Author: Michael

Michigan Intestacy Laws Can Hurt Your Family

August 7, 2012 / Michael

I imagine there are some people who think I write about the importance of Michigan estate planning so much out of self interest. I am, after all, a Grand Rapids, Mi estate planning attorney, right? So I can understand why they may think that. However, the truth is that I write about it because it is critically important to families and their legacies, and because I see the “ugly” side of not planning. Which is what led me to write this post.

Ok, first a little background. The vast majority of Americans have no estate plan. Last I heard it was less than 40%. Yes, you read that right . . . less than 40% of adult Americans have legally documented who they want to handle their “estate” and how they want it handled if they pass away. And even worse, they also haven’t legally documented who would handle their finances if they weren’t able to (financial power of attorney) or who would make their medical decisions if they weren’t able to (healthcare power of attorney).

Well, if you pass away without an estate plan, the State of Michigan has a plan for you. It’s referred to as the “intestacy laws.” For purpose of this e-newsletter, intestacy means someone who passes away without an estate plan. Well, I don’t know about you, but “one size fits all” clothes tend not to fit me. And as much at the state legislature tries to guess what families would want to happen when they pass away, the don’t know your individual circumstances, goals or desires.

And there are some rather harrowing real life stories about what can happen. I gave a few, brief examples in this previous post. And I just read a blog post by an attorney friend of mine, Rania Combs, about just such a real life situation. Rather than rehash the entire thing here, I encourage you to read her blog post by clicking here. I promise that it will be very eye opening.

Although she practices law in Texas, very similar situations happen all the time right here in Michigan. So please, take the time to this post with someone you know who may not have an estate plan, but for whom you care deeply. Families need to know that things like this happen in real life.

Michael Lichterman is an estate planning and charitable planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™. This goes beyond merely planning for “stuff” – it’s about who your are and what’s important to you. He focuses on estate, charitable, and asset protection planning for all generations (“young” and “experienced”), the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses, and pet planning. He enjoys creating life long relationships with his clients centered on their family’s values, insights, stories and experiences.

Estate Planning for Disability

August 2, 2012 / Michael

Planning for the possibility of disability is probably the most overlooked part of estate planning. While many people will give serious consideration to estate planning for their death, few will seriously consider planning for their disability. Yet disability planning should be the more important part of estate planning from the client’s perspective both because it benefits the client directly, and because, until a person is well past retirement age, the probability of becoming disabled in the next year exceeds the probability of dying in that period. As a Grand Rapids, Mi estate planning attorney, I like to phrase it as “estate planning is not just about taking care of others, it’s about taking care of yourself too!”

The best vehicle for disability planning is a fully funded trust – usually a revocable living trust. It’s very important to understand different ways you can design your living trusts, both to provide for taking care of the you in the event of your client’s disability and to provide for anyone who is dependent on you when the disability event occurs.

In this post we’ll take a look at what happens when someone becomes disabled and has not planned for it, and how the right planning can prevent a court from having to step in to protect you and your assets.

Disability Planning Defined
Disability planning is planning for when you are mentally incapacitated to the degree that you are not competent to make business or personal care decisions or so physically disabled that you cannot communicate directions for the management of the your affairs.

A person is considered incompetent when a medical determination has been made that the individual does not have the mental ability to make business or personal care decisions.

A person is incapacitated when a court has declared the person legally incompetent to make business or personal care decisions. When a person is determined to be incapacitated, the court will take away the person’s right to make personal care and business decisions and may empower someone else to do so under the court’s supervision.

Planning for disability is vitally important because disability can happen to anyone, at any age, and at any time. Many of our clients tend to think of disability as being something that only happens to old people, like when they develop dementia. However, as noted earlier, a person’s probability of dying in the next year is much lower than his or her probability of becoming disabled in the next year unless the person is well past retirement age. With people living longer due to advances in medicine, their lifetime probability of becoming disabled is increasing. Today, the odds are better than 50:50 that any given person in the U.S. will have some period of incapacity.

But younger, healthy people can suddenly become disabled from accidents or illnesses—or even acts of violence. For example, Terry Schiavo was just 29 years old when she suffered a cardiac arrest that resulted in permanent, profound brain injury. The consequences of disability without planning can add another level of disaster. That is why everyone, regardless of age and wealth, need disability planning—just in case.

What Happens if We Don’t Plan: Life Probate
Most people think of probate as a legal process for changing titles on assets from the name of a deceased person to the name of the deceased person’s beneficiaries or heirs. But there is another probate court process, a “living probate.”

