Michigan Estate Planning Blog

Do You Need a Will or a Trust?

 

The start of a New Year is accompanied by wishes to make life better. Planning for the future and protecting the family means addressing your estate plan. A recent article from Parkland Talk, “Start the New Year Right: Why Estate Planning Should Be Your Top Resolution for 2025,” explains the basics of estate planning.

Everyone should have a will, a document setting out instructions for the disposition of your estate after you have died. For many families, a trust is part of an estate plan. This is a document creating a separate legal entity that takes effect once the trust is created. Trusts are used to own and manage assets during and after life. With a trust, you can assign another person to take care of assets in the trust if you become incapacitated.

Wills and trusts are very different legal documents, performing different tasks. The trust is effective while you are living and after you have died, while a will is only executed after you have died. For most people, both a will and a trust make up the foundation of an estate plan. Here are some of the differences:

A will and the property bequeathed in the will are subject to probate, while assets in the trust don’t go through probate.

Wills become part of the public record and can be read by anyone. At the same time, trusts remain private, their contents known only to the estate planning attorney who created them, the grantor—the person who created the trust—and the beneficiaries.

Wills are used to name a guardian for minor children.

Trusts let you control when and how minor children, grandchildren, or other beneficiaries receive assets in the trust.

You manage property in your will, while the trustee manages assets in the trust. An irrevocable trust is managed by the named trustee, while the grantor may be the trustee of a revocable trust.

A court does not get involved with the trust, while the executor, the person named to carry out the instructions in the will, is court-supervised during probate.

A will is only effective upon the death of the testator, the person creating the will. There are no provisions in a will for what should happen if the person should become incapacitated because of illness or injury. The trust is a tool for incapacity.

Both the will and trusts have their uses in a comprehensive estate plan. An experienced and knowledgeable estate planning attorney will help create an estate plan to best suit your needs.

Reference: Parkland Talk (Jan. 6, 2025) “Start the New Year Right: Why Estate Planning Should Be Your Top Resolution for 2025”

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”

Why Does Young Family Need an Estate Plan?

 

If you thought estate planning was just for grandparents, think again. Families with young children should have an estate plan. In fact, they should start working on their estate plan as soon as they know they’ll be welcoming a new member into the family. A recent article from Chronogram, “Why Estate Planning Is Important for Young Families,” explains why this is critical to protecting children.

Without a will, the court will make all kinds of decisions about the children’s lives, from who will raise them to how their living expenses will be paid. The decisions may not be what the parents would have wanted. Family members will still need to undertake expensive and stressful litigation if they want to go against the court’s recommendations.

The Last Will and Testament is used to distribute assets after the owner dies, including the primary residence, bank and investment accounts and personal property. Without a will, the state law determines what happens to the property. Let’s say someone dies with a spouse and young children. In some states, the spouse automatically receives the first $50,000 in value. The rest is divided equally between the surviving spouse and all children.

What happens if the children aren’t old enough to inherit property? Minors are not legally permitted to receive property, including ownership interest in real estate. If there is no will, the court appoints a guardian for the child. This can lead to unnecessary costs and delays in managing the ownership of the home. Having a will where each spouse leaves their property to the surviving spouse prevents this situation.

Wills are also used to appoint guardians to take care of children in the event both parents pass away. Guardianship refers to the person who will raise the children, which is different than managing the financial assets for the children’s living expenses. Parents are often advised to name a person other than the guardian to handle support for the children. Proceeds from life insurance policies, investment accounts, etc., may be better managed by a second person. A trust may need to be created and funded for these assets.

The role of the executor is especially important where minor children are involved. An executor overseeing the management of an estate when small children are involved needs a different mindset than someone distributing assets after the death of elderly parents. Another reason parents of young children must have a will and name a responsible executor is to protect the children’s futures by making sure that resources needed for the children’s support aren’t squandered because of family fights over the estate.

An experienced estate planning attorney can craft an estate plan to fit the family’s needs and protect the surviving spouse and children. There’s no need to leave the decisions up to a court when having a will and related estate planning documents can be prepared to protect the family.

