Michigan Estate Planning Blog

What are Five Keys to Estate Planning?

 

If your family has to sort out your affairs while also dealing with the emotional fallout from losing you, they will soon realize the importance of having an estate plan, whether you are wealthy or not. They’ll also feel the pain of your failing to create one for them.
CNBC’s recent article entitled “5 key things to know when you create a will and make other end-of-life plans” explains that your estate plan spells out whom you want to make decisions and who will inherit what you own. “Estate” refers to possessions and other assets. With that in mind, here are five key things to know if you start thinking about how you’d craft an estate plan.
1. A will may not cover all your bases. A will is a core component of an estate plan. A will states whom you want to have your assets and whom you want as a guardian for minor children. Without a will in place when you die, a judge will decide who gets what or who is appointed guardian.
2. Use care when naming an executor. When you create a will, you name an executor to carry out your wishes and handle your estate. This includes liquidating or closing accounts, ensuring your assets go to the proper beneficiaries and paying any liabilities. An estate plan should also include other end-of-life documents, like a living will that details the health care you want and don’t want if you become unable to communicate those desires yourself. You also can sign a power of attorney to an agent to make decisions on your behalf if you become incapacitated.
3. Some assets get a step-up in basis. If you have assets, such as the family home, and are thinking about giving them to your children while you’re alive, it might make more sense to wait. When these assets are sold, any increase from the so-called cost basis (the value when the asset was acquired), and the sale price is subject to capital gains taxes. However, at your death, your heirs who inherit receive a “step-up in basis.” This means that the market value of the asset at your death becomes the cost basis for the heir. As a result, any appreciation prior to that is untaxed. Therefore, when the heir sells the asset, any gains (or losses) are based on the new cost basis. In comparison, if you were to gift such appreciated assets to heirs before your death, they’d assume your original cost basis — which could translate into a large tax bill when the assets are sold.
4. You may want to consider a trust. If you want your children to receive money but don’t want to give a young adult or one with poor money management total access to a sudden windfall, consider creating a trust to be the beneficiary of a particular asset. A trust holds assets on behalf of your beneficiary. The assets are left to the trust instead of directly to your heirs. They can only receive money according to how (or when) you’ve stipulated in the trust documents. Ask an experienced estate planning attorney to help you with this.
5. You’ll need to review your estate plan. When you have a major life change, like the birth of a child or divorce, you need to review your estate plan. If you move to a new state, check to see if you need to update any part of your plan, so it follows that state’s laws.
Reference: CNBC (March 19, 2023) “5 key things to know when you create a will and make other end-of-life plans”

What Key Estate Planning Terms Should I Know?

Estate planning can help you accomplish several objectives, including naming guardians for minor children, choosing healthcare agents to make decisions for you should you become ill, minimizing taxes so you can give more wealth to your heirs and saying how and to whom you would like to pass your estate at death.

Emmett Messenger Index’s recent article entitled “13 Estate Planning Terms You Need to Know” provides some important terms to understand as you consider your own estate plan.

Assets: This is anything a person owns. It can include a home and other real estate, bank accounts, life insurance, investments, furniture, jewelry, collectibles, art, and clothing.

Beneficiary: This is an individual or entity (like a charity) that gets a beneficial interest in an asset, such as an estate, trust, account, or insurance policy.

Distribution: A payment in cash or asset(s) to the beneficiary who’s designated to receive it.

Estate: All of the assets and debts left by a person at death.

Fiduciary: An individual with a legal obligation or duty to act primarily for another person’s benefit, such as a trustee or agent under a power of attorney.

Funding: The process of transferring or retitling assets to a trust. Note that a living trust will only avoid probate at the trustmaker’s death if it’s fully funded. A trustmaker also may be known as a grantor, settlor, or trustor.

Incapacitated or Incompetent: The situation when a person is unable to manage her own affairs, either temporarily or permanently, and often involves a lack of mental capacity.

Inheritance: These are assets received from someone who has died.

Probate: This is the orderly court-supervised process of distributing the assets of a person who has died.

Trust: This is a fiduciary relationship where a trustmaker gives a trustee the right to hold property or assets for the benefit of another party, known as the beneficiary. The trust is a written trust agreement that directs how the trust assets will be distributed to the beneficiary.

Will: A written document with directions for disposing of a person’s assets after their death. A will is enforced by a probate court. A will can provide for the nomination of a guardian for minor children.

Reference: Emmett Messenger Index (Oct. 28, 2020) “13 Estate Planning Terms You Need to Know”

Do I Need to Name a Guardian for My Children in the Will?