Living probate is what happens when someone is alleged to be incompetent to manage their own affairs. Someone literally sues them in a probate court, asking the judge to take away their right to make their own care and/or business decisions and give that right to someone else. It is an expensive process in which the alleged incompetent person pays the lawyers on both sides. If the person is found to be incompetent to manage their business affairs and there are business affairs to be managed, the court will appoint a guardian or conservator to do so. The court will require that the guardian or conservator post a bond against theft or mismanagement and provide a detailed accounting to the court on a periodic basis for the court to audit. Sometimes the responsibility for the physical care of a disabled person and the responsibility for the management of assets that are titled in the disabled person’s name are given to two different people: a guardian/conservator of the person (for physical care) and a guardian/conservator of the person’s assets (for financial care).

If there are no assets titled in the incapacitated person’s name, such as when the person’s assets have been placed in a trust, the court has no need to appoint a guardian/conservator of the incapacitated person’s assets. This is just like there is no need for post-death probate if there are no assets titled in a deceased person’s name that are not controlled by beneficiary designation.

Because the courts jealously guard everyone’s rights to manage their own personal affairs and property, living probate provides a form of protection that is anything but free. Living probate, especially when there are assets to be managed, can be costly, time consuming and cumbersome with annual accountings, bonds, reports, ongoing determinations of incapacity/incompetency, and fees for attorneys, accountants, doctors and guardians. All those costs are paid from the disabled person’s assets, and living probate proceedings are a public record. Once a guardianship/conservatorship is established, it will go on until the incapacitated person dies or the court determines that he or she is no longer incapacitated. That can be many years.

Another possible problem is that a court cannot allow an incapacitated person’s resources to be used to provide care for anyone who is not the incapacitated person’s legal responsibility. That means that adult children, parents, grandchildren and others for whom the disabled person was providing support will be on their own.

A Fully Funded Revocable Living Trust Avoids Living Probate
When a living trust is fully funded, all titles of assets are changed from the individual’s name to the name of the trustee and new assets acquired are taken in the name of the trust. Then, if the client becomes disabled, there is no reason for a living probate for asset management because the client does not own any assets in his own name that need managing. While a guardian/conservator of the person may still need to be appointed by the court, a fully funded living trust will allow the person (or people) you choose to be involved with the management of your assets under the direction of your successor trustee.

Living Trust v. Durable Power of Attorney
A durable power of attorney is not a substitute for a fully funded revocable living trust for several reasons. For example:

A durable power of attorney will endure the disability, but not the death, of the asset owner (principal). A living trust, on the other hand, is not affected by the trust maker’s death.
A holder of trust assets cannot decline to accept the requests of a validly authorized trustee (or successor trustee). A durable power of attorney, on the other hand, works only if whoever is holding the assets decides to accept it. That can be a real problem. Perhaps whoever is holding the assets will think the power of attorney is not broad enough to be acceptable. Or perhaps that it is too complex to understand without a legal opinion that the asset holder is unwilling to seek. Powers of attorney also may not be accepted if more than a certain number of days or months have elapsed since they were executed. This is a particular problem when the power is given to a spouse. Many institutions will not accept a power of attorney unless it is on their own form. We could go on. With a living trust, the trustee is the owner of the trust assets; institutions and securities transfer agents must honor the trustee’s ownership.
Durable powers of attorney will not endure the disability or death of the agent to whom the power is given. If the principal is disabled, a living probate will likely be needed if no successor agent is available and willing to serve. By contrast, a trust will not fail for lack of a trustee. A well-drafted living trust will contain trustee succession provisions, and even if all named successors are unavailable to serve, a professional trustee can be appointed.
A living probate will cause all powers of attorney to terminate; the court will simply take over and put a conservator/guardian in charge. As explained earlier, a fully funded living trust will eliminate the need for a guardian/conservator of the estate because there is no estate.
If the power of attorney fails to work for any reason at the principal’s disability, a living probate may be the only solution for taking care of the principal. The guardian/conservator of the estate will be someone appointed by the court. If the incapacitated person has not made his or her wishes known by a certain kind of formal document, the court may choose someone who is a professional guardian/conservator but a total stranger to the family. With a living trust, you handpick the successor trustees for your trust.
Federal agencies, such as the IRS and the Social Security Administration will generally not honor powers of attorney; agents may not be able to cash Social Security checks or sign tax returns. With a living trust, Social Security checks can be set up ahead of time for direct deposit to a living trust account and a trustee will be empowered to deal with the IRS.
A power of attorney must contain very specific instructions for running a sole proprietorship or other business entity. If the sole proprietorship or business entity is owned by the living trust, the successor trustee will be able to step in and running the business. The successor trustee can also hire other persons to run the business if the successor trustee does not want to run the business or does not have the proper license to do so. An agent may not have the power to delegate.

