Simple Estate Planning in Michigan

UPDATE: The most recent estate plannning statute is the Estates and Protected Individuals Code, or "EPIC". EPIC took effect April 1, 2000, but EPIC will govern all but the oldest probate proceedings and legal issues already in play. Even wills and trusts executed before 4/1/00, the estates of decedents dying before then, and the conduct of fiduciaries appointed before then, will generally be governed by EPIC.

• Simple Estate Planning - Overview
• Worksheets to Help You Write a Will
• If You Do Not Leave a Will
• Cautions About Living Trusts, Joint Property, and Deeds
• After Your Documents Are Signed

"Estate planning" is an attempt to have your survivors, and legal and financial institutions, carry out your wishes, by informing them well, and by creating duties they will be legally bound to carry out. Usually, this is done with the professional assistance of an attorney, accountant, investment advisor, or insurance agent, or some combination of them. Central to estate planning in conjunction with an attorney are such decisions as:

• Whom to name as executor (personal representative) of your estate in your will, as agent in your financial power of attorney, as patient advocate in your medical power of attorney (advance medical directive), or as trustee or successor trustee in your testamentary or living trust. That is, who will manage your affairs, make important decisions about you or your property, or distribute your property, in case of death or disability? Also, what powers will they have?

• Whom to name as guardian, conservator or trustee of the estate of minor or handicapped children, or even young adults. That is, who will look after them, and safeguard their inheritance while they are dependent or financially unsophisticated?

• To whom you want to leave your property, in what proportion (allocation or division of property) and when you want your assets to be distributed to those persons (immediately, upon your death, or under a plan for one or more delayed distributions). You will consider the needs and abilities of, and relationships among, various beneficiaries over your and their lifetimes.

• What documents you want, such as a will, trust, power of attorney, designation of patient advocate and advance medical directive ("living will"), or a deed. This involves identifying and weighing the relative importance of overall estate planning goals, some of which may conflict. Such goals often include: allocation and distribution to beneficiaries precisely according to your wishes, simplicity of documents and the distribution process, privacy, probate or tax avoidance, your free time, and your legal budget for estate planning.

Remember that an estate plan involves more than documents drafted by an attorney. Your will or trust might not distribute at your death all of the property under your control now, or which might come under your control in the future, precisely according to your wishes, especially if you are unaware of the features of some kinds of assets. Examples of property, the distribution of which a will or a trust will not or might not govern: property in another trust, a power of appointment you fail to exercise in your will, joint property, and certain employee benefits, insurance policies, and accounts with beneficiary or survivor designations you made or that are imposed by law. You may have to include language in your will or trust documents in order to properly allocate property and tax liability among beneficiaries of your will or trust and recipients of real estate, a business, or a pension distribution, for example. Also, if you change beneficiaries in your will or trust, you might make similar or contrasting changes in beneficiary designations on your employee benefit, insurance and account documents, and coordinate with a spouse or partner's documents. EPIC regulated the Pay on Death (POD) and Transfer on Death (TOD) provisions in the "beneficiary cards" you typically receive from retirement plan administrators and securities issuers. Your post-death distribution choices may be limited by the rules and forms of registering entities.

Consult your insurance agent, accountant, investment advisor, benefits representative or employer's personnel administrator, to identify all of your estate planning options. If you are covered by a pre-paid legal plan, usually only simple wills, powers of attorney and designations of patient advocate are fully paid for. Some plans allow you to set up a testamentary trust for a child, as part of the will benefit. These plans may or may not meet all of your estate planning needs. Also, different law firms specialize in certain areas of estate planning. The assistance of a specialist is recommended for large estates (and individual with assets over $1,000,000), and estates with complex and tax-sensitive assets (commercial real estate, well-funded retirement plans, or a business interest).

A will does not avoid probate. But it can make the process much more orderly and swift. (Note that, will or no will, some tiny estates, say, consisting of a car or personal effects, might not need probating at all. Consult an experienced probate attorney.)

Distribution of property in the absence of a will ("intestacy") or a gap in a will ("partial intestacy") is handled by a Michigan statute.

