Michigan Estate Planning Blog

Why an Updated Estate Plan Is Critical, Especially Now

 

Without a properly prepared and current estate plan, property is distributed following the intestacy law of the decedent’s state of residence. In most cases, the laws are centered around kinship, with spouses and children dividing percentages of the estate.

If you had something else in mind, it wouldn’t matter—the time to create and update an estate plan is while you’re living. We all know this. However, many just keep procrastinating. A recent article, “Make sure your estate plan is updated to reflect law changes,” from Los Altos Town Crier, explains precisely what pitfalls your loved ones will face if you put off creating an estate plan until it’s too late.

Probate can be minimized or avoided with a professionally prepared estate plan. The probate experience varies with the jurisdiction: in some courts, it’s a streamlined process, while in others, it is a series of delays, sometimes stretching out over months or even years. The time and costs of probate also depend upon the complexity of the estate. In some states, probate can cost 4—7% of the estate’s total value.

An estate planning attorney works with clients to create a means of passing assets to their intended beneficiaries without court involvement. This takes many different shapes depending on the family, the value of the assets, the structure of ownership, etc. Trusts, payable on death accounts, joint tenancy ownership and LLCs (Limited Liability Corporations) are just a few means of passing wealth without involving probate.

Estate planning attorneys help clients control how and when assets are passed to heirs. For instance, if someone had a child who is exceptionally mature and responsible, they may wish to provide the child with their inheritance upon their death. A trust can be created to address the concerns of a family with an adult child who, for whatever reason, cannot manage money. The trust can have a trustee who will be charged with distributing assets according to directions provided by the parents—after achieving certain milestones, at specific ages, or when the trustee deems funds should be distributed.

Incapacity is unpleasant to consider but is as much a part of estate planning as planning for asset distribution after death. Without having a plan for incapacity, the family may be forced to go to court and petition for a supervised conservatorship, a costly and stressful process.

Incapacity or death are the last things on the minds of new parents. However, when a new child joins the family, updating an estate plan to include naming a guardian becomes critical. If there is no will or the will has never been updated to reflect the addition of children, the court determines who will raise the children. Any interested party may petition the court to be appointed as a guardian. The court ultimately makes the decision. However, the decision by the parents, as expressed in an estate plan, will have more weight than an estranged sibling.

An estate plan protects the family by lessening the chances of family disputes and legal battles, which can lead to lifelong divisions. A meeting with an estate planning attorney will give you insight into the importance of having an estate plan and how it serves as a gift to loved ones.

Reference: Los Altos Town Crier (Oct. 29, 2024) “Make sure your estate plan is updated to reflect law changes”

What Is the Purpose of a Living Trust?

 

There are so many misconceptions around trusts, especially thinking trusts are only for wealthy people, according to a recent article, “2 Key Benefits of Living Trusts” from Forbes. During your lifetime, a living trust is an extension of yourself. There are no tax benefits or tax liabilities until you die, when living trusts provide benefits compared to assets not held in trust.

What happens to different types of assets after death?

If you own assets with beneficiary designations, these will be passed to beneficiaries outside of probate. These are typically retirement accounts, life insurance, some investment accounts, pensions and annuities.

If you have joint ownership of assets, they will become the property of the surviving joint owner(s) after death. The most common jointly owned assets are real estate, bank and investment accounts.

If you own assets as an individual, they will go through probate. While bank and investment accounts do permit transfer-on-death (TOD) and payable-on-death (POD) elections to bypass probate, this is not appropriate for every situation.

Two of the most common benefits of having a living trust are avoiding probate or reducing the probate estate and having greater control over the distribution of assets.

If one spouse passes and owns all liquid funds (and/or a privately owned business) in their own name, the survivor may be left without funds to pay bills while the probate estate is being settled. Having a living will means the survivor, if named as a beneficiary of the trust, has access to assets during probate.

Probate also incurs expenses and can take months to settle an estate. Any assets going to through probate become part of the public record, which can create a host of other issues. A large estate in probate can become a burden on the surviving spouse and family.

When assets go through probate, the court has the final word on how assets are distributed. This may align with your will, but it might not. Suppose assets are held in a living trust. In that case, probate or at least reduce the number of assets going through probate and control the distribution of the assets without your personal financial information becoming part of the public record.

Your estate planning attorney can create a living trust, naming you as the trustee and a person to serve as a successor trustee. Your successor trustee will be responsible for distributing the assets in the trust upon your death.

There are many ways to create the trust. The spouse is typically the successor trustee, with varying levels of access to assets during the surviving partner’s lifetime, with the remainder going to children or relatives. Trust laws are state-specific, so speak with an experienced estate planning attorney to create a trust that suits your unique situation.

