FREQUENTLY ASKED QUESTIONS ABOUT ESTATE PLANNING
Do I need Estate Planning?
Yes. Regardless of the size of your estate, everyone, starting at age 18, should, at a minimum, have a Last Will and Testament, a Durable General Power of Attorney for Finances, a Durable Power of Attorney for Health Care, and a Living Will to legally designate someone to manage their assets and make health care and personal care decisions for them should they become unable to do so for themselves. Your parents are no longer your legal guardians once you reach the age of 18. If you fail to plan ahead, a judge will have to appoint someone to handle your financial affairs and personal care, with resulting higher expenses. In addition, a simple Will is also recommended.
Do I need a Will?
Yes. Without a Will, your estate, after taxes and expenses, will pass to your heirs as determined by the State in which you are residing at the time of your death (Intestate Succession), which may or may not be the way you desire. In addition, without a Will, the expense and time to settle your Estate will be greatly increased and everything will have to be done through Probate Court.
When do I need a Trust?
As Dave Ramsey says, "Everyone needs a Will, but not everyone needs a Trust." The primary purposes of Trusts are to avoid Probate (and the time, expense, and publicity of Probate); to reduce Estate Taxes; and to hold assets for a time instead of having them pass outright to your beneficiaries upon your death (particularly in the case of minor children or grandchildren). Trusts are particularly valuable if you have minor children; if you have a Taxable Estate; if you are in a second marriage and you have children from a previous marriage; if you do not desire to have your children or grandchildren receive your assets outright at the age of majority; and if you own an interest in real property that is located in another state.
Who can make a Will, create a Trust, and execute Powers of Attorney?
To create a valid Will, Trust, or Power of Attorney, you must be 18 years of age or older, and have sufficient mental capacity (formerly called being of Sound Mind), to-wit: the ability to understand that you are providing for the disposition of your property after death, the ability to appreciate the nature and extent of your property, awareness of those persons who would be the logical recipients of your Estate, and the ability to understand the general nature and effect of signing a Will.
Can I avoid Probate by having a Durable Power of Attorney for Finances?
No. Having a Durable Power of Attorney does not guarantee that you would be able to avoid Probate. First, a Durable Power of Attorney ceases upon the death of the Principal, and any remaining assets will have to Probated. Second, during your lifetime many institutions may not honor a Durable Power of Attorney document which is not of recent date, and as a result, a Conservatorship in Probate Court may still be necessary. The evidence that a Durable Power of Attorney document was executed and named a Conservator may be submitted in court, however, the court may still appoint someone else as your Conservator.
Can I avoid Probate by holding everything jointly with my spouse?
Yes, But! The use of joint tenancy between husband and wife is generally recommended to protect those assets from creditors and to avoid probate at the death of the first spouse to die, but upon the death of the surviving spouse, or if both of you die at the same time, probate will be required. In addition, this may result in unintended consequences if this is a second marriage.
How about just adding my children on the deeds to property and bank accounts?
Sometimes referred to as "poor man’s estate planning", this practice is strongly discouraged for several reasons. The addition of children as joint owners of your real property introduces a lack of control by the parents over the disposition of their property because all joint owners must thereafter agree to make changes. The addition of children as joint owners of your bank and brokerage accounts introduces a risk that a child may legally withdraw the funds without your consent. Further, if you intend for those funds to be shared by all your children, but you only put one child’s name on the account, upon your death that single child will be legally entitled to all the funds. The greatest risk, however, is the risk that creditors of your children, including divorcing spouses and bankruptcy creditors, may be able to claim those assets to satisfy debts, and force the sale of the property. Finally, putting children's names on deeds creates a gift of that property to the extent of the child's interest in the property. Upon the sale of the property, the child's tax basis is the same as the parents' tax basis, which could result in substantial capital gains tax liability, instead of a stepped-up tax basis if they had inherited the property.
How does a Trust avoid Probate?
The key to avoiding Probate with a Revocable Living Trust is the re-titling of your assets into the Trust. At the time of your death, if the asset is owned by the Trustee of your Trust, that asset does not pass through Probate. As a result, the Trustee (or the Successor Trustee) is able to manage and distribute the asset in accordance with the terms of the Trust Agreement free of the Probate Court's supervision. Note that even after a Trust has been created, it is necessary to transfer the ownership of the assets held in the Settlor's name to the Trustee during the Settlor's lifetime, or those assets will be subject to Probate.
I don't have a very large estate, so it seems to me that having a Trust is overkill and would be more expensive. Why can't I just use a simple Will?
When all is said and done, your Estate will usually incur more expenses (court costs and legal fees) by using a simple Will than using a Revocable Living Trust. On the non-monetary side, going through Probate will also mean that your heirs will be forced to adhere to the schedule and orders set by the Probate Court.
