Common questions my clients have are why are revocable living trust so popular, why do most people choose a revocable livng trust instead of a will for their estate planning needs?

There are a few reasons why the living trust is a powerful and flexible alternative to just a will based estate plan.

First, in Michigan, a living trust avoids the Michigan probate system. A will is probated through the probate court while a trust will avoid probate all together. The trust distributes your assets directly to your chosen beneficiaries.

Next, a will can be inconvenient for your heirs to administer. With a will, your heirs and loved ones, burned with your passing must hire a lawyer to probate your estate since a will does not avoid probate.

Another reason is the administrative cost of a will. A probate in Michigan can be an expensive process eating up three to five percent of any assets. These costs goto attorneys, judges, and other administrative fees.

Additionally, the process can be time consuming. Michigan probate can take six months to years to administer your assets.

Another advantage of a living trust is that your distribution will be confidential. Michigan probate is a public affair, while the administration of a trust is private and confidential.

If you have any questions, contact my office at (248) 865-4700

Clients generally take a look at their completed estate planning documents and are a bit intimidated.

Despite a trend for attorneys to use more “client friendly” language over the last ten years or so, estate planning documents can seem truly daunting to some clients. Other clients are able to understand the documents, but do not understand the reason why it takes so much paper just to leave their property to their heirs. There are three primary reasons:

1. The need to communicate to attorneys, probate courts, the Internal Revenue Service and non-probate courts in a language they are familiar with.

2. Requirements to satisfy the Internal Revenue Code’s estate and gift tax benefits that significantly reduce the estate taxes imposed on the surviving spouse or other heirs.

3. The need to plan for unintended, yet possible circumstances that may occur in the future to the clients or heirs.

1. The Need to Communicate

The law is unlike almost any other area of human endeavor in that the complex relationships of parties need to be stated in a manner that the persons who make decisions regarding a decedent’s estate (i.e. Internal Revenue Service Auditors, Judges, Guardians, Attorneys-in-Fact, Government Administrators, etc.) are familiar with. This can be a daunting task, and changes in language, format and meaning change slowly in the law so that practitioners and their clients have a well understood set of rules to plan under. Compare mathematics as an example. One simply states that two plus two equals four. In an estate planning document, without a history of language and formalities upon which to base the explanation of a client’s plan, the document would have to explain what “one” means, what “plus” means and what “equals” means. That is not necessary in mathematics, because everyone is familiar with those terms. Unfortunately, the practice of estate planning law does not allow for the brevity of expression that mathematics does.

2. Taking Advantage of Estate and Gift Tax Benefits in the Internal Revenue Code

(and avoiding the pitfalls)

As one of the primary goals of estate planning is to avoid unnecessary estate, gift and income taxes, much of the language in estate planning documents is Internal Revenue Code driven. When Congress passes a new statute, the Internal Revenue Service releases regulations explaining its interpretation of what the Internal Revenue Code means. Much of the language in estate planning documents is taken directly from those regulations so as to ensure to the maximum extent that the benefits sought are qualified for. As an example, you look at the principal distributions of the Family and Survivor’s Trusts and in the distributions to heirs after the death of the trustors, you will see the phrase “health, education, maintenance or support” used frequently. It is quoted from Treasury Regulations section 20.2041-1(c)(2) which defines powers that a beneficiary (surviving spouse or children whose inheritances are held in trust for them) can have but which will not cause the property in the trust to be included in the beneficiary’s estate. Those four words are explained in two pages of regulations. However, by using just those four words, it is unnecessary to include the two pages of regulations. There are many, many such terms in your documents that are there to ensure that your estates pay the least tax under your particular testamentary design.

3. Planning for Unintended Circumstances

In order to protect you and your heirs, your estate planning documents must anticipate and provide for circumstances that may never occur, but you will be protected if they do. One example, that adds volume to your living trust is the need to plan for government benefits. Assume the trustors have died and property is being held in trust for a child until the child reaches age 35. The child is healthy and planning for Medicaid or other government benefits is not a consideration at the time the plan is prepared. However, at age 30 the child is seriously injured in a fall and has large medical bills. If the living trust did not anticipate the potential for this catastrophe, the child’s inheritance would go to medical expenses. However, the living trust has special language in Article Twelve, that goes on for three pages, which will automatically convert the child’s benefits into a format that will not disqualify the child from Medicaid, but will enable the trustee to make the child’s life as comfortable as possible, rather than spending the entire inheritance on medical costs.