Reference: Forbes (Jan. 24, 2024) “2 Key Benefits of Living Trusts”

What Does Your Estate Plan Include Besides a Will?

 

A last will and testament is a part of your estate plan, one of several essential documents to explain your wishes. However, a will is only the first step, and having an estate plan becomes more important as conditions and your life change says the article “Planning Ahead: Your estate plan does not end with a will” from The Times Herald.

Assets Need to Be Divided into Those Titled in Your Name Alone, Jointly Titled and Beneficiary Designations

There are different rules for how your assets are distributed upon your death. Looking at your assets and how they are owned will clarify what will happen when you pass. The review could be a surprise, especially if you haven’t updated designated beneficiaries in a while. You might be spared any shocks if you’re married and have traditionally titled assets.

If assets like your home, bank and investment accounts are titled jointly with your spouse (known as Tenants by the Entireties), those assets will pass directly to your spouse upon your death. If you have IRAs, 401(k)s, 403(b)s, or similar retirement accounts or life insurance policies, you likely named your spouse as the beneficiary. If you’ve remarried, make sure those beneficiaries are updated.

There are exceptions. You may have kept certain assets in your name only, especially if you have been married more than once. These generally will pass by will, unless they pass by beneficiary designation.

Consider how assets will pass if you become a widow or widower or are single or divorced. In most cases, your assets are mainly in your own name. You may not have named “secondary beneficiaries,” which you could have done when the original documents were drafted. It’s not too late to do this now.

Ask yourself if you want your adult children to inherit directly or if you want assets to go to grandchildren. Note that minors cannot inherit property, so talk with your estate planning attorney about creating a trust if you wish assets to go to grandchildren. When creating a trust, you can decide if you want the funds to be given to the beneficiaries in small sums over many years, when they reach certain milestones, or to be used solely for their education.

Consider the Entire Picture—Beneficiary Designations

Many people hold assets in the equity of their home or tax-deferred funds, like IRAs. Updating these beneficiary designations is a critical step for your estate plan. A difficulty might arise if you are single, divorced or widowed and don’t specify how you want these funds to be distributed.

Keep the Paperwork in a Safe Place

Once your paperwork for your will, life insurance and tax-deferred funds are completed, keep them in a safe place and tell your beneficiaries where they are located. Online access can be tricky or impossible. So many financial institutions have been bought and sold that we can’t count on their having documents properly archived.

Reference: The Times Herald (Jan. 14, 2024) “Planning Ahead: Your estate plan does not end with a will”

The Team Behind a Successful Estate Plan

 

 

Most advisors stick with their areas of knowledge. The estate planning attorney drafts the necessary documents, your CPA files tax returns and the investment advisor fine tunes assets. However, coordinating these professional silos is critical to ensuring your estate plan works, says a recent article from Forbes, “Your Estate Plan Must Be Coordinated To Work.”

Communication needs to extend past advisors to key loved ones and people you name in roles, such as agents, trustees and executors. Many people find these discussions awkward. However, preparing heirs and fiduciaries for their roles and setting expectations is a crucial step to avoid issues during transition periods. Some of the most significant estate planning problems arise when the baton is passed, such as if you fall and become incapacitated. You need to be sure your agents know what is expected of them and when they will be called upon to perform their respective tasks.

Coordinating advisor actions will save time and expense in the long run. Your estate planning attorney, CPA, trust officer, wealth advisor and insurance broker should know what each other is doing on your behalf. Many people shy away from doing this because of concerns about cost. However, not doing it can lead to much larger expenses.

You want to foster coordination and collaboration, in a controlled and cost-effective manner. One way to do this is to have advisors prepare a summary of key points, facts and decisions following your meetings, so you can circulate it to other advisors. This way they all know what is being done and can share their knowledge and experience if they think something is wrong or won’t work as planned.

One example of what can happen when advisors are not coordinated is paying bills from incorrect accounts. For instance, if you incur legal fees for the estate plan but pay them from a trust account or business entity, a creditor could argue this is a personal benefit from a trust you are not a beneficiary of, or you’ve violated the business purpose of an entity, which could expose all trust or entity assets.

Your estate planning attorney should know how your assets are titled, which are owned jointly, or other designations used to avoid the terms of your will and/or any trusts. Beneficiary designations, wills and titles must be planned and coordinated to avoid derailing your estate plan.

If you die and an asset is owned in your name only, the asset will go through probate and be distributed according to the terms of your will. If you are incapacitated, your agent, under your financial Power of Attorney, must act concerning the asset to help pay bills.

Many people opt to have assets held in a joint name so that on death, the asset will pass to the named joint owner without going through the will and probate. If the person named as the joint owner is not the same as the POA, you may have created a logistical nightmare. How will the POA pay bills if the joint owner does not cooperate?