Many young couples with children and bills to pay may look at you askance, when asked about estate planning and say, “what estate?”
However, a critical part of having a will—one frequently overlooked—is naming a guardian. If you don’t name a guardian, it could result in issues for your children after your death. Your child might even be placed in a foster home.
For a young family, designating a guardian is another good reason to draft a will. If you and your spouse die together with no guardian specified in a will, the guardian will be chosen by the court.
In a worst-case scenario, if you have no close family or no one in your family who can take your child, the court will send them to foster care, until a permanent guardian can be named.
The judge will collect as much information as possible about your children and family circumstances to make a good decision.
However, the judge won’t have any intimate knowledge of who you know or which of your relatives would be good guardians. This could result in a choice of one of the last people you might pick to take care of your child.
Try to find common ground, by agreeing to a set of criteria you want in a guardian. This could include the following:
The potential guardian’s willingness to be a guardian
The potential guardian’s financial situation
Where the child might live with that person
The potential guardian’s values, religion, or political beliefs
The potential guardian’s parenting skills; and
The potential guardian’s age and health.
Next, make a decision, get the chosen guardian’s consent, write it all down, and then set out to create a will.
Ask an experienced estate planning attorney to help you do it correctly.
Reference: Lifehacker (Oct. 27, 2020) “Why You Should Name a Guardian for Your Kids Right Away”

Myths Vs. Reality – Appointing Guardians For Minors

Estate Planning can be a pretty off-putting subject for many people. And, since the subject matter is one’s own death, it’s easy to understand why. Sometimes, however, it may be easier to just think about estate planning in terms of money or assets. Nevertheless, the issues that are worth planning for are often more immediate. For example, every parent has a good reason to nail down the issue of guardianship for their minor children. To that end, Jacoba Urist at the Huffington Post recently put together the four dangerous myths about choosing a guardian: 1. The myth of the perfect match. What would the perfect match look like? Someone just like you, presumably (and you personally, in a perfect world.) Nevertheless, it’s a convenient myth for putting off any decision and getting any planning done. Remember: You can always name a new guardian as your child grows or as circumstances change. 2. The myth that someone will step up and solve the issue anyway. While it may be true that your family members will swoop in, that doesn’t mean they will all agree on who ought to do so (or that the family members you would want to will even be able). It can mean a family fight and, in that case, the one who actually chooses is the judge. 3. The myth that you can just leave a letter hidden somewhere. Many parents write a letter asking a loved one to become guardian and then tuck it away so that it can be found if the need should arise. Although that’s better than nothing, it’s not legally binding. 4. The myth that you don’t have to ask. If you don’t ask you’ll never know how your guardian feels about your decision. Deciding this issue in advance can help your family and your children in a difficult time. Take a look at the original article here, and maybe consider if you’re holding yourself back from making a decision. Often, proper planning begins in one place and spreads out into an entire plan, so perhaps this is how you come to find your plans and your priorities.

Reference:  The Huffington Post (October 24, 2011) “4 Dangerous Myths About Choosing a Guardian”

Myths Vs. Reality – Appointing Guardians For Minors

Estate Planning can be a pretty off-putting subject for many people. And, since the subject matter is one’s own death, it’s easy to understand why. Sometimes, however, it may be easier to just think about estate planning in terms of money or assets. Nevertheless, the issues that are worth planning for are often more immediate. For example, every parent has a good reason to nail down the issue of guardianship for their minor children. To that end, Jacoba Urist at the Huffington Post recently put together the four dangerous myths about choosing a guardian: 1. The myth of the perfect match. What would the perfect match look like? Someone just like you, presumably (and you personally, in a perfect world.) Nevertheless, it’s a convenient myth for putting off any decision and getting any planning done. Remember: You can always name a new guardian as your child grows or as circumstances change. 2. The myth that someone will step up and solve the issue anyway. While it may be true that your family members will swoop in, that doesn’t mean they will all agree on who ought to do so (or that the family members you would want to will even be able). It can mean a family fight and, in that case, the one who actually chooses is the judge. 3. The myth that you can just leave a letter hidden somewhere. Many parents write a letter asking a loved one to become guardian and then tuck it away so that it can be found if the need should arise. Although that’s better than nothing, it’s not legally binding. 4. The myth that you don’t have to ask. If you don’t ask you’ll never know how your guardian feels about your decision. Deciding this issue in advance can help your family and your children in a difficult time. Take a look at the original article here, and maybe consider if you’re holding yourself back from making a decision. Often, proper planning begins in one place and spreads out into an entire plan, so perhaps this is how you come to find your plans and your priorities.

Reference:  The Huffington Post (October 24, 2011) “4 Dangerous Myths About Choosing a Guardian”