Additional Documents for Disability Planning
Durable Power of Attorney
A durable power of attorney can be useful. Often one will be accepted to transfer titled assets to the principal’s revocable living trust, and they are effective in managing assets (like IRAs) that cannot be put into the living trust before a disability event.

Durable Power of Attorney for Health Care
Also called a Health Care Proxy or Medical Power of Attorney, this document lets you legally give someone the authority to make health care decisions (including life and death decisions) for you if you can no longer make them for yourself. Without a designated health care agent, your client could be kept alive by artificial means for an indefinite period of time. (Most clients will remember this happening to Terri Schiavo. Terri’s tragic incapacity saga and information about the Terri Schiavo Foundation can be found at http://www.terrisfight.org).

Living Wills or Directives to Physicians
A living will is different from a living trust. A living trust is a document used in estate planning for control and management of a person’s assets during lifetime and after death, and as explained above, can prevent a living probate at disability because of the way the assets are titled. A living will or directive to physicians is a document that lets a physician know the kind of life support treatment someone would want provided or withheld in case of terminal illness or permanent condition when the affected person cannot make his or her desires known. Please note – living wills may not be enforceable in Michigan. Read this previous post for more information.

HIPPA Authorizations
HIPPA authorizations give written consent for doctors to discuss your medical situation with others you have designated and to disclose your medical information to them. These documents are vitally important for disability planning because they can allow not only family members to discuss a your situation and prognosis with the doctors if you are disabled, but they can also allow the trustee and your professional adviser to be kept fully informed.

Defining and Providing for Disability in the Revocable Living Trust
A revocable living trust provides the client the opportunity to define disability in a way that will provide for the continuity of trustee services, to make sure the trust maker and loved ones will be taken care of during a disability, and to ensure that debts, liabilities and obligations will continue to be paid. Options to define disability can include:

A determination by two physicians that certify that the trust maker is disabled. (HIPPA authority will be necessary to allow the doctors to discuss the client’s condition with the trustee and other advisors.
A determination of incapacity by a living probate court. (The court does not have to appoint a conservator of the estate if all titles are in the name of the trustee.)
A determination of disability by a disability panel named in the trust. This option allows you to pre-select a group of people to determine his/her disability. (An odd number is recommended to prevent deadlocks.)

Planning Tip: If you should disappear or are being detained against your will (kidnapped, held hostage, in jail or prison), you can be declared disabled so the trustee can take care of the obligations and people who need to be cared for. (In contrast, years must pass before a missing person can legally be declared dead by a court.)

Designing “Take Care of” Instructions in the Revocable Living Trust
The revocable living trust should include instructions regarding the persons who are to be taken care of in the event of your disability. For example, it could be the you only; or you and your spouse; or you, your spouse and legal dependents. You may also want to include others who are not legal dependents, like parents and adult children who are actually receiving support at the time of your disability. Also, priority must be established for those who you would like to care for, in case there are not enough funds to provide for everyone.

Planning Tip: It’s also important to give direction on how you want to be taken care of and what things are important to you. Are there social, recreation and entertainment needs? Are there religious needs? These instructions can be as detailed as they need to be.

Conclusion
Disability before death is usually not expected, but it should be properly planned for. We should all put disability planning on the same level as estate planning and recognize that this planning for life is at least as important as after-death planning.

Even Joe Paterno Can’t Keep His Will Private

July 21, 2012 / Michael

Now, more than ever, families are valuing their privacy. It’s not surprising given the amount of fraud, scammers, spammers, and others out there trying to use the personal information of others to gain some benefit for themselves. What does surprise many families is that just having an estate plan may not be enough to keep your personal affairs from the prying eyes of those who would use it for their own benefit. I’ve heard the surprise in the voices of many families I’ve met with . . . so many in fact, that I wrote this previous blog post about privacy in your estate plan.

And sure enough, within a couple weeks of writing that post there was a very public example of the lack of privacy with some estate plans. It turns out that Joe Paterno’s family was trying to keep his will from being part of the public probate court record after his passing. But, as you can see from reading this Forbes.com article, they were unsuccessful. Why? Because a will must be filed as part of the probate court process. As Ms. Jacobs, the article’s author, points out, typically the best way to avoid this is with a living trust. And I’ll add my own comment that just having a trust is not enough. It must be a fully “funded” trust. Read this previous post to find out why that is critical to avoiding the public probate process.