Coordinating professional advisers is as important as coordinating family members. There are many different agents and positions to be appointed. People often sign a financial POA with their estate planning attorney, and no one looks closely at any conflicting appointments.

The same kind of issues occur with health care agents. There are several different health care documents, and you’ll want to coordinate them to eliminate the possibility of conflicting appointments. The key to achieving this is diligence, communication and follow-up.

Reference: Forbes (Oct. 31, 2023) “Your Estate Plan Must Be Coordinated To Work”

 

The Perils of Joint Tenancy Saginaw, Michigan

Eliminating the need for probate is a goal for many clients. Joint tenancy, a form of co-ownership, is one tool that can help achieve this goal. When one co-owner dies, his interest in the real property automatically passes to the surviving co-owner, thereby, eliminating the need for probate. Joint tenancy can, however, have its perils and must not be entered into lightly. Control Issues: By providing someone with co-ownership, you give them control of your asset. For example, if you add another person as co-owner of your home, you cannot sell or mortgage the home unless that person agrees. Creditor Issues: If creditors seek out your co-owner for outstanding debts owed, the creditors may be able to obtain part of your home or bank account held in joint tenancy. Relationship Issues: If you and your co-owner experience a falling out, the co-owner may be able to take all of the money out of the bank account. Substitute for Will Issues: Parents of several children may place one child’s name on an account and assume she will divide assets equally among all siblings. Unfortunately, this method provides no stipulations over control of the money. The surviving co-owner can do with it what she pleases, with no legal obligation. Tax Issues: Careful planning to eliminate or reduce estate taxes can be completely thwarted by a joint tenancy that passes property outright to a surviving joint owner. Long-term Care Issues: Thoughtful planning to reduce long-term care financing can also be thwarted by a joint tenancy that passes property outright to a surviving joint owner. Marriage Issues: Individual property may become marital property once it is transferred into a joint tenancy.

JOINT OWNERSHIP - HIDDEN PITFALLS TO AVOID

Estate planning can be daunting. Once you get past the fact that your very mortality (and morbidity) is the triggering event, estate planning means taking stock of all you own and, what is often more important, how you own it. Yes, there are many degrees of ownership and each can make for some difficult wrinkles. One common phenomenon is joint ownership between generations. Not only is it common, but it can make for some unintended problems. Forbes recently ran a piece on some of these problems and the five reasons to avoid such ownership form. Let’s review some of the high points, but I would commend the full article to your reading file. Joint ownership oftentimes is an attempt to simplify things, or at least that is why people use it as a means of holding title. Perhaps they want to simplify practical day-to-day financial management. Aging parents needing such help may add an adult child’s name to a bank account or investment, either for direct aid or for just assisting in managing the accounts or assets. Likewise, it could be done as an attempt to avoid probate. Adding the adult child’s name to the account, investment, or real estate as a form of will-substitute (a so-called “poor man’s will”). Of course, these are only simple solutions, and may actually work, when things go off without a hitch. One problem to remember is joint-ownership is a two-way street. That means that adult child joint owner has equal ownership rights to the assets and so do any of that adult child’s financial predators. The adult child may have their own creditors, may be facing an acrimonious divorce, or may be sued for damages in civil court. In addition, while no parent would anticipate it, the adult child may use the jointly owned bank account for a “quick loan” when they are running a little short of cash. Any of these unintended consequences can not only jeopardize the financial independence of an aging parent, but can cause hard feeling among other adult children who may (or may not) be joint owners with their parent. Another problem, especially from an estate planning perspective, is that joint ownership as a stop-gap or a will-substitute is not really estate planning and may run afoul of the parent’s actual estate distribution wishes. For example, the adult child who has joint ownership doesn’t have to share such assets upon the parent’s death. As you can imagine, it is very easy for such cases to spill over into family squabbles and even prolonged court-cases. Sometimes joint ownership seems like a good idea and a quick fix to avoid probate. And, sometimes it is. Before you use joint ownership as a form of titling your assets, however, consider the drawbacks. In the end, an estate planning attorney can help you determine whether joint ownership is appropriate under your unique circumstances. Remember: Look before you leap. The protection of your assets and family relationships are at stake.

You can learn more about Joint Ownership in the January issue of our free e-newsletter, “Joint Tenancy Troubles.” Visit our website and sign up to receive this valuable update for free every month.

Reference:  Forbes (September 13, 2011) “Top 5 Reasons to Beware of Joint Ownership Between Generations”

JOINT OWNERSHIP - HIDDEN PITFALLS TO AVOID IS JOINT OWNERSHIP.