Wouldn't using a Trust during my lifetime restrict me in what I can do with my own property?
No. A Revocable Living Trust is created while you are living, and does not prevent you from continuing to use or dispose of your property as you wish during your lifetime. Note that in most cases, the Trust becomes irrevocable only upon the death of the Settlor, and thereafter must be administered by the successor Trustee according to the terms and conditions set forth in the Trust Agreement.
I do not believe that our family needs a Trust since we have small children and our estate is well under the applicable exclusion amount for estate taxes. Is this correct?
No. Even though your estate may be considered modest in terms of the likelihood of needing to pay Federal Estate Taxes, you should consider what would occur if both parents died prematurely. Would you want your children to be able to receive their entire inheritance at age 18? If you leave assets to your minor children and both parents die before the child reaches 18, the Probate Court will set up a Conservatorship with those dollars for that child. When that child reaches the age of majority (18 in Michigan), that child will then receive the entire lump sum inheritance with no restrictions.
If I have a Living Trust, do I still need a Will?
Yes. If you use a Revocable Living Trust, you will be naming a Trustee and Successor Trustees, who upon your death, will serve basically the same function as an "Executor" of an estate, but only as to the assets that have been transferred into the Trust. We use a Pour-Over Will as a backup just in case you might still own assets that are titled solely in your name at the time of your death (e.g., winning the Lottery and then dying of a heart attack) . The Pour-Over Will acts to transfer those assets into your Trust when the Will is probated so that all your assets are eventually inside your Trust. In addition, if you have minor children, the Last Will and Testament is the document in which you nominate a Guardian and/or a Conservator for your minor children. There has to be a Probate Court proceeding in order to appoint the Guardian or Conservator, and so it is appropriate that the Will be used to make those nominations.
Aren't Patient Advocate Designations only for people over sixty (60) years of age?
No. Beginning at age 18, Michigan law enables you to name a surrogate known as a "Patient Advocate" to make medical care decisions for you in the event you become incapable of communicating such decisions for yourself. Your Patient Advocate can make any decision you can make within the limitations you set forth in the document. Note that at age 18 the parents are no longer legally able to make these decisions for their children unless they have been duly appointed as their Patient Advocate or Guardian.
How often should I have my Estate Plan reviewed and/or updated?
The general rule is at least every three (3) to five (5) years if there are no significant changes in the law or in your circumstances. Such changes would include, but are not limited to, significant life events, such as: marriage; divorce; birth, death, disability, or serious illness; death or incapacity of persons named as Personal Representatives, Trustees, Devisees, or Beneficiaries; loss or change of assets; or changes in tax laws or Trust or Probate laws.
Can I do my own Estate Planning?
Yes, but Estate Planning (as you will note from the Definitions and FAQ's) can be complex, and a good working knowledge of the Probate and Tax laws and the Estate Planning and Probate process is necessary. In addition, the Probate, Trust, and Tax laws are always changing. There is an old Barristers' toast in England: "Here is to those who write their own Wills" (because it keeps the Barristers (trial lawyers) fully employed litigating the various errors and omissions made by the decedent and to settle family disagreements).
There are Holographic (handwritten) Wills, Statutory Wills, books, and more than a few software programs and on-line legal websites that purport to make writing your own Will and Trust cheap and easy. The problem is that Estate Planning is not easy, and their products are mostly "cookie-cutter - one size fits all" forms that may or may not suit you. You will almost always be better served by retaining a knowledgeable Estate Planning Attorney who will prepare a customized Estate Plan just for you.
How much does Estate Planning Cost?
A mechanic cannot quote a price to repair your car until he has performed a thorough inspection and determines what repairs are required. A doctor cannot quote a price to fix a stomach ache until he has examined you and diagnosed the cause of the ache. Similarly, I cannot quote the exact cost of estate planning for you until we have had an initial consultation and I have reviewed your assets and liabilities and your estate planning objectives. There is generally no charge for an initial consultation and no charge until you agree to commit to having me prepare the estate planning documents. An exact fee will be quoted prior to your committing to an Estate Plan.
That being said, the cost of Estate Planning is almost always much less than the cost of having no Estate Plan, and in most cases, creating and funding a Trust is considerably less expensive than probating a Will. In addition, without Powers of Attorney for Finances and Health Care, properly drafted, your family will have to go to Probate Court to have a Guardian and/or a Conservator appointed for you.
By the way, the most expensive and time consuming option, which is guaranteed to incur the maximum attorney fees, court costs, taxes, time, and related expenses, is to do nothing. Just keep putting it off until you die or have a health care emergency. Without estate planning, your family and heirs will be forced to probate your estate and sort out all your financial and personal affairs in court.