In summary, there are very real and important matters that require your document to be more voluminous that you might think necessary to carry out your estate plan. However, each word is there for a purpose that I want to protect for you or protect you from. I understand that there are attorneys who prepare much smaller documents, but my concern for you and your family does not allow me to forsake your needs in the interest of brevity.

Estate Planning is a very complicated area of the law in Michigan where myths abound and they can be harmful to you and your loved ones. Below is a list of common myths about estate planning.

If I have a good Will in Michigan, Michigan probate will not be required, and my assets can be transferred immediately to the beneficiaries of the Will. In fact, having a Will mandates a probate in most circumstances and the assets may not be transferred to the heirs for months or years.

Probate in Michigan is a court proceeding to transfer title from the decedent’s name to the living beneficiaries. Probate occurs in the state of your legal residence as well as any state where you own real property. The length of time to complete a Probate varies from state to state, but can take six to eighteen months, on average. Probate is frustrating to the heirs and is public record.

I don’t need a will if I have a small estate. Many people also believe that if there is no Will, all the decedent’s assets will be distributed to the surviving spouse.

If you don’t create a valid Will, the state of Michigan has a statute that will dictate where your assets go and who will administer your estate. Michigan law may not distribute your assets to the people you want to have them.

A Will covers all my assets. in Michigan, wills do not cover assets held as joint tenants with right of survivorship, retirement plans, annuities, life insurance, financial account with payable on death or transfer on death designations.

I can do my own estate plan. Estate planning is more than just creating documents. It is understanding the big picture and how the legal documents will work in concert with the assets and Michigan laws at the time they are needed.

I don’t need an estate plan because I hold all my assets jointly with another. In fact, this is one of the worst ways to plan you estate. The asset may be exposed to estate and gift taxes; it does not avoid probate, just delays it until the last owner’s death; it may cause estate, gift and capital gains taxes; it is subject to the creditors of all owners; and it will result in the transfer of the property to the joint owner when one owner dies, even if that was not intended taxes.

You can’t afford to rely on myths when it comes to your estate. Find out the facts, plan carefully and execute a plan to provide you with peace of mind and security for your loved ones.

The definition of estate planning at my firm is:

I want to control my property while I am alive.
I want to take care of myself and my loved ones if I become disabled.
I want to give what I have to whom I want, the way I want, and when I want.
If I can, I want to save every last tax dollar, professional fee, and court cost possible.

Here are a few reasons why a revocable living trust is the only estate planning vehicle that satisfies our definition of estate planning.

The first reason is control. This is the most important benefit of proper estate planning and why almost every client contacts an estate planning lawyer in the first place. If you do not properly plan then you give up control to the Michigan probate system. If you uzilize only a will in Michigan, then you establish a little more control, but still you are leaving your property outright to your beneficiaries unless a trust is utizlized. Therefore, the best way to establish control over your property and estate in Michigan is through a revocable living trust drafted by a Michigan lawyer.

The second reason to look at a trust for your Michigan estate planning is because of the incapacity planning available by using a trust. With the trust, you can control how you are cared for during incapacity and also provide for how you and your family are provided for with your money and property during incapacity in Michigan.

The third reason to use a trust for your estate planning needs is the ability to give property to who you want when you want. By establishing a revocable living trust there is an amazing amount of latitude and flexibility afforded to revocable trusts.

The fourth reason, the one most people already know, is that trust planning can save on taxes and expenses. You are able to save on both Michigan probate costs by using a trust in addition to planning for Federal Estate Taxes if that is an issue.

Continue reading "The Definition of Estate Planning and Why Trust a Trust?" »

A common concern of parents of minor children is "who will take care of my children if i die?" Through proper estate planning you can make the decision as opposed to leaving it up to the court system to make the decision for you.

However, this decision is one of the toughest for parents to come to a decision on. Often times, it is so difficult it leads to inaction and procrastination. This deadlock could be one of the major reasons why 57% of Americans do not have a will or estate plan set up.

