Michigan Estate Planning Blog

Why Do I Need a Will?

Every state has different rules for who inherits your assets if you pass away without a will (known as “intestacy”). However, most states follow rules similar to this:

If your spouse survives you and you have no children, he or she inherits everything;

If you're survived by your spouse and at least one child, your spouse gets a portion of your assets, and your child(ren) gets the rest;

If your children are minors, their assets are held for them until they turn a particular age (usually 18 or 21), then they control their inheritance, no matter how large; and

If you're survived by children but no spouse, your children inherit everything equally.

Your will is the only document a probate court will recognize in which you can name guardians for your minor children. If you die without a will, your family must decide who will care for your children, or a court will decide.

J.P Morgan Wealth Management’s article, “Estate planning: Why everyone should have a will,” says that if you have a will, you will have designed an executor or personal representative. This is the person in charge of carrying out your instructions. If you die without a will, your heirs can go to court to be put in charge of your estate. In either event, unless you've structured your assets so they don't go through probate, your heirs will have to go to court; the court will oversee the process.

You may be able to minimize or avoid probate by, for example, owning everything jointly with rights of survivorship, having beneficiaries designated to receive your assets, or putting everything in a revocable trust.

You should ask an experienced estate planning attorney about your state's probate process to understand how important it might be for you to avoid court — and the only way to avoid court is to have an estate plan.

Unfortunately, any of us can die at any moment, young or old, in good or bad health.

Reference: J.P Morgan Wealth Management (Jan. 27, 2023) “Estate planning: Why everyone should have a will”

What are the Basics of Trusts?

Trusts aren’t just for the uber-wealthy; using one in your estate plan can make sense no matter how much money you have. But work with an experienced estate planning attorney to see if a trust is right for your situation.

A survey by Wealth.com found that three-quarters (76%) of respondents created an estate plan to take care of their families.

A trust could help you achieve that goal with its combination of privacy, asset protection, and the ability to avoid the potentially drawn-out process of probate.

Fortunes’ recent article, “Understanding trusts: An important estate planning tool for everyday

Americans,” explains that at its core, a trust is a legal document that creates a triangle-like relationship between three different parties: the trust, its trustee, and its beneficiaries.

The trust is the legal entity that holds title to the assets;

The trustee is the trust’s decision-maker; and

The beneficiaries are those who receive assets from the trust.

A trust—created by the grantor—says how assets can be used during their lifetime and how they should pass to the grantor’s beneficiaries when they die. Trusts offer an added estate planning perk: avoiding probate.

And while the word “trust” might be intimidating, they’re just arrangements that most people already use in their day-to-day finances.

While there are different types of trusts, they all work the same way. The grantor establishes the trust and specifies how the assets in the trust should be managed and transferred to the beneficiaries at their death.

The grantor will put assets in the trust, which removes the assets from the grantor’s name and estate. In addition, the grantor names a trustee, the person charged with making the day-to-day decisions for the trust, its assets, and its beneficiaries. When the grantor dies, the trustee will direct the distributions of assets held in the trust according to the trust’s terms.

You can create a trust by contracting with an estate planning attorney.

Reference: Fortune (June 9, 2023) “Understanding trusts: An important estate planning tool for everyday Americans”

When Should I Begin Estate Planning for the Farm?

 

Successful Farming’s recent article entitled “Is 50 Too Early For Estate Planning?” gives us some guidelines, so you can address the what-ifs as changes occur and eventually solidify everything.
Let’s look at some key guidelines:
1. Define parameters. Regardless of what age you implement your plan, it needs definition. Outline the basics like how the rent will be calculated, how buyouts will be done, what defines a farming heir and at what ages distribution should happen.
2. Lay out options. There need to be “defined options.” These include:
Who has the option to farm?
Who has to option to rent or buy?
Are there equal options or secondary options?
3. Consider involvement. Your plan should reward those who are involved on the farm. You might want to hold off on the actual distribution of any assets until the youngest child has reached the age of 25 or 30. This gives everyone the opportunity to be involved if they want to.
4. Choose the right document. For example, drafting a revocable trust or planning a will allows you to make changes later in your lifetime.
With a revocable trust, its terms can be altered or canceled based on the wishes of the grantor or the originator of the trust. During the life of the trust, income earned is distributed to the grantor, but when they die, the property transfers to the trust’s beneficiaries.
5. Don’t overpromise and under-deliver. If you tell your children you’re going to do what will help them keep the farm together, be sure you do it. If you tell someone without documenting, it can lead to a major conflict later.
6. Update your life insurance. You can also change ownership and beneficiary designations of life insurance policies.
The biggest “what if” is “what if you don’t have anything in place?”
Reference: Successful Farming (March 16, 2023) “Is 50 Too Early For Estate Planning?”

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?”

