recipient from creditors after the death of the owner. That’s the benefit of avoiding probate. Medicaid or any other creditor may become a creditor in probate.
A Lady Bird deed supersedes a will.
But there are downsides to the Lady Bird deed. A big drawback is if you change your mind. You have to now record another deed in the public record to remove that, and every deed that you record creates one thing that could go wrong.
However, this can be true of any change made in hope of overriding an earlier estate decision, and Lady Bird deeds are fairly straightforward.
Ask an experienced estate planning attorney if this type of arrangement is available in your state.
Reference: First Coast News (July 19, 2021) “Deed named for former first lady could be key to planning your estate”

No Kids? What Happens to My Estate?

Just because you don’t have children or heirs doesn’t mean you should not write a will. If you decide to have children later on, a will can help protect their financial future. However, even if you die with no children, a will can help you ensure that your assets will go to the people, institutions, or organizations of your own choosing. As a result, estate planning is necessary for everyone.
Claremont Portside’s recent article entitled “What Happens to Your Estate If You Die With No Children” says that your estate will go to your spouse or common-law partner, unless stated otherwise in your will. If you don’t have any children or a spouse or common-law partner, your estate will go to your living parents. Typically, your estate will be divided equally between them. If you don’t have children, a spouse, or living parents, your estate will go to your siblings. If there are any deceased siblings, their share will go to their children.
The best way to make certain your estate goes to the right people, and that your loved ones can divide your assets as easily as possible, is to write a will. Ask an experienced estate planning attorney to help you. As part of this process, you must name an executor. This is a person you appoint who will have the responsibility of administering your estate after you die.
It’s not uncommon for people to appoint one of their children as the executor of their will. But if you don’t have children, you can appoint another family member or a friend. Select someone who’s trustworthy, responsible, impartial and has the mental and emotional resources to take on this responsibility while mourning your death.
You should also be sure to update your will after every major event in your life, like a marriage, the death of one of your intended beneficiaries and divorce. In addition, specifically designating beneficiaries and indicating what they will receive from your estate will help prevent any disputes or contests after your death. If you have no children, you might leave a part (or your entire) estate to friends, and you can also name charities and other organizations as beneficiaries.
It’s important to name who should receive items of sentimental value, such as family heirlooms, and it’s a good idea to discuss this with your loved ones, in case there are any disputes in the future.
Even without children, estate planning can be complicated, so plan your estate well in advance. That way, when something happens to you, your assets will pass to the right people and your last wishes will be carried out. Ask an experienced estate planning attorney for assistance in creating a comprehensive estate plan.
Reference: Claremont Portside “What Happens to Your Estate If You Die with No Children”

Should I Sign a Prenup before I Get Married again at 60?

 

A “prenup” can spell out which expenses will belong to each individual and which will be for the couple. In addition, a prenup can state where marital assets will go in case of death or divorce, says FedWeek’s recent article entitled “A Prenup May Be Prudent for Later-Life Marriages.”
In some states, a prenuptial agreement is called an "antenuptial agreement" or a "premarital agreement."
Sometimes the word "contract" is used rather than "agreement," as in "prenuptial contract."
An agreement made during marriage, rather than before, is known as a "postnuptial," "post-marital," or "marital" agreement.
For a prenup to be valid, each party should seek the advice of an attorney. These attorneys should be independent of each other, so one attorney shouldn’t represent both parties. The agreement should fully disclose each spouse-to-be assets and liabilities.
Here are some reasons that some people want a prenup:
Pass separate property to children from your prior marriages. A marrying couple with children from prior marriages may sign a prenup to state what will occur to their assets when they die, so that they can pass on separate property to their children and still provide for each other, if necessary. Without a prenup, a surviving spouse may have the right to claim a large piece of the other spouse's property, resulting in much less for the stepchildren.
Clarify financial rights. Couples with or without children may just want to clarify their financial rights and responsibilities during marriage.
Avoid disagreements in a divorce. A couple may want to avoid potential arguments if they divorce, by stating in advance the way in which their property will be divided, and whether or not either spouse will receive alimony (some states won't allow a spouse to give up the right to alimony).
Protection from debts. These agreements can also be used to protect spouses from each other's debts, and they may also speak to a number of other issues.
To implement a prenup, don’t wait until the last minute.
Some prenups have been ruled invalid by the courts, when one spouse appears to have pressured the other to sign the contract right before the wedding.
Reference: FedWeek (Aug. 25, 2021) “A Prenup May Be Prudent for Later-Life Marriages”

What Should I Know about Powers of Attorney?