Note that, even if you create a trust, a will is still required. The goal of a revocable grantor trust ("living trust") is to avoid probate. It is the creation and proper funding of the trust that avoids or minimizes probate - not the will.

A word of caution about living trusts. Though useful, they have been oversold as devices to avoid legal delays in distribution of assets, to protect assets against creditors post-death, and to save money all around, among other likely benefits. The living trust seminars and kits tend to exaggerate the time and expense of probate, drawbacks that are avoided in most cases by careful planning, choice of good probate counsel, and a mutual trust and understanding among family members. These same marketing devices also underplay the complexity, pitfalls, and unanticipated expenses and delays involved with trust administration and trust estate "settlement" (the process dealing mainly with distribution, re-titling and taxation of trust property).

Moreover, the same events that make probate "horror stories" (unpaid taxes and bills, feuding heirs, real estate title problems, real estate in poor or contaminated condition, e.g.) tend to complicate trust settlement as well. Trust enthusiasts admit that, unless the grantor is confident using the kit, the typical attorney will charge at least $500 to $2000 more to draft a trust, than he or she would charge for a simple will. Setting up a trust involves more questions and analysis, and more documents -- including, surprisingly, a "pour-over will". The average trust document is many pages longer than most wills. There must be coordination among the several documents executed at about the same time, such as the pour-over will, quitclaim deeds, general assignment of property. The prudent lawyer must spend some time giving detailed instructions to the trust client, regarding, e.g., maintaining correct titling of assets, and informing third parties of the existence and nature of the trust, to ensure that the client does not accidentally sabotage the benefits of having a trust.

Trust enthusiasts are fond of pointing out that attorneys used wills as "loss leaders", charging little for a will, in anticipation of reaping a windfall in fees when the attorney is later designated to probate the estate when the client dies. Now, the attorneys and insurance agents who sell living trusts simply reap the profit up front, through sales of seminars, kits, and policies. The attorneys profit from new trust business, drafting documents and answering questions, as many clients feel overwhelmed by the process of setting up, administering or settling the trust estate, and eventually abandon the inch-thick "do-it-yourself" kit. Trust beneficiaries often return for legal services connected with distribution and tax issues, just as will beneficiaries do at probate time.

One expense that can be avoided by a properly drafted and administered trust is the Michigan probate inventory fee.

Large estates (over $1,000,000 in assets for an individual, or $2 million for a couple) can reap substantial tax benefits from the use of living trusts. These benefits consist of both tax avoidance, and deferral of taxes until after the death of a survivor. Generally, smaller estates will avoid no inheritance tax through the use of living trusts. Persons with very large estates should consider a wide array of estate planning options, such as having at least two properly funded revocable trusts (the "marital trust" and the "family" or "unified credit trust"), and using insurance, irrevocable trusts, or family limited partnerships. Estates containing tax-sensitive assets, such as real estate, business interests and well-funded retirement plans, can create problems that are best addressed by a trust. Some law firms, investment advisers and insurance agents specialize in dealing with large and complex estates.

Another misunderstood, and by far the most misused, estate planning device is deeding real estate and transferring financial accounts to joint name with a potential heir. The intent is usually to avoid probate delays and expense. This is a possibility with joint property, but only after careful analysis. Sometimes people mistakenly believe that joint property transfers avoid taxes. In fact, a gift tax may be incurred at the time of the transfer, and a tax savings opportunity for the surviving joint owner (called "step up in basis") may be lost at the death of a the first joint property owner to die. Deeding to joint tenancy involves a loss of control over the asset, putting the client at the mercy of the heir if the client has a change of heart, and wants the property deeded back to him or her. Joint, non-marital, property interests are more vulnerable to the claims of the potential heir's creditors. Joint ownership sometimes results in unintended windfalls or disinheritances for one or another branch of the family, due, for example, to an unanticipated order of death.

Deeds are sometimes necessary in estate planning, even when joint property is not part of the plan. Normally, a grantor's real property is deeded to his or her revocable trust. Sometimes, a joint property owner will want to have the potential heir deed his or her share of joint property back, as a prerequisite to incorporating that property into a will or trust distribution scheme.