Michigan Estate Planning Blog

Do You Need a Revocable or an Irrevocable Trust?

 

It’s not always obvious which type of trust is the best for an individual, says a recent article titled “Which is Best for Me: A Revocable or Irrevocable Trust?” from Westchester & Fairfield County Business Journals.

In a revocable living trust (RLT), the creator of the trust, known as the “grantor,” benefits from the trust and can be the sole Trustee. While living, the grantor/trustee has full control of the real estate property, bank accounts or investments placed in the trust. The grantor can also amend, modify and revoke the trust.

The goal of a revocable trust is mainly to avoid probate at death. Probate is the process of admitting your last will and testament in the court in the county where you lived to have your last will deemed legally valid. This is also when the court appoints the executor named in your last will. The executor then has access to the estate’s assets to pay bills and distribute funds to beneficiaries as named in the last will.

Probate can take six months to several years to complete, depending upon the complexity of the estate and the jurisdiction. Once the estate is probated, your estate is part of the public record.

A revocable living trust and the transfer of assets into the trust can accomplish everything a last will can. However, distribution of assets at the time of death remains private and the court is not involved. Distribution of assets takes place according to the instructions in the trust.

By comparison, irrevocable trusts are not easily revoked or changed. Most irrevocable trusts are used as a planning tool to transfer assets for the benefit of another person without making an outright gift, or for purposes of Medicaid or estate tax planning. An Irrevocable Medicaid Asset Protection Trust is used to allow an individual to protect their life savings and home from the cost of long-term care, while allowing the trust’s creator to continue to live in their home and benefit from income generated by assets transferred into the irrevocable trust.

The transfer of assets to a Medicaid Asset Protection trust starts a five-year penalty period for Nursing Home Medicaid and a two-and-a-half-year penalty period for Home Care Medicaid for applications filed after March 1, 2024. After the penalty (or “look back”) periods expire, the funds held by the trust are protected and are not considered countable assets for Medicaid.

An irrevocable trust can also be used to transfer assets for the benefit of a loved one, friend, child, or grandchild. Assets are not controlled by the beneficiaries but can be used by the trustee for the beneficiary’s health, education, maintenance and support.

Trusts are used to reduce the size of the taxable estate, to plan for the well-being of loved ones, and to protect the individual and couple if long-term care is needed. Speak with an estate planning attorney about which trust is best for your unique situation.

Reference: Westchester & Fairfield County Business Journals (Jan. 26, 2023) “Which is Best for Me: A Revocable or Irrevocable Trust?”

Does Will Have an Expiration Date?

Nj.com’s recent article entitled “Do I need to change my will if it’s about 10 years old?” explains that there’s no expiration date on a will.

However, as your family and financial situations change, let alone as laws change, wills may need to be updated to reflect these changes and better reflect your intent.

If the changes are minor, they can be reflected in a codicil. That’s a separate document changing the will.

Codicils can be used to keep a will current and up to date. They’re separate documents from wills—and serve as an addendum to the will.

The use of a codicil dates back to ancient times when, for instance, an heir needed to be named.

The requirements for a codicil vary in each state, and like a will, most states require two witness signatures for codicils, while some states allow the document to be notarized.

In contrast, significant changes should be done by having a new will prepared and executed.

Sometimes, even minor changes may involve preparation of a new will.

For instance, in the original will you may have excluded a beneficiary who you now want to include.

However, don’t want the beneficiary to find out they were originally excluded.

If you sign a codicil, the previous exclusion will be obvious. However, with a new will, the old will and previous exclusion will remain undisclosed.

Don’t mark up or hand-edit an original will because that will make it hard or impossible to probate. It will probably require a court proceeding to have the will accepted for probate.

Finally, some financial institutions have problems with older wills, so you may want to inquire about their policies to make sure there won’t be trouble after you pass away.

Reference: nj.com (Oct. 22, 2022) “Do I need to change my will if it’s about 10 years old?”

What Is Included on a HIPAA Authorization Form?

