Estate Planning is the development of a plan for managing your assets and affairs during your lifetime, in case of incapacity, and upon your death. Your estate contains all assets you own, including real property, business interests, investments, retirement benefits, insurance and personal property. Below find an overview of estate planning basics for Michigan.
Many people and, unfortunately, many attorneys focus only on planning for someone's death and neglect dealing with lifetime incapacity issues. However, those issues can be significantly more traumatic than what happens to someone's estate at death.
While everyone's goals are different, many of our clients are concerned about:
The most basic estate planning methods include:
If you choose to forgo estate planning, you will lose the right to have any say in what happens to your assets, your minor children, and even to yourself when you die or if you become incapacitated. A probate judge will decide these matters. Your wishes will not be considered.
If you become incapacitated without an estate plan, Guardianship proceedings will need to be initiated with the probate court to appoint someone to make medical decisions for you and Conservatorship proceedings are necessary for someone to obtain authority to handle your finances. When you pass away, your assets will have to pass through Death Probate. These are often lengthy, stressful and expensive processes.
Lifetime Probate lasts as long as the incapacitated person is alive and remains incapacitated. The Death Probate process typically takes at least a year to complete and consumes 5 to 10 percent of a probate estate's value. These costs can be even higher if you own real estate in more than one state, since each piece of property must pass through probate in the state where it is located. These probate proceedings are a matter of public record, and your probate records can be acquired by solicitors selling services and products.
A Will is a legal document that allows you to direct how your assets will be distributed, who will handle your final affairs, and who will care for your minor children after your death. However, a Will cannot keep your assets out of the Probate Court or reduce your estate tax liability. Like the “Do Nothing” method, a Will subjects your estate to the attorney's fees, costs, delays and lack of privacy associated with Death Probate.
A Will Based Plan may be advisable for younger individuals who are just starting out, with little net worth and perhaps with minor children, but who cannot afford a more comprehensive Trust Based Plan.
Because the use of Joint Ownership can sometimes avoid probate, people often use it as an estate planning method. Unfortunately, many times this does more harm than good.
Joint ownership (with rights of survivorship) arises where two or more people own an asset or real estate together. When one of the owners dies, the entire ownership passes automatically to the surviving joint owner without passing through probate. Unfortunately, in Michigan, there are several different types of "joint ownership" and they do not all prevent assets from having to pass through probate.
Joint Ownership results in loss of asset control because you are no longer the sole owner of your property. Jointly owned real estate cannot be transferred or sold without the permission and signatures of all joint owners, and sometimes their spouses.
Jointly owned bank accounts can be emptied by a joint owner, even though that owner has never contributed to the account. In addition, when someone is made a joint owner of your asset, their creditors can seek to satisfy their claim with your asset.
Problems can arise even when you have total confidence in a joint owner. For example, if a joint owner becomes incapacitated, some joint assets cannot be transferred without initiating a Conservatorship probate proceeding to appoint someone to act on the joint owner's behalf. Consequently, the probate court will have ultimate control over the property until the incapacity ceases or the joint owner dies.
Making someone a joint owner of your property can create needless gift taxes, income taxes, and especially capital gains taxes, which are far greater than the actual cost of probate. It may also disqualify the joint owners from receiving Medicaid and Supplemental Security Income benefits.
Finally, although owning assets jointly (with rights of survivorship) avoids probate at the death of the first joint owner, this probate avoidance is only temporary. When the last joint owner dies the asset must pass through the Probate Court.
Pay-on-Death and Beneficiary Designations result in assets paying to a beneficiary after you die, but do not give anyone legal access to the asset to help you in the event of incapacity. They do not allow you to control when that asset is distributed to an immature or minor beneficiary as you can with a Living Trust. If a beneficiary is receiving Medicaid, SSI, or other governmental benefits, they may be disqualified by receipt of those assets, unlike if the assets had been held in or paid to a Special Needs Trust, which would not disrupt such benefits.
A Living Trust is a document that enables you to:
Living Trusts (a/k/a Revocable Living Trusts) have increased in popularity and usage as an estate planning method, primarily because of the many benefits that can be realized by using them, including:
A Financial Power of Attorney (or Durable Power of Attorney) is a document in which you empower someone to handle your financial affairs during your lifetime.
A Patient Advocate Designation ( or Durable Power of Attorney for Health Care or a Medical Power of Attorney) is Michigan's version of an "advanced medical directive." The PAD permits you to designate a person, called your "advocate", to make medical decisions on your behalf, if you no longer can.
HIPAA Authorization: The Health Insurance Portability and Accountability Act of 2003 ("HIPAA") prohibits health care providers from releasing your private medical information to anyone but you or your "personal representative." Consequently, we make specific recommendations to our estate planning clients to ensure their preferred decision makers are properly documented.
For almost 20 years, the attorneys at Estate Planning & Elder Law Services has been serving Southeast Michigan’s estate planning needs. We welcome you to consult with us to go beyond estate planning basics: call (888) PLAN-050 or complete our online form.
With offices in Northville and Brighton, we offer estate planning services throughout Southeast Michigan, including Livingston, Washtenaw, Oakland and Wayne Counties.