Call us at 616-827-7596 to schedule a Peace of Mind Planning Session to help make sure that your family’s legacy will be kept among your family, not shared with everyone via a public probate court filing.

What Happens to My Pets If I Die?

July 5, 2012 / Michael

For many of us, pets are members of the family. Some even say that if something happens to them, they are more concerned with what will happen to their pets than to their children or spouse.

In this post, we’ll look at the issues surrounding caring for pets after the disability or death of the pet’s owner. Given the feelings of many individuals towards their pets, and the costs of care and longevity of some types of pets, planning in this area can be of critical importance. This is particularly true given our mobile society and that the laws of a different county or state may impact you and your pets or the pets of parents and other loved ones.

What Will Happen to the Pets When the Owner Becomes Disabled or Passes Away?
Most pet owners do not want their pets killed if something should happen to them. However, without proper planning, the death of the pet is almost certain in some areas. For example, in some Nevada counties, if the owner does not provide for a pet by way of a trust, when the owner dies Animal Control must take the pet to the local kill shelter if there is not a family member present who is willing to care for the pet. Some kill shelters euthanize animals 72 hours after they arrive at the facility, making it virtually impossible for anyone to adopt the pet. It is critically important that pet owners know how their state and county laws may impact their pets.

Planning Tip: Pet owners should discuss with their advisor team how state and county laws affect pets after the owner dies or cannot care for the pet.

Planning Tip: A good resource for pet owners is Providing for Your Pet’s Future Without You by the Humane Society of the United States (order a free kit by calling 202-452-1100 or e-mailing petsinwills@hsus.org). It includes a door/window sign for emergency workers, an emergency contacts sticker for inside of the door, emergency pet care instruction forms for neighbors/friends/family, wallet alert cards, and a detailed instruction sheet for caregivers.

Providing for Pets Upon the Owner’s Death

Outright Gifts
The law treats pets as property, and thus an individual cannot leave money outright to a pet, as property cannot own other property. An individual may leave an outright gift of money to a caretaker with the request that the caretaker care for the individual’s pet for the rest of the pet’s life. However, because the caretaker received the gift outright, and not in trust, no one is responsible for making sure the pet is receiving the care requested by the pet owner.

Once the caretaker receives the gift and the pet’s owner is gone or incompetent, there is nothing to stop the caretaker from having the pet euthanized, throwing it out on the street, taking it to a local kill shelter, or using the assets in ways unrelated to the care of the pet. Also, once in the caregiver’s hands, the assets are exposed to the caregiver’s creditors and they may be transferred to a former spouse on the caregiver’s divorce.

Statutory Pet Trusts
The majority of states and the District of Columbia have enacted statutes pertaining to pet trusts, and Michigan is no exception (find out more by reading this previous blog post). These statutes allow virtually any third party designated by the terms of the trust to use the trust funds for the benefit of pets.

Some state statutes specifically limit the terms of a pet trust. For example, some states limit the amount of money an individual can leave in trust for his or her pet to the amount required to care for the animal over the term of the trust. The trust must distribute any excess funds to the beneficiary(ies) who would have taken them had the pet trust terminated.

The pet’s current standard of care determines the endowment amount required to provide care for the pet. Factors include: the cost of daily care (food, treats, and daycare), veterinary care (yearly teeth cleaning, shots, nail trimming, and emergency care), grooming, boarding, travel expenses, and pet insurance. Additional factors may apply in particular cases. For example, horses are expensive to maintain and require exercise, training, and a large tract of land; some birds and reptiles have very long life expectancies; and care of some pets will require construction of a special habitat on the caregiver’s property.

Traditional Trusts
Even in states that do not have a specific pet trust statute, a pet owner can name a human caregiver as the beneficiary of a trust, require that the distributions to the beneficiary are dependent on the beneficiary caring appropriately for the pet, and require the trustee to ensure that the beneficiary is properly caring for the pet using trust assets. This type of trust may be used without regard to whether the state has a specific pet trust statute.

Planning Tip: Both statutory pet trusts and traditional trusts allow the pet owner to provide detailed requirements as to how the caregiver must care for the pets upon the pet owner’s disability or death.

Planning Tip: Will planning is usually inadequate for pets because Wills do not address disability and because of the time lapse between the pet owner’s death and the Will being admitted to probate.

Funding Pet Care
Many pet owners do not have sufficient funds to properly care for their pets after their disability or death. Life insurance is one way to increase funds available to care for pets after the pet owner’s death.