Reference: Chronogram (Sep. 10, 2024) “Why Estate Planning Is Important for Young Families”

Can I Bequeath the Family Home to My Children?

 

You may believe giving your home to your adult children is a generous move leading to happy memories. However, this isn’t always true. One story recounted in a recent article, “Inheriting a Home With Your Siblings? Here’s All That Can Go Wrong,” from Realtor.com, is an example of how badly this could go.

Three siblings were left their parent’s house when the second parent died. One sibling wanted to keep the house, while a second brother and a sister wanted to sell it and split the money. They had the property appraised, and the sibling who wanted the house bought out his sibling’s shares, paying them both a third of the house's current value. One brother blew his inheritance on a sports car, exotic vacations and an expensive nightlife. The sister bought a boat.

Fast-forward a few years, and real estate values skyrocketed. The brother who bought the house decided to sell it before moving away to be closer to his wife’s family. The house had tripled in value. His siblings now think he should share the profits he made, even though his siblings didn’t want the house. The rest of the family sides with the siblings, making matters harder for the brother.

Estate planning attorneys were asked for their opinions on the matter, and all agreed. He made the decision to buy the property when they didn’t want it, so he owned it free and clear. They aren’t entitled to share the profits. They certainly wouldn’t have shared the losses if the property value had gone down!

Other families fight about the contents of the house. This is why everyone needs an estate plan with a last will and testament clearly detailing how they want their estate, including personal possessions, to be distributed. Hoping the children “work things out” doesn’t end well for most families.

Some families like to have an estate sale company come in and sell the contents of the house and split the profits, while others flip a coin to see who gets what.

Another issue about personal possessions is items disappearing. Sometimes, aging parents decide to declutter without telling anyone. In other cases, a child or family member decides to take something without telling anyone.

How can you prevent your children from fighting over the house or its contents? Have a will made and discuss how to handle your unique situation with an estate planning attorney. Make sure the will includes clear directions as to whether or not the house should be sold or how the shares should be distributed. You could also add a provision stating that if one child buys the shares at fair market value, the transaction is final and the other siblings may not pursue any future gains after the sale.

Parents should never leave property to one child and expect the child to share the proceeds with any other siblings or family members. If property is left to one sibling, they have no legal requirement to share any portion of their inheritance. This happens more often than you’d think despite it being an easy situation to avoid.

As the example above illustrates, even buying out siblings’ shares can lead to problems. If the sibling buying out others' shares is also the executor or the trustee, the siblings and parents would be wise to meet with the estate planning attorney to clarify how this asset will be distributed and what their role will be. Executors who are also beneficiaries can find themselves at the centers of estate battles.

Families may think they don’t need to put things in writing. After all, they’re family. However, when it comes to inheritances, having everything in writing, property prepared by an experienced estate planning attorney and clearly understood by all, is the best you can do to prevent any estate battles among your loved ones.

Reference: Realtor.com (Sep. 14, 2024) “Inheriting a Home With Your Siblings? Here’s All That Can Go Wrong”

What Is the Primary Purpose of a Revocable Trust?

 

There are many basic tools of estate planning, which become more effective when they are coordinated and complement each other. For asset protection and tax planning, aligning strategies is critical for success, says a recent article from Kiplinger, “Revocable Trusts: The Most Common Trusts in Estate Planning.” The benefits of revocable trusts include letting the grantor—the person making the trust—have control of assets.

As the name implies, revocable trusts are more flexible than irrevocable trusts. The grantor of a revocable trust may change the terms of the trust whenever they wish, transfer property in and out of the trust, and change beneficiaries at will.

A revocable trust has many benefits. One benefit is that assets placed in a trust are not subject to probate when the estate is settled, keeping the terms of the trust and the nature of the assets private. A revocable trust allows for a step-up in basis, which can reduce or, in some cases, eliminate capital gains taxes.

