After a spirited discussion with another estate planning lawyer, I wanted to share some insight into the questions of who needs a living trust (revocable living trust). As a Michigan estate planning attorney, a common question I hear is "do I need a living trust?". Like all questions posed to attorneys, the answer is "it depends."
Let's walk through a scenario. Take a young married couple with a new born baby. They have a house and one of the parents has some life insurance. Assuming they had a will based estate plan, but no living trust or testamentary trust and they had passed away in a car accident here is what would happen.
First, guardianship of their baby would probably be handled in the last will and testament. A Michigan probate would have to be opened. The house would of course have to be probated. Most likely the life insurance would not be probated because typically parents in this situation would name their child as a contingent beneficiary. Likewise for any retirement accounts. However, the retirement accounts and life insurance still are not handled in the best way because what happens now is that a court supervised conservator will have to be established to handle the financial management of any assets left to the child, since the child is a minor.
So, initially you are looking at 6-12 month Michigan probate process to transfer the house out of the deceased parents names. Most likely thousands of dollars in legal fees and court costs. That's not the end of it though...
You also now have a 17 year living probate case that needs to be opened. The conservatorship for the children must be established. That means that for 17 years the Michigan probate court will be involved monitoring the activities of whoever was appointed conservator along with all the fees, costs and hassles that go along with the court process.
What a mess. That's not all. At age 18 that child will now inherit everything in a lump sum that the conservator was managing. Regardless of the size of that inheritance, at age 18 if you had a lump sum of money in your bank, would you make good decisions with it?
Now, lets say they had a Michigan living trust based estate plan. They've passed away. Immediately the person they've named as trustee who is a family member or family friend now manages the assets for the children and ensures the assets, including house, life insurance, and retirement accounts. There is little to no court involvement, there is no time consuming, costly Michigan probate, and there is no 17 year long living probate with a conservator and court monitoring. Plus, the trust that was set up can push the child towards college with incentives and can distribute assets at a later age, say 25, 30 and 35, when the child is more mature to handle the money.
Now if you are a parent with a young child, you don't have millions, but you want to ensure your child is protected and that if something happened to you, things would be handled in a way not only best provided for your child, but also that was as low stress as possible given the situation, which scenario would you choose?
Do you need a living trust?
Christopher J. Berry, Esq., A Bloomfield Hills Probate Litigation Attorney, is a Partner with The Law Offices of Witzke Berry PLLC, which practices in the areas of Michigan Living Trusts, Living Wills, and Michigan Probate Litigation.