Are Your Beneficiary Designations Up-To-Date? Saginaw, Michigan

A lot can happen in a year. Whether small or life-changing, ignore changes to your peril. This is especially true when it comes to your estate planning. Often, the biggest mistakes we can make when it comes to our estate planning are also some of the easiest to prevent. For example, the consequences of failing to update your beneficiary designations can be catastrophic, while the “fix” is as easy as a phone call or completing a paper (or online) form. A recent Forbes article titled “The Big Estate-Planning Goof You May Be Making” puts the importance of proper beneficiary designations in perspective. With the New Year upon us and our resolutions still holding up (or newly renewed?), this may be a good time to review the beneficiary designations we have made for our assets. You see, beneficiary designations are a peculiar thing. They carry with them very important powers for good or ill. Many accounts from IRAs to policies of one type or another offer the chance to name a beneficiary. Ultimately, the beneficiary will automatically assume ownership of the account upon your passing. That is powerful. For starters, assets that pass by beneficiary designation escape probate. For a basic tutorial on the distinction between probate and non-probate assets, click here for a good, general explanation from ElderLawAnswers.com. So, what happens when your life changes and someone named as beneficiary a good long time ago is simply no longer appropriate (read: the ex-spouse, or other horror-story staples)? Well, they still get it. Bottom line: begin the New Year right with a review of your current estate plan and beneficiary designations. Make sure they are consistent and not in conflict with your wishes.

Reference: Forbes (December 16, 2013) “The Big Estate-Planning Goof You May Be Making

For more information, see www.jerryreiflawyer.com

 

Are Your Beneficiary Designations Up-To-Date? Mid-Michigan

A lot can happen in a year. Whether small or life-changing, ignore changes to your peril. This is especially true when it comes to your estate planning. Often, the biggest mistakes we can make when it comes to our estate planning are also some of the easiest to prevent. For example, the consequences of failing to update your beneficiary designations can be catastrophic, while the “fix” is as easy as a phone call or completing a paper (or online) form. A recent Forbes article titled “The Big Estate-Planning Goof You May Be Making” puts the importance of proper beneficiary designations in perspective. With the New Year upon us and our resolutions still holding up (or newly renewed?), this may be a good time to review the beneficiary designations we have made for our assets. You see, beneficiary designations are a peculiar thing. They carry with them very important powers for good or ill. Many accounts from IRAs to policies of one type or another offer the chance to name a beneficiary. Ultimately, the beneficiary will automatically assume ownership of the account upon your passing. That is powerful. For starters, assets that pass by beneficiary designation escape probate. For a basic tutorial on the distinction between probate and non-probate assets, click here for a good, general explanation from ElderLawAnswers.com. So, what happens when your life changes and someone named as beneficiary a good long time ago is simply no longer appropriate (read: the ex-spouse, or other horror-story staples)? Well, they still get it. Bottom line: begin the New Year right with a review of your current estate plan and beneficiary designations. Make sure they are consistent and not in conflict with your wishes.

Reference: Forbes (December 16, 2013) “The Big Estate-Planning Goof You May Be Making

For more information, see www.jerryreiflawyer.com

 

Thinking Beyond Your Last Will Saginaw, MI

So, you prepared your Last Will and Testament. However, that does not mean your Will is the final word on the distribution of all of your assets. For instance, your IRA likely will be governed by that common beneficiary form you may have completed without thinking through the consequences. Warning: do not designate your “estate” as the beneficiary of your IRA. This severely limits the distribution (and taxation) options available to your heirs. This matter was explored in a recent article in The Slott Report titled “IRAs and Wills Don’t Mix.” While your “estate” can be the beneficiary of your IRA and your Will thereafter determines the distribution of the retirement funds, this might not be best idea tax-wise. IRAs are very specific and peculiar assets with very specific inheritance rules. If your “estate” is the beneficiary of your IRA, then very “unfavorable” withdrawal rules apply. Instead of the IRA being withdrawn over the life expectancy of the beneficiary (typically younger than the plan owner), the funds must be withdrawn within five years or perhaps over your remaining life expectancy. Yes, this can get rather complicated. Make sure you consult with competent legal counsel when coordinating the distributions from your Last Will and from your IRA.

Reference: The Slott Report (July 29, 2013) “IRAs and Wills Don’t Mix”

For more information, see www.jerryreiflawyer.com

 

Pay Close Attention to Beneficiary Designations Saginaw Michigan

Naming beneficiaries seems pretty straight forward, but there may come a time when you forget who you’ve selected on various accounts. Thankfully there are shortcuts around this issue, you just have to know when and where to take them. When it comes to proper estate planning, the shortcuts are the existing options you already have with insurances and retirement accounts that allow you to designate your beneficiaries on a simple beneficiary designation form. For many of us, the beneficiary form is the first practical experience we have with estate planning. For thoughtful and downright tactful tips for designating your beneficiaries designations, consider a recent article in Fox Business titled “Bulletproofing Your Beneficiaries.” When it comes to beneficiary designations, some of them are shortcuts and some of them are dead-ends, and still others can completely undo your estate plans if you simply forget about them. That noted, there are at least two key points to consider. The second point is the beneficiary designation must be coordinated with your overall estate plan to the right beneficiaries (or even a system of trusts) to eliminate probate and minimize taxes. The first point, and a source of immediate concern, is that you must know who all of your beneficiaries are on all your accounts at all times. If you don’t know all of your beneficiaries, is it time for a “beneficiary audit” of all your accounts? You may want to consider reworking those designations to meet your distribution goals and ensure that your plans will end up as you intended.