Estate planning can be daunting. Once you get past the fact that your very mortality (and morbidity) is the triggering event, estate planning means taking stock of all you own and, what is often more important, how you own it. Yes, there are many degrees of ownership and each can make for some difficult wrinkles. One common phenomenon is joint ownership between generations. Not only is it common, but it can make for some unintended problems. Forbes recently ran a piece on some of these problems and the five reasons to avoid such ownership form. Let’s review some of the high points, but I would commend the full article to your reading file. Joint ownership oftentimes is an attempt to simplify things, or at least that is why people use it as a means of holding title. Perhaps they want to simplify practical day-to-day financial management. Aging parents needing such help may add an adult child’s name to a bank account or investment, either for direct aid or for just assisting in managing the accounts or assets. Likewise, it could be done as an attempt to avoid probate. Adding the adult child’s name to the account, investment, or real estate as a form of will-substitute (a so-called “poor man’s will”). Of course, these are only simple solutions, and may actually work, when things go off without a hitch. One problem to remember is joint-ownership is a two-way street. That means that adult child joint owner has equal ownership rights to the assets and so do any of that adult child’s financial predators. The adult child may have their own creditors, may be facing an acrimonious divorce, or may be sued for damages in civil court. In addition, while no parent would anticipate it, the adult child may use the jointly owned bank account for a “quick loan” when they are running a little short of cash. Any of these unintended consequences can not only jeopardize the financial independence of an aging parent, but can cause hard feeling among other adult children who may (or may not) be joint owners with their parent. Another problem, especially from an estate planning perspective, is that joint ownership as a stop-gap or a will-substitute is not really estate planning and may run afoul of the parent’s actual estate distribution wishes. For example, the adult child who has joint ownership doesn’t have to share such assets upon the parent’s death. As you can imagine, it is very easy for such cases to spill over into family squabbles and even prolonged court-cases. Sometimes joint ownership seems like a good idea and a quick fix to avoid probate. And, sometimes it is. Before you use joint ownership as a form of titling your assets, however, consider the drawbacks. In the end, an estate planning attorney can help you determine whether joint ownership is appropriate under your unique circumstances. Remember: Look before you leap. The protection of your assets and family relationships are at stake.
Reference:  Forbes (September 13, 2011) “Top 5 Reasons to Beware of Joint Ownership Between Generations”

JOINT OWNERSHIP - HIDDEN PITFALLS TO AVOID

Estate planning can be daunting. Once you get past the fact that your very mortality (and morbidity) is the triggering event, estate planning means taking stock of all you own and, what is often more important, how you own it. Yes, there are many degrees of ownership and each can make for some difficult wrinkles. One common phenomenon is joint ownership between generations. Not only is it common, but it can make for some unintended problems. Forbes recently ran a piece on some of these problems and the five reasons to avoid such ownership form. Let’s review some of the high points, but I would commend the full article to your reading file. Joint ownership oftentimes is an attempt to simplify things, or at least that is why people use it as a means of holding title. Perhaps they want to simplify practical day-to-day financial management. Aging parents needing such help may add an adult child’s name to a bank account or investment, either for direct aid or for just assisting in managing the accounts or assets. Likewise, it could be done as an attempt to avoid probate. Adding the adult child’s name to the account, investment, or real estate as a form of will-substitute (a so-called “poor man’s will”). Of course, these are only simple solutions, and may actually work, when things go off without a hitch. One problem to remember is joint-ownership is a two-way street. That means that adult child joint owner has equal ownership rights to the assets and so do any of that adult child’s financial predators. The adult child may have their own creditors, may be facing an acrimonious divorce, or may be sued for damages in civil court. In addition, while no parent would anticipate it, the adult child may use the jointly owned bank account for a “quick loan” when they are running a little short of cash. Any of these unintended consequences can not only jeopardize the financial independence of an aging parent, but can cause hard feeling among other adult children who may (or may not) be joint owners with their parent. Another problem, especially from an estate planning perspective, is that joint ownership as a stop-gap or a will-substitute is not really estate planning and may run afoul of the parent’s actual estate distribution wishes. For example, the adult child who has joint ownership doesn’t have to share such assets upon the parent’s death. As you can imagine, it is very easy for such cases to spill over into family squabbles and even prolonged court-cases. Sometimes joint ownership seems like a good idea and a quick fix to avoid probate. And, sometimes it is. Before you use joint ownership as a form of titling your assets, however, consider the drawbacks. In the end, an estate planning attorney can help you determine whether joint ownership is appropriate under your unique circumstances. Remember: Look before you leap. The protection of your assets and family relationships are at stake. You can learn more about Joint Ownership in the January issue of our free e-newsletter, “Joint Tenancy Troubles.” Visit our website and sign up to receive this valuable update for free every month.

Reference:  Forbes (September 13, 2011) “Top 5 Reasons to Beware of Joint Ownership Between Generations”