The language of the trust provides instructions for managing and disposing of the assets upon the grantor’s death. A revocable trust can also be designed to protect assets for beneficiaries, set certain conditions for asset distribution, or require the funds to be used for specific costs, like education or home purchase.

There are some limitations to be aware of, which should be discussed with your estate planning attorney. If the goal is to protect assets for the grantor, an irrevocable trust is better. For example, if the grantor was involved in litigation and lost, a revocable trust’s assets could be recovered as part of the judgment. This is because the grantor still has control of the assets.

If the assets were in an irrevocable trust, the grantor would have no access to them, which adds a layer of protection.

The grantor needs to consider trading control of and access to assets for protection from court judgments and creditors.

You and your estate planning attorney should discuss which trust is better for your situation. A revocable trust is an excellent tool for estate planning, but an irrevocable trust provides more protection and can potentially shield assets from taxes.

Many people of modest means find that a revocable trust serves their interests well. In contrast, people with higher estate values find a combination of revocable and irrevocable trusts allows them to structure trusts to meet their goals.

Reference: Kiplinger (April 4, 2024) “Revocable Trusts: The Most Common Trusts in Estate Planning”

Estate Planning for Unmarried Senior Couples

An increasing number of couples at various stages of life are choosing to live together without marrying, making estate planning a bit more challenging. This is true whether the couple is relatively young and has children or if they are seniors, according to a recent article from Kiplinger, “Estate Planning and the Legal Quirks of Retiree Cohabitation.”

From one perspective, living together without being legally married provides an advantage: you have your own estate plan. You may distribute assets after death with no obligation to leave anything to a partner or their biological children. In many jurisdictions, the law requires spouses to leave a significant portion to their surviving spouse. This doesn’t apply if you’re cohabitating.

However, there are downsides. For example, a surviving unmarried partner doesn’t benefit from inheriting assets without estate taxes. A non-spouse transferring assets may find themselves generating sizable estate or income taxes. To avoid this, your estate planning attorney will discuss tax liability strategies.

Owning real property together can get complicated. Consider an unmarried couple buying a property solely in one person’s name, excluding the partner to sidestep any possible gift taxes. If the sole owner dies, the partner has no claim to the property. The solution could be planning for property rights in the estate plan, possibly leaving the property outright to the partner or in trust for the partner’s use throughout their lifetime. It still has to be planned for in advance of incapacity or, of course, death.

Regarding healthcare communication and directives, special care must be taken to ensure that the couple can be involved in each other’s care and decision-making. By law, decision-making might default to the married spouse or kin. Without a designated healthcare proxy, a cohabitating partner has no legal authority to obtain medical information, make medical decisions, or, in some cases, won’t even have the ability to have access to a hospitalized partner. A healthcare power of attorney is essential for unmarried couples.

For senior couples living together, blending families can be challenging. However, blending finances can be even more complex. Living together later in life can create many concerns if there are former spouses or children from a prior relationship. If a senior decides to marry, they are advised to have a prenuptial agreement so children from previous unions are not disinherited. If a potential spouse has big issues signing such a document, it should raise a red flag to their motivation to marry.

While living together without the legal protection of marriage is an individual decision and may be seen as a means of avoiding legalities, it needs to be examined from the perspective of estate planning to protect both parties and their families. Couples must prepare for the future, for better or worse, in sickness and health.

Reference: Kiplinger (Dec. 6, 2023) “Estate Planning and the Legal Quirks of Retiree Cohabitation”

 

Home Sweet Home – Downsize Or Keep In Retirement? Md-Michigan

For some questions, there will always be at least two sides to consider. When it comes to retirement and that fateful step into the golden days of life, there are many questions to ask, plans to make, and decisions to make. As you do your research, it seems at every turn you receive conflicting advice. For example, do you continue to stay in your present home or do you move and downsize? Even if you have yet to confront this fundamental retirement question, you ought to consult a recent article in The Wall Street Journal titled “When Should Retirees Downsize Homes?” The Journal asks, “when” not “if,” but that does not mean there is not another side of the story. Enter the DailyFinance with an article providing yet additional reasons to stay put. In fact, that article is aptly titled “7 Reasons Not to Move in Retirement.” While you will want to read both articles, here are the seven reasons to stay: • Save Money • Services You Like • A Social Network • Proximity to Family • Memories • An Advance Plan for Your Later Years • You Like It What place does your home occupy in your life and in the lives of your loved ones? To some families a house is an asset, to others it is a home, and to others it is an anchor (whether wanted or not). Whether you are planning for retirement or already in retirement, there is much at stake and the home can be a divisive issue. So, again, what is the house to you and yours? How are you planning for it?