Forbes’ recent article entitled “5 Power Of Attorney Clauses You Need to Focus On” explains that there are two types of powers of attorney. A durable power of attorney is valid when you sign it and stays valid, if you later become incapacitated. A springing power of attorney “springs” into effect, if you become incapacitated. No matter the type of power of attorney, here are some things to consider before signing.
1. Designating multiple agents. Selecting the person you want as your attorney-in-fact or agent can be a difficult decision because he or she will have control of your financial assets. You can name more than one person as your agent, but if you name two, specify if they’ll be required to act together or if either one can act independently.
2. Defining gifting parameters. Make certain that your agent will be authorized to make gifts, as this may be important if you want to reduce estate taxes or if you’ll need to apply for government benefits in the future.
3. Changing beneficiary designations. See if the document lets your agent change beneficiary designations. You should have already named beneficiaries of important assets, like life insurance and retirement accounts, but verify whether you want your agent to be able to change those designations. Most people don’t want their agent to be able to change these designations.
4. Amending a trust. If you’ve created a revocable trust during your lifetime, you may want to give your agent the ability to change important provisions of the trust, like the beneficiaries or the amounts that they receive. However, this could ruin your estate planning goals and disinherit family that you intended to provide for. Most people don’t want to give their agent the ability to change a trust.
5. Designating a guardian. The power of attorney often names a guardian, in case one is required. The guardian would be appointed by a court and is often the same person as the agent. If you trust someone enough to be your attorney-in-fact, you’ll probably also trust them as your guardian.
The power of attorney contains powerful authorizations, so make sure you read the document carefully before you sign it. It may be wise to sign a new power of attorney every few years. Otherwise, the power of attorney might become “stale” and your named agent may have trouble using it if it’s ever needed.
Reference: Forbes (July 19, 2021) “5 Power of Attorney Clauses You Need to Focus On”

How Do I Sell a Home in an Irrevocable Trust?

 

A trustee who sells a home in irrevocable trust for a parent who died should know that generally, assets transferred to an irrevocable trust will be deemed a completed gift and will not be included in an estate for estate tax purposes.
Lehigh Valley Live’s recent article entitled “What happens to tax on a home sold from a trust?” explains that this means there wouldn’t be a step-up in basis to the fair market value upon the decedent’s death.
Remember that an irrevocable trust is a type of trust in which its terms can’t be modified, amended, or terminated without the permission of the grantor's named beneficiary or beneficiaries.
Irrevocable trusts have tax-shelter benefits that revocable trusts to don’t.
However, an irrevocable trust can be created so that the settlor (the creator) of the trust keeps certain rights and powers, so that gifts to the trust are incomplete.
In that instance, the assets are included in the settlor’s estate upon death and obtain a step-up in basis upon the decedent’s death.
If the trust sells the asset in the trust, the trust may need to file Form 1041, U.S. Income Tax Return for Estates and Trusts, and the trust may be required to pay a tax.
If the trust distributes any income to the beneficiaries in the same tax year it receives that income, the income is passed through to the beneficiaries, and the beneficiaries must report it on the beneficiaries’ individual tax returns (Form 1040) and pay any tax due.
It’s generally a good idea to report and pay tax at the individual rate instead of at the trust or estate level.
That’s because the trust or estate will begin to pay tax at the highest rate at only $13,150. In comparison, an individual doesn’t pay tax at the highest rate until his or her income exceeds over $440,000.
Note that an irrevocable trust is a more complex legal arrangement than a revocable trust. As a result, there might be current income tax and future estate tax implications when using this type of trust. It’s wise to seek the assistance of an experienced estate planning attorney.
Reference: Lehigh Valley Live (Aug. 16, 2021) “What happens to tax on a home sold from a trust?”

How Do I Avoid Estate Planning Mistakes with a Blended Family?

The Wealth Advisor’s recent article entitled “Remarried With Children? 5 Estate Planning Mistakes to Avoid” says that you can’t guarantee that everyone in the blended family will be happy with the arrangements you’ve made with a second marriage.
Mistake #1: Failing to change beneficiaries. With a beneficiary designation, the money passes directly to your intended beneficiary without probate. Look at all of your financial accounts to be certain that your spouse is designated the beneficiary if that's what you want. Plus, check your life insurance beneficiaries because these payouts also bypass probate.
Mistake #2: Failing to update your last will. Your last will determines much of who gets the assets you and your spouse accumulated during your lifetimes. You probably don't want your ex-spouse to get these. People on their second marriage frequently decide that the surviving spouse gets all the assets; upon the death of the second spouse, the remaining assets will be divided evenly among all of the children. There are ways to make that happen, but it takes very special legal planning.
Mistake #3: Treating all heirs equally. Most spouses aren't financial equals when they marry, and this is particularly so in second marriages. If your new spouse moves into your house, for example, you may want your children to get the proceeds when it’s sold, not your spouse or your spouse's children. There are many reasons why parents don't treat children equally, including when there’s a child who’s disabled or has special needs. A child may also suffer from an addiction and require a trust that provides stipends at regular intervals to the beneficiary and deters creditors from getting money in the trust.
Mistake #4: Failing to give while you’re still alive. If you're planning to leave money to your kids, you might think about giving it to them now. You can give up to $15,000 per person without having to pay the federal gift tax or deal with the IRS. Plus, your spouse may also give the same amount.
Mistake #5: Failing to work with an experienced estate planning attorney. If you're older and on your second marriage, your life is probably complex with ex-spouses and children and stepchildren. Blended families and comingled assets make things complicated, as does a child with special needs or an aging parent. An experienced estate planning attorney can work through all of your issues and make sure you have the best and most comprehensive plan for your circumstances.
Reference: The Wealth Advisor (July 12, 2021) “Remarried With Children? 5 Estate Planning Mistakes to Avoid”