Unfortunately, this deadlock can have very unfortunate consequences. For example, if the planning is not completed one potential outcome is that someone who you may not like or trust could end up being the guardian of your child or children. If you do not name a guardian in your estate plan, a judge who has little knowledge of your family situation could appoint just about anyone he or she sees fit to assume the role of subsitute parent in your stead upon your passing. A very frightning proposition.

Another potentially harrowing outcome is that there could be a legal battle to decide who will assume the role of guardian for your children. If more than one person wishes to assume the role you could be setting up your family and loved ones for a time consuming, stressfull, and expensive legal tug-of-war battle, that more often than not has no real winners.

And most frighting of all, what happens if the kids are dumped on a family member who has no interest or desire to be a guardian or, even worse, the children are put into foster care. Another scary proposition for any parent.

Meeting with an estate planning attorney can help with the decision making process. As professionals who see these situations on a daily basis we have creative solutions to solve the dilema and counsel parents past the deadlock of indecision through effective legal counseling.

Don't let this tough decision be a roadblock to completing an estate plan, because the consequences can be dire.

Randy Pausch, the professor/scientist who gave the famed "Last Lecture", has succumbed to the terminal cancer he was diagnosed with back in 2006. His lecture leaves something more valuable than assets or items, it is values and a legacy. Too often estate planners and their clients focus on the money and ignore family, faith, and value issues, especially when planning for families with young children.

Here is his video on YouTube, it is the full lecture and over an hour long, but well worth watching if you have not.

Last Lecture

Here is the CNN story reporting his passing.

The WSJ wrote a quality article about his situation, read it here. From the article

Early on, he had vowed to do the logistical things necessary to ease his family's path into a life without him. His minister helped him think beyond estate planning and funeral arrangements. "You have life insurance, right?" the minister asked.

"Yes, it's all in place," Randy told him.

"Well, you also need emotional insurance," the minister explained. The premiums for that insurance would be paid for with Randy's time, not his money. The minister suggested that Randy spend hours making videotapes of himself with the kids. Years from now, they will be able to see how easily they touched each other and laughed together.

Knowing his kids' memories of him could be fuzzy, Randy has been doing things with them that he hopes they'll find unforgettable. For instance, he and Dylan, 6, went on a minivacation to swim with dolphins. "A kid swims with dolphins, he doesn't easily forget it," Randy said. "We took lots of photos." Randy took Logan, 3, to Disney World to meet his hero, Mickey Mouse. "I'd met him, so I could make the introduction."

Randy also made a point of talking to people who lost parents when they were very young. They told him they found it consoling to learn about how much their mothers and fathers loved them. The more they knew, the more they could still feel that love. To that end, Randy built separate lists of his memories of each child. He also has written down his advice for them, things like: "If I could only give three words of advice, they would be, 'Tell the truth.' If I got three more words, I'd add, 'All the time.' "

You can also view the Last Lecture in written form by reading the transcript here.

CNN is reporting that foreclosures nationwide are up 121% from this time last year. As bad as people say the Metro-Detroit area is, the worst areas is the Sun Belt area in California, though they report that outside of the Sub Belt, Detroit is the next hardest hit foreclosure location.

Detroit continued to suffer more than any other non-Sun Belt area, with one filing for every 66 households. And several Ohio cities were also hard hit, led by Toledo (one in 92 households), Akron (one in 93) and Cleveland (one in 108).

You can read the article at CNN here.

Michigan is one of what, last I checked, was 33 states that allow trusts created for the benefit of a pet. This makes sense given the emotional attachment and love many people have for their pets. Sunday, Christopher Yugo wrote an interesting article regarding estate planning and his pet specifically.

In it he says:

Although you can't leave Fido money, you can establish a pet trust for his support. A pet trust is a device to provide financial support for the care of your pet. After your pet passes, the remaining funds will be distributed to the beneficiary of your choice.

You can read the article here.

I have seen a few instances where clients have brought in their old "estate planning" documents that they have attempted to do themselves. Time and time again they are wrought with problems. Both the client and I are grateful that we were able to put a professional plan in place before anything happened and those documents would be tested.