Planning Tip: Pet owners should consider life insurance that names a pet trust or traditional trust as beneficiary to fund a pet’s care. If the pet owner is concerned that funding of a pet or traditional trust will reduce the inheritance of children or other beneficiaries, he or she should consider life insurance that names both (1) the pet or traditional trust and (2) other beneficiaries (or a trust for their benefit). These assets can be invested like any other assets during the owner’s lifetime, and those who currently manage the assets can continue to do so for the pet’s lifetime.

Trust Terms
Here are several issues for pet owners’ consideration:

Creating a pet panel to offer guidance to the trustee and caregiver/beneficiary, and to remove and replace the trustee and caregiver/beneficiary if necessary. Consider including a veterinarian to make the final decision regarding euthanization for medical reasons, to ensure that the pet is not euthanized prematurely by the caregiver/beneficiary.
Paying the caregiver/beneficiary a monthly fee for caring for the pet or allowing the caregiver/beneficiary to live in the pet owner’s home, rent free.
Awarding a bonus to the caregiver/beneficiary at the end of the pet’s life as a “thank you” for taking care of the pet.
Determining how the trustee is to distribute the remaining trust funds after the last pet dies.

If the pet owner decides against creation of a pet panel to determine who will be a successor caregiver/beneficiary, the trust should name multiple successor caregivers/beneficiaries (three or more) in case a caregiver/beneficiary is unwilling or unable to serve. As a final back-up, the pet owner should consider requiring the trustee to give the pet to a no-kill animal sanctuary if there are no caregivers/beneficiaries available.

An alternative to naming individual caregivers is for the pet owner to name a local charitable organization that will ensure care in exchange for a contribution upon the owner’s disability or death. A listing of such organizations nationally is available online by clicking here.

Pet Identification
To prevent the caregiver/beneficiary from replacing a pet that dies in order to continue receiving trust benefits, the pet owner should specify how the trustee can identify the pet. Micro-chipping the pet or having DNA samples preserved are two methods commonly used for verification.

Other
Some pet owners want their healthy pets euthanized when they pass away because “no one can care for my pets as well as I do.” However, many courts have invalidated euthanasia provisions on the basis that destruction of estate property is against public policy. Instead, pet owners should consider no-kill organizations that have the pet’s best interest in mind and will find the next best home for the pets.

Conclusion

Many individuals are unaware of the issues surrounding the care of their pets after their disability or death. By discussing these issues with a Michigan Pet Trust Lawyer, pet owners can ensure that all of their loved ones are cared for, even when the owner is unable to care for them directly.

Understanding Business Exit Planning

June 23, 2012 / Michael

Have you been looking forward to the day you can retire, perhaps turn your business over to a son or daughter, or sell it? Even if you are not planning to stop working, you need to plan for the day you cannot run your business due to unforseen illness or death.

Most business owners do not take the time to plan for how they will leave their business. They are busy running the company, or they don’t know where to start. But if you continue to own a business until you die, it will be included in your estate, could be subject to substantial estate taxes, and will be at risk of surviving through the probate court process. Your family could be forced to sell the business or its assets at “fire sale” prices. Then you will have worked hard all these years so that the vultures and Uncle Sam, not your family, will reap the benefits.

Planning for how you will exit from your business should be an integral part of your estate and retirement planning. Proper planning now can provide you with retirement income, reduced income and estate taxes, and even let you benefit a charity if you so choose, regardless of whether you transfer your business to family members at discounted values, to employees, or to an outside buyer.

In today’s market, the economy and trends are affecting the timing and value of business transfers. So, let’s look at some of the conditions that make this market different, things you can start doing now to make the transfer process go smoothly, and provide some insight into how to make a business transfer work for all of those involved.

Today’s Climate for Business Transfers
Let’s look briefly at the various influences that are making today’s market different.

Demographics: The first wave of baby boomers applied for Social Security in January 2009. As more move into retirement, what will happen to their businesses? Due to the sheer numbers of this aging population, there may be two to three sellers for every qualified buyer. This increased competition will affect the values of their businesses.

Regulation Environment: Regulations on the financial markets continue to increase, affecting commercial and investment banks, insurance companies, broker-dealers, CPAs and valuators of all types. More regulation means fewer options for transfers.

Economic Environment: Generally speaking, since 1960 we have had a recession at the turn of each decade. During previous recessions, owners invested in their business, trimmed expenses, laid off employees – whatever it took to keep the business going. They did this knowing that when the recession ended, they would recover and make a return on their investment. That may not work this time. Many businesses may not survive and recover because the length and depth of a recession is dependent on current government policies – spending, tax and regulation. With this recession, we have added spending (war, stimulus, health care, entitlement programs, etc.); threat of additional taxes (income, gift, estate) and additional regulation (OSHA, EPA, etc).