Reference: The Wall Street Journal (January 25, 2014) “When Should Retirees Downsize Homes?”

                  DailyFinance (January 22, 2014) “7 Reasons Not to Move in Retirement”

For more information, see www.jerryreiflawyer.com

Home Sweet Home – Downsize Or Keep In Retirement? Saginaw, Michigan

For some questions, there will always be at least two sides to consider. When it comes to retirement and that fateful step into the golden days of life, there are many questions to ask, plans to make, and decisions to make. As you do your research, it seems at every turn you receive conflicting advice. For example, do you continue to stay in your present home or do you move and downsize? Even if you have yet to confront this fundamental retirement question, you ought to consult a recent article in The Wall Street Journal titled “When Should Retirees Downsize Homes?” The Journal asks, “when” not “if,” but that does not mean there is not another side of the story. Enter the DailyFinance with an article providing yet additional reasons to stay put. In fact, that article is aptly titled “7 Reasons Not to Move in Retirement.” While you will want to read both articles, here are the seven reasons to stay: • Save Money • Services You Like • A Social Network • Proximity to Family • Memories • An Advance Plan for Your Later Years • You Like It What place does your home occupy in your life and in the lives of your loved ones? To some families a house is an asset, to others it is a home, and to others it is an anchor (whether wanted or not). Whether you are planning for retirement or already in retirement, there is much at stake and the home can be a divisive issue. So, again, what is the house to you and yours? How are you planning for it?

Reference: The Wall Street Journal (January 25, 2014) “When Should Retirees Downsize Homes?”

                  DailyFinance (January 22, 2014) “7 Reasons Not to Move in Retirement”

For more information, see www.jerryreiflawyer.com

 

ESTATE PLANNING / PROPERTY OWNERSHIP

Many people own property without truly understanding how they hold title to it – or the ramifications of the title that they hold. Not fully understanding your property ownership can have some dire consequences for your estate. As a lesson take a recent case out of Greenwich, CT, featured in an article here, and the dangers of tenants-in-common. Owning property with someone else is fairly common, and understanding how you own it is an important aspect of your estate planning. If you own property with someone else as tenants-in-common, when one of the tenants dies, their ownership interest passes on to their heirs and assigns. This means that their heirs automatically enter into a legal relationship with the surviving tenant. The options at this point usually include selling the property and splitting the proceeds; or one of the tenants buys-out the rights of the other(s). In the case in Greenwich, a couple entered into the ownership of a home as tenants-in-common and split up some time before the woman’s death, with the woman living in the house and the boyfriend leaving. At the woman’s death, her ownership rights transferred to her heirs but – and you can see it coming – the boyfriend came back into the picture for his ownership rights as well. The ex-boyfriend persisted in arguing for a lower and lower valuation of the house, complicating efforts to partition and sell it … and also making it easier for him to buy out the woman’s heirs. In other words: the ownership fell into many bickering hands, each with an agenda, and none of whom necessarily intent on holding up the woman’s intentions. Some people might say joint tenancy with rights of survivorship (JTWROS) is a simple answer to this problem. Well, not so fast there, either. In this particular case, joint tenancy would have left the property entirely to the surviving tenant, the ex-boyfriend; and the woman’s heirs would have been cut out entirely. You can learn more about property ownership and joint tenancy in the January 2011 issue of our estate planning newsletter, Joint Tenancy Troubles.

Reference: The Greenwich Citizen (July 20, 2011) “Another Estate Planning Nightmare: Tenant-in-Common