A colleague down in Florida (read his blog here) has worked on a case where unfortunatly, an individual attempted a do it yourself approach and ended up costing his intended beneficiaires nearly $75,000.

That $50, internet form doesn't seem so cheap when it costs $75,000 to your beneficiaries on the back end.

While not having to do with estate planning, I do keep any eye on the Michigan Supreme Court.

Today they had a ruling I find a bit activist and odd. They struck down precedent and ruled that criminals can be sentenced as habitual offenders if their felonies stem from the same criminal act.

The argument of the dissent seems to make sense, which is that the lawmakers intended for harsher penalties for persistent criminals versus multiple crimes in one event.

Read more here.

Losing a job is a major life event. With the Big 3 making job cuts and Chrysler announcing today another 1,000 jobs will be lost (read here), it is important to remember that any major life events trigger a need to review your estate plan.

With job loss there can be changes in retirement accounts. Any time there are changes in title to accounts, such as rolling a 401k from an old company into an IRA, there needs to be a review to make sure that with the new account any trusts are properly funded and any beneficiary forms are designating who they should designate. Failure to do so can lead to unintended consequences such as disinherited heirs.

Major life events (job loss, job changes, divorce) can be difficult to deal with, but it's important to make sure that once the dust settles, everything is still in place the way it should.

Our firm has created a systematized process to review estate plans (called Foundations), similar to how you have dental check ups, to make sure your estate plan still achieves the goals you desired when you originally created it.

Many people, when they hear the word "probate" think of the court administration after death. However, there is another apsect of probate, called "living probate," that deals with situations where someone is incapacitated and unable to take care of their own well being and finances. In these situations if it has not been planned for through powers of attorney, it may be necessary to establish a guardianship and conservatorship for them.

A guardian is appointed by the court, after someone requests to be appointed, to oversee the health and well-being of an individual. The guardian must, on an annual basis, file reports with the court as to the status of the incapacitated individual, ward. However, the guardian does not handle any finances or assets for the ward.

That is where the conservator comes into play. A conservator is responsible for managing the finances of the ward, this includes paying bills and investing and paying taxes. Similar to the guardian, the conservator also has to provide on an annual basis an accounting of all income, expenses and changes in the investments of the ward.

These two "agents" may or may not be the same person.

Establishing a conservatorship or guardianship can be time-consuming and expensive. To avoid these procedures, it is ideal to execute a powers of attorney prior to losing your competency, which in most situations negates the need to have a guardian or conservator appointed

Most people remember the Terri Shiavo situation down in Florida where there was a fight to see who would make medical decisions for an incapacitated woman. If you remember, Schiavo suffered a seizure in 1990 that left her in a persistent vegetative state, kept alive only by a feeding tube. Ms. Schiavo had no living will. Eight years later, Ms. Schiavo's husband asked the court for permission to have the tube disconnected. Her family fought him, claiming that there was a chance for recovery. Well, there may be another similar situation happening according to the Palm Beach Post.

Karen Weber, apparently did not have a living will when she suffered a seizure in November of last year. In this case, the courts have not ruled on Ms. Weber's condition; she is paralyzed but breathes on her own. Her husband believes that his wife did not and would not want her life prolonged artificially, but again, there is not advanced directives laying this out.

To read the story, click here.

If the Shiavo case was not lesson enough, here is another example where completing your advanced directives is a necessary estate planning step to protect your wishes and keep yourself out of the court system.

To learn more about the Shiavo cases, click here.

A common desire of our clients is to avoid the Michigan probate system. There are a few ways to do this, typically the most organized way is through a well funded living trust. However, there are other strategies, which are not mutually exclusive, and should be used in addition to a well funded revocable living trust. The other strategies are:

• Joint Tenancy Bank Accounts


• Pay on Death Beneficiary Designations on Bank Accounts


• Beneficiary Designations on Annuities


• Beneficiary Designations on Savings Bonds


• Beneficiary Designations on Life Insurance


• Beneficiary Designations on Pension Accounts

There are pitfalls to be wary of when using these strategies, for example you do not want to create a taxable event or open yourself up to liability of creditors and predators by sharing ownership of any accounts. These are issues we cover with our clients during our planning meetings.