Corporate Finance Environment: Outside financing is difficult these days. Typically a buyer might provide 40% cash, 40% from lenders and 20% to be paid over time. There will be less available from lenders until the capital markets recover from the downturn that started in 2007.

Taxation Environment: Taxation on business owners is increasing. If the Bush-era tax cuts are allowed to expire, income taxes will increase to 39.6%, long-term capital gains tax will increase from 15% to 20-28%, the estate tax will go back to a $1 million exemption (adjusted for inflation), and a 55% top bracket rate and the annual gift tax exclusion will be back to $10,000. Plus Congress is looking at a first-time Medicare tax on passive income and enacted a 3.8% health care surtax on higher incomes as part of the controversial healthcare legislation. In addition, business valuation discounts, popular with family limited partnerships and LLCs, are under attack in Congress.

What You Can Do To Prepare and Make the Transfer Process Go Smoothly
Most owners simply cannot wait until they reach age 68 and then decide to sell. In most cases, it takes time to prepare to go to market. Even in this climate, there are things you can do as a business owner to protect or increase the value of your business in anticipation of a transfer.

Cut Taxes and Expenses
Many private companies are “S” corporations and almost all of them pass an income tax burden to their owners. Therefore most business owners are already obsessed with minimizing or eliminating income taxes. But for the first time, we are looking at individual tax rates that will be higher than corporate rates; and the dividend tax rate is also increasing. Look at your business structure to see if you can find ways to reduce taxes. Also, take a closer look at your expenses. Are you doing things that are causing the value to go up or down? Are there personal expenses that should not be run through the business? Keeping cash flow in the business will allow for growth or can be used to support the transfer you desire.

Evaluate Management and Employees
Do you have the best people in the right jobs? Frequently family members are brought in as management. If they are not the best choice for the position, it can negatively affect the growth and potential value of your company.

Be Clear and Honest About Your Goals and Objectives
Most business owners have four goals when they leave their businesses: retire from the business; sell to a new owner (family members, employees or a third party); minimize taxes; and maximize profits. Some would also like to do good things for their community or favorite charity. Being clear about your motives and desires will make the planning process easier, saving you time and money.

Be Realistic About the Value of Your Company
Frequently there is a gap between what the owner thinks the company is worth and the actual fair market value. In both good and bad economic times, an appropriate multiple for most U.S. businesses (those with annual sales of $5 million or less) is two to three times annual sales. Expect to get a lower multiple (one to one and a half) for a company that would not survive without the owner continuing to work in it, and a slightly higher multiple for one that is strong without the owner’s participation.

Be Realistic About Your Role After the Transfer
It is not unusual for the owner and the recipient to have different objectives. Things will go much more smoothly if you understand what motivates each of you. Here are examples to consider.

Family Transfer
The owner may want to transfer ownership of the business to the children now or after his death, maintain his current lifestyle, treat the children equally and fairly and, most of all, keep control.

The buying children will want to grow the business, try new ideas and take risks. They are willing to pay a fair price for the company, and will want a clear path and plan for the change of control. They are willing to work for a below-market wage for a while, but eventually they want to be able to compensate themselves for their efforts. They want to treat their siblings equitably but not have them share in the growth forever, especially if they do not work in the business. And they are willing to pay their parents a reasonable salary for a time, as long as they are contributing to the growth of the business.

Planning Tip: You may be able to continue doing what you love in the business, especially if it will contribute to the bottom line. Consider providing for your nonworking children through other planning, for example, life insurance.

Management/Employee Transfer
Usually the seller is not as comfortable transferring the business to management or employees as he or she would be with transferring the business to family members. The seller may want to remain in control until death or retirement, or at least until paid in full. The seller may want to make sure the legacy lives on and may even want restrictions on the transfer so the seller can take the company back if unhappy with the direction it is going. The seller will usually want to maintain his or her current lifestyle and may want a significant cash payment at closing, but does not want to personally guarantee the loan.

Management’s objectives are very similar to those of the second generation in a family transfer. They will want to grow the business, try new ideas, and take risks. They are willing to pay a fair price for the company, and want a clear path and plan for change in control. They are willing to work for a below-market wage for a while, but eventually be able to compensate themselves for their efforts. And they are willing to pay the seller a reasonable salary for a time, as long as he or she is contributing to the growth of the business.

Planning Tip: You may want to contribute to the company in an area in which you excel; for example, spending time in sales or training a sales force. Also, you may have to guarantee a loan for a period of time, especially if you still have some control.