HIPAA Journal’s recent article entitled “What is HIPAA Authorization?” explains that the authorization form must be written in plain language so it can be easily understood. In addition, and as a minimum, the authorization form must have these components:
Specific and meaningful information, including a description of the information that will be used or disclosed
The name of the individual authorized to make the requested use or disclosure
The name of the person or class of persons to whom information will be disclosed
A description of the purpose of the requested use or disclosure
A specific time frame for the authorization, including an expiration date; and
A date and signature from the individual giving the authorization.
Statements must also be included on the HIPAA authorization to notify the individual of the right to revoke the authorization in writing and either:
exceptions to the right to revoke and a description of how the right to revoke can be exercised; or
the extent to which the information is included in the organization’s notice of privacy practices.
In addition, the statement included on the HIPAA authorization to notify the individual of the ability or inability to condition treatment, payment, enrollment, or eligibility for benefits on the authorization by stating either:
that the covered entity may not condition treatment, payment, enrollment, or eligibility for benefits on whether the individual signs the authorization; or
the consequences of a refusal to sign the authorization when the covered entity is permitted to condition treatment, enrollment in the health plan, or eligibility for benefits on a failure to obtain authorization.
The person giving consent must be provided with a copy of the authorization form for their records.
Reference: HIPAA Journal (Oct. 9, 2021) “What is HIPAA Authorization?”

What Do I Need to Know If I’m Getting an Inheritance?

 

Kiplinger’s recent article entitled “Getting an Inheritance? Here Are 4 Things to Consider” says you can’t always know exactly what’s left in a will. However, if you’ve received or anticipate receiving some type of inheritance, there are a few things to consider that can help you prepare for the issues heirs face.
1. Expect the Process to Take Time. Settling an estate is a big task. When the decedent’s affairs aren’t in order, it’s an even greater task. The executor (the person appointed to administer the will) must notify beneficiaries and interested parties, pay outstanding debts, close accounts, take an inventory of assets and determine if any of the assets not part of the will must go through probate. They must file with the IRS to pay taxes. After this, the assets finally can be distributed to close the estate.
2. Create a Plan for the Money. This is an opportunity to put the money toward some practicalities, including ways to help protect your future. Think about building up your emergency fund, paying off high-interest debt and saving for long-term goals. After you address your financial priorities, it’s fine to begin thinking about spending the money on something fun.
3. Get Advice from an Experienced Estate Planning Attorney. The rules on inheriting assets can be complex, like when inheritors may have what’s called a step-up-in-basis provision for taxes. This lets the heirs set the valuation of their inherited property equal to its fair market value at the date of death – instead of the lower price at which it was purchased. This helps minimize capital gains taxes on inherited assets that have appreciated over time. There may also be state estate and inheritance taxes to consider.
4. Take Time to Review Your Own Estate Plan. Make your own estate administration as easy as possible after you are gone. This includes keeping clear records of all your accounts, along with any estate plan documents including trusts, wills, powers of attorney and advance health care directives. You should keep them all in a location accessible to those responsible for administering your estate.
Reference: Kiplinger (Jan. 9, 2023) “Getting an Inheritance? Here Are 4 Things to Consider”

Why Change the Executor of Your Will?

 

Yahoo Finance’s recent article entitled “How to Change the Executor of a Will” explains that you may need to choose a new executor in the following situations:

Your original executor dies or becomes seriously ill and can’t fulfill his or her duties;

You named your spouse as executor but you’ve divorced;

The individual you originally designated as executor decides he or she no longer wants the responsibility;

You’ve had a personal falling out with your executor; and

You think another person is better equipped to execute your will.

However, you don’t need to give a specific reason to change the executor of a will. When you’re ready to make a change, you can add a codicil to an existing will or draft a new will.

A codicil is a written amendment used to modify the terms of your will without drafting a new one. It can be used to change the executor of a will or revise any other terms as needed.

You must validate the codicil the same way you did your original will, signing and dating the codicil with the same legal formalities required for the original will.

If you’d like to change more than just the executor of your will, you might think about drafting a new will document. The new will would also need to be signed with the same legal formalities required for the original will.

You must also take the added step of destroying all copies of the original will. This is needed to avoid confusion and any possible challenges to the terms of the will after you die.

If you don’t name an executor in your will, the probate court can assign one. After you die, eligible persons can apply to become the executor of your estate. The individual the judge selects would then be able to carry out the terms of your will.

If you don’t have a will at all, then your assets would be distributed by default according to your state’s inheritance laws.

Reference: Yahoo Finance (Dec. 28, 2022) “How to Change the Executor of a Will”