In a frightening report, according to a Michigan auditor general's office audit as reported by the Detroit News, state oversight of child care providers was so poor that 1,900 people who were not qualified to provide the care, including sex offenders and child abusers, were not identified, nor prevented from doing so.

This is a frighting for any young families looking for child care. DHS has provided a good guide for what to look for in your child care provider. Their guide can be read here. Included in the guide are questions to ask, what to look for, how to check references, and how to stay involved.

A common desire of our clients is to avoid the Michigan probate system. There are a few ways to do this, typically the most organized way is through a well funded living trust. However, there are other strategies, which are not mutually exclusive, and should be used in addition to a well funded revocable living trust. The other strategies are:

• Joint Tenancy Bank Accounts


• Pay on Death Beneficiary Designations on Bank Accounts


• Beneficiary Designations on Annuities


• Beneficiary Designations on Savings Bonds


• Beneficiary Designations on Life Insurance


• Beneficiary Designations on Pension Accounts

There are pitfalls to be wary of when using these strategies, for example you do not want to create a taxable event or open yourself up to liability of creditors and predators by sharing ownership of any accounts. These are issues we cover with our clients during our planning meetings.

In a frightening report, according to a Michigan auditor general's office audit as reported by the Detroit News, state oversight of child care providers was so poor that 1,900 people who were not qualified to provide the care, including sex offenders and child abusers, were not identified, nor prevented from doing so.

This is a frighting for any young families looking for child care. DHS has provided a good guide for what to look for in your child care provider. Their guide can be read here. Included in the guide are questions to ask, what to look for, how to check references, and how to stay involved.

I was having a discussion with a contact the other day regarding the failure and collapse of the IndyMac Bank. What I told him was that the FDIC insures up to $100,00 of an deposit account. Retirement accounts such as 401(k)s, IRAs, etc are typically insured up to $250,000 per person. However, it is the person's aggregate deposits and not the individual account balances that are insured, therefore any amount over $100,00 deposited at a single bank will not be covered.

People are afraid of lawyers. People are afraid of death. Put them together and you have an estate planning lawyer. Many people would would rather goto the dentist then think about estate planning and what's involved. Add to the confusion that when people hear the word "estate" they think of rich, extravagant homes in the Hamptons or in Orange County.

Estate planning is a bit of a misnomer. What it really refers to is handling your affairs during incapacity and after you pass away.

There are two major components to the services an estate planning lawyer provides. First, the counseling involved. Anyone can print of a document off the internet and fill in the blanks. Estate planning lawyers provide real value in the counseling involved in how to handle family situations, how to handle financial situations, and provides options and solutions to address estate planning needs.

The second component is preparing individualized estate planning documents, based off the counseling. Typically, if Federal Estate Taxes are not an issue there are four major sets of documents that are prepared. These are:

1. Will


2. Living Trust


3. Durable Powers of Attorney


4. Advanced Health Care Directives

The Will actus as a back-up to your trust and provides for guardianship of minor children.

The Living Trust is the "suitcase" that holds all the assets that pass to your beneficiairs and avoids the probate system.

The Durable Powers of Attorney provide instructions and nominates an individual to act as a fiduciary and interact with financial institutions if you become disabled.

The Advanced Health Care Directives nominates an individual to make medical decisions if you become incapacitated.

In a recent survey, only 30% of people who have estate planning documents have outlined specific requirements that their heirs must meet to gain access to their inheritance. This is at odds with the finding that 62% of people felt strongly that each generation should take responsibility for creating it's own wealth.

What this tells me is that people are not taking advantage of the possibilities with incentive based trusts for their children and heirs. An Incentive based trust is a nifty tool for estate planning attorneys to use that create a set of stipulations that would reward heirs for making specific life choices (and withhold inheritances for poor choices).

Some creative drafting incentives for a trust for children and heirs include:

• Encourage heirs to seek a higher education by distributing income or principle from the trust to pay tuition and supplies. Additionally, the trust could provide bonuses if a certain grade point is received.


• The trust assets could be used to match the income of an heir dollar for dollar to reward an heir for having gainful employment.