For more information see www.jerryreiflawyer.com

Reference: Fox Business (October 1, 2012) “Bulletproofing Your Beneficiaries”

 

Estate Taxes – The Gift That Keeps on Taking

Death does not necessarily mark the end of your estate. In fact, for some families, it may mean the beginning of your financial legacy. On the other hand, for other families, it may mean the beginning of some serious taxes. The prospect of future tax battles with the IRS was the subject of the recent case of U.S. v. Mary Carol S. Johnson. Forbes explored this case in an article titled “When Estates Don't Pay Tax, IRS Chases Beneficiaries.” The case recounts the story of Anna Smith, her fortunes in the Stateline Hotel, and the IRS audit that ultimately led to a battle over a lost fortune. Smith’s fortune was bound up in stock in the hotel, and it was worth enough at her passing to trigger an estate tax that the family elected to pay in installments over several years (which can be done). According to her estate plan, the family distributed the stock amongst themselves under with an agreement to set aside a portion to pay the estate taxes owed. Apparently that agreement was reached in the “good days” of the hotel. In fact, those days were so good that the IRS audit on the estate tax return, years later, came up with higher numbers and a greater tax. Of course, when the IRS finally got around to making that decision, the hotel was not doing so well. However, the family agreed to pay the higher tax as a matter of duty and paid on those rates for several years. Boom. The hotel value collapsed, the stock became worthless, and the estate had nothing left to pay for the taxes on the past wealth. The IRS, not being one to forgive and forget, didn’t forget and carried on the fight to the beneficiaries and personal representatives of the estate. In the end, the IRS held two members of the family acting as personal representatives to be personally liable, even though they did the right thing by the original numbers. The original article is an interesting read and a sobering reminder, albeit far from unique. The IRS can audit any taxpayer, even if it’s an estate, and sometimes it has good reasons to do so. As a sidebar, the case demonstrates the importance of an accurate valuation. Regardless, this U.S. v. Mary Carol S. Johnson serves as a lesson for those currently planning their estates. With the current lifetime gifting exemption pegged at $5.12 million, this may be a window of opportunity to pass significant wealth before the year’s end. Bottom line: If the estate doesn’t fully pay off any amounts due, the IRS turns to the estate beneficiaries, sometimes even for amounts forgotten until years later.

Reference: Forbes (June 28, 2012) “When Estates Don't Pay Tax, IRS Chases Beneficiaries”

Estate Taxes – The Gift That Keeps on Taking

Death does not necessarily mark the end of your estate. In fact, for some families, it may mean the beginning of your financial legacy. On the other hand, for other families, it may mean the beginning of some serious taxes. The prospect of future tax battles with the IRS was the subject of the recent case of U.S. v. Mary Carol S. Johnson. Forbes explored this case in an article titled “When Estates Don't Pay Tax, IRS Chases Beneficiaries.” The case recounts the story of Anna Smith, her fortunes in the Stateline Hotel, and the IRS audit that ultimately led to a battle over a lost fortune. Smith’s fortune was bound up in stock in the hotel, and it was worth enough at her passing to trigger an estate tax that the family elected to pay in installments over several years (which can be done). According to her estate plan, the family distributed the stock amongst themselves under with an agreement to set aside a portion to pay the estate taxes owed. Apparently that agreement was reached in the “good days” of the hotel. In fact, those days were so good that the IRS audit on the estate tax return, years later, came up with higher numbers and a greater tax. Of course, when the IRS finally got around to making that decision, the hotel was not doing so well. However, the family agreed to pay the higher tax as a matter of duty and paid on those rates for several years. Boom. The hotel value collapsed, the stock became worthless, and the estate had nothing left to pay for the taxes on the past wealth. The IRS, not being one to forgive and forget, didn’t forget and carried on the fight to the beneficiaries and personal representatives of the estate. In the end, the IRS held two members of the family acting as personal representatives to be personally liable, even though they did the right thing by the original numbers. The original article is an interesting read and a sobering reminder, albeit far from unique. The IRS can audit any taxpayer, even if it’s an estate, and sometimes it has good reasons to do so. As a sidebar, the case demonstrates the importance of an accurate valuation. Regardless, this U.S. v. Mary Carol S. Johnson serves as a lesson for those currently planning their estates. With the current lifetime gifting exemption pegged at $5.12 million, this may be a window of opportunity to pass significant wealth before the year’s end. Bottom line: If the estate doesn’t fully pay off any amounts due, the IRS turns to the estate beneficiaries, sometimes even for amounts forgotten until years later.

Reference: Forbes (June 28, 2012) “When Estates Don't Pay Tax, IRS Chases Beneficiaries”