Select Experienced Advisors
A successful business exit plan requires an experienced team of advisors, which can include an attorney, CPA, financial advisor, insurance agent and valuation expert. These advisors will review your situation and recommend the best strategy to accomplish your objectives. It is critical that you understand the plan, why you are doing it, any potential risks, how the transfer will occur, and who is responsible for each step. Whether your business transfer will involve a family limited partnership, a buy/sell arrangement, charitable trusts, employee stock ownership plan, or a private sale will depend on your situation, goals and desires.

Don’t Procrastinate
Your final job is to follow through and implement the plan.

Conclusion
Planning now to exit your company will result in you and your family receiving the best possible results, both now and after your retirement, disability or death. You can receive retirement income; you can transfer your business to your family, your employees or an outside buyer; you can make a difference for a charity or your community; and you can do all of this with reduced income, gift and estate taxes. You just have to get started now. We can help you do that.

Maintaining Your Privacy in Your Estate Plan

June 3, 2012 / Michael

It seems like our personal information is becoming easier and easier to acquire these days, and a recent conversation really brought it to light. Because many of my clients have become great friends, I have a game I’ll play with them. Many will notice my middle initial and ask what my middle name is. It’s not that my middle name is horrible or anything, but it is rare, and I’m not terribly fond of it (although I’m sure I’ll get over that). So, I make them a deal. If they can guess my middle name, I’ll let them know if they are correct. None have figured it out . . .

. . . until a month or so ago. One of my more tech “savvy” clients emailed me with his guess and he was right on. I have to admit, after so many not guessing it correctly, I was curious how he found out. Turns out he used google and some public information sites on the web and was not only able to tell me my middle name, but also how old I am, where I live and where I used to live. Being tech “savvy” myself, I was quite impressed because I do what I can to not have my private information public.

And I think it brought home a key point in estate planning. Many families end up in probate court after someone passes away, either as a result of having no estate plan or having a will-based estate plan. If you thought you would avoid probate by having a will, read this previous post to find out the truth. Now, I’m not here to malign probate and to say it is some evil, horrible process. But, it is certainly a public process, as your will and what you owned is part of the probate court file that anyone can access. I’ve even seen some wills with social security numbers in them. Some may say, “big deal, I’m dead so my social security number doesn’t matter.” Well, I beg to differ – read this recent news story if you don’t think it can still be used and cause problems.

So, it’s probably no surprise that many of my clients want to maintain as much of their privacy as possible – both while they are alive and after passing. And they want their affairs to be handled privately, out of court. And that’s why many of them decide that a living trust is best for their family. To find out more about living trusts and how your family can benefit from them, check out these previous posts:

Time Can Cause Your Estate Plan to “Fail”

May 27, 2012 / Michael

It was Bob Dylan who wrote the song “The Times they are a-changin’,” and that is no less true in the world of estate planning. How? Life goes on, families change, people are born, people pass away, and our goals, wishes, and values may change to. Yet, many families don’t update their will, trust and other estate planning documents to match with the new realities of their lives.

This recent USA Today article talks about the importance of updating wills, and even moreso the importance of having an estate plan to begin with. It’s a really quick read, so I won’t recap it here. I will, however, suggest that you also read my previous blog post on the topic because it reveals a “real life” story about why updating your planning is critically important.

Give us a call at 616-827-7596 to make sure your family’s plan works how you want . . . or if you still need to put a plan in place for your family.

Planned Giving – How You Can Benefit a Charity for Generations

May 12, 2012 / Michael

Here in West Michigan we are blessed with a lot of charitable families and individuals. They give their time, energy, and yes, finances to help benefit area and national charities. One of the terms that you’ve probably seen if you’ve talked or worked with a charity is “planned giving.” As common as the term may be, it seems like very few are really aware of what it is or they have the misconception that you must be “rick” to make a planned gift.

Put simply, planned giving is a method of supporting non-profits and charities that enables philanthropic individuals or donors to make larger gifts than they could make from their income. So, a planned gift really is any major gift, made in lifetime or at death as part of a donor’s overall financial and/or estate planning. Seems simple, right? Well, for the most part it is.

As simple as the concept may be, the challenging (and fun) part is the donor working with the charity and the donor’s other advisors (estate planning and charitable planning attorney, CPA, and financial advisor) to determine the best structure for the planned gift. And by “best structure,” I’m referring to the structure that best accomplishes the donor’s goals while maximizing the benefit to the charity.

You can see some of the many options by reading my earlier blog post on non-cash gifts to charity. Make sure to give us a call to help walk through planned giving with your favorite charity (or cause).

The Added Peace of Mind of Estate Planning

May 6, 2012 / Michael

As a Grand Rapids, Michigan estate planning attorney, I consider it a true privilege to be involved with bringing added peace of mind to families throughout the West Michigan area. How? Through estate planning. As a matter of fact, the most common comment I hear from client families is that they “have so much more peace of mind about things now,” or that they “feel like a big weight has been lifted,” knowing that their family will be cared for and their legacy will continue on if something happens to them.

I think, however, that me sharing those comments with you may tend to get discounted or considered a side thought because I’m an estate planning attorney. I can understand that. So, I thought I would share a recent thank you email from a dear client (with permission). It brought home the sometimes harsh reality of life and the peace of mind provided by a caring, comprehensive estate plan. With not just permission, but her encouragement, I’m sharing the email with you. I hope you will read it through in its entirety and forward the link to this blog post to anyone and everyone you know needs to take this important step for their family. Please note that I’ve removed names and identifying items. Here is the email:

Mike,
Earlier today, the importance of having an estate plan and guardianship of my daughter was driven home for me. Our friend recently lost his sister after a long battle with cancer. She left behind 3 young children. She did not have an estate plan. Her children are now in the custody of their father, with whom they’ve never had a relationship. The father has no intention of maintaining a relationship with the children’s maternal relatives, forcing the grandparents to go to court for visitation rights. Our friend is in the process of establishing a trust fund for the children, but the father has not agreed to the terms. Unfortunately, this is only part of the story.

As I listened to our friend describe what his nieces and nephew are going through and the many things he and his family have to deal with, I felt such a sadness for the children and their family. It is such a horrible, heartbreaking situation. After my husband and I left, we walked back to our car holding hands with our daughter, and I was filled with such an overwhelming feeling of relief…Relief that our daughter will be taken care of by someone we love and trust…Relief that our parents will (hopefully!) not have to fight to see their grandchild…Relief that our daughter’s financial future will be secure…Relief that we have our estate plan done!

No parent wants to think about the “what ifs” in life. But because of you, my husband and I have thought about them, and we have a comprehensive plan to deal with them, and most importantly, our daughter will be taken care of. Words could never express how extremely grateful I am for you and all of your hard work in helping us complete our estate plan.

Thank you! Thank you! Thank you! (A million thank yous!)

Although she thanked me, I wrote her back to make sure she recognized that the true credit was her and her husband’s. Keep in mind that only approximately 35% of parents have named guardians for their children. Only 35%! It says a lot about these folks and each parent who has invested their time and their finances to make sure their child(ren) are cared for if the unthinkable happened to them.

Is it time to get your ducks in a row? Call us at 616-827-7596 to schedule your Peace of Mind Planning Session!

IMPORTANT: Michael is licensed to practice law in the State of Michigan and has offices in Kent County. I am ethically required to state that the above information does not create an attorney/client relationship. These posts should be considered general legal education and are intended to provide general information the topic discussed. Frequently, differing facts about the particular individual or family, if known, could significantly change the recommendations made in the blog post. Information provided on this site should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area in your state. The law changes frequently and varies from state to state.

Major Errors in Estate Planning

April 28, 2012 / Michael

I recently ran across this Forbes.com article on “7 Major Erros in Estate Planning.” The article has a no nonsense list of mistakes that I see and discuss on a daily basis as a Grand Rapids, Michigan wills and trusts attorney. I think the article’s intro paragraph makes a point that should not be overlooked. I’ll rephrase it as, “you would be surprised how many families work hard to provide for themselves and their children, yet ‘cheap out’ on the estate planning that will carry on there legacy.”

The 7 major mistakes the article lists are:

Not Having a Plan
Online or DIY rather than professionals
Failure to Review Beneficiary Designations and Titling of Assets
Failure to Consider the Estate and Gift Tax Consequences of Life Insurance
Not Maximizing annual gifts
Failure to Take Advantage of the Estate Tax Exemption in 2012
Leaving assets outright to Adult Children

The article gives a brief, helpful explanation of each of the mistakes – you should go read it. I’m happy to see that the article points out that even in situations many families may think are “basic,” a plan cannot be overemphasized. As the article states, “Even a simple plan that is well thought out and results from the identification of your personal objectives will be much more successful than nothing at all.”

One of the few faults I find in the article is that the main focus seems to be on money and taxes, rather than the who we are as people and how we want to leave a legacy for our family. I think the closest the article comes is this very accurate statement: “As in most estate planning, it is very much dependent on individual circumstances: family dynamics, net worth, financial / liquidity