• Supplement the income for a child who works for a nonprofit or volunteers to a charitable organization


• Reward an heir for trying to start their own business.

There are many estate planning options when creating incentives in trusts for the benefit for heirs. As an estate planning lawyer working with a client, we are only limited by our creativity in drafting.

I was having a discussion with a contact the other day regarding the failure and collapse of the IndyMac Bank. What I told him was that the FDIC insures up to $100,00 of an deposit account. Retirement accounts such as 401(k)s, IRAs, etc are typically insured up to $250,000 per person. However, it is the person's aggregate deposits and not the individual account balances that are insured, therefore any amount over $100,00 deposited at a single bank will not be covered.

People are afraid of lawyers. People are afraid of death. Put them together and you have an estate planning lawyer. Many people would would rather go to the dentist then think about estate planning and what's involved. Add to the confusion that when people hear the word "estate" they think of rich, extravagant homes in the Hamptons or in Orange County. Estate planning is a bit of a misnomer.

What it really refers to is handling your affairs during incapacity and after you pass away.

There are two major components to the services a Michigan estate planning lawyer provides. First, the counseling involved. Anyone can print of a document off the internet and fill in the blanks. Estate planning lawyers provide real value in the counseling involved in how to handle family situations, how to handle financial situations, and provides options and solutions to address estate planning needs.

The second component is preparing individualized estate planning documents, based off the counseling. Typically, if Federal Estate Taxes are not an issue there are four major sets of documents that are prepared. These are:

1. Will
2. Living Trust
3. Durable Powers of Attorney
4. Advanced Health Care Directives

The Will acts as a back-up to your trust and provides for guardianship of minor children. The Living Trust is the "suitcase" that holds all the assets that pass to your beneficiaries and avoids the probate system. The Durable Powers of Attorney provide instructions and nominates an individual to act as a fiduciary and interact with financial institutions if you become disabled. The Advanced Health Care Directives nominates an individual to make medical decisions if you become incapacitated.

-Christopher J. Berry, Esq.
Michigan Trust and Will Attorney

In a recent survey, only 30% of people who have estate planning documents have outlined specific requirements that their heirs must meet to gain access to their inheritance. This is at odds with the finding that 62% of people felt strongly that each generation should take responsibility for creating it's own wealth.

What this tells me is that people are not taking advantage of the possibilities with incentive based trusts for their children and heirs. An Incentive based trust is a nifty tool for estate planning attorneys to use that create a set of stipulations that would reward heirs for making specific life choices (and withhold inheritances for poor choices).

Some creative drafting incentives for a trust for children and heirs include:

• Encourage heirs to seek a higher education by distributing income or principle from the trust to pay tuition and supplies. Additionally, the trust could provide bonuses if a certain grade point is received.


• The trust assets could be used to match the income of an heir dollar for dollar to reward an heir for having gainful employment.


• Supplement the income for a child who works for a nonprofit or volunteers to a charitable organization


• Reward an heir for trying to start their own business.

There are many estate planning options when creating incentives in trusts for the benefit for heirs. As an estate planning lawyer working with a client, we are only limited by our creativity in drafting.

I have switched over to using Wordpress to maintain my blog. To read my old posts, please go to www.estateplanning-mi.blogspot.com.

I have switched over to using Wordpress to maintain my blog. To read my old posts, please go to www.estateplanning-mi.blogspot.com.

I am a Michigan lawyer who practices estate, legacy & business planning. I help my clients protect their family and loved ones in Michigan through the creation of wills, trusts, powers of attorney, living wills, HIPAA documents, and patient advocate designations.

I am a member of the State Bar of Michigan Probate and Estate Planning section and a member of WealthCounsel, which is a national organization devoted to training and preparing the best estate planning attorneys across the nation.

The purpose of this blog is to express my thoughts on Michigan estate planning topics, and is not to be construed as legal advice.

If you have any questions, please contact me at 248-865-4700.

Cheers,

Christopher J. Berry, Esq.
Witzke Berry PLLC
30300 Northwestern Hwy.
Ste. 260
Farmington Hills, MI 48334
P: (248) 865-4700
F: (248) 232-0239
E: chris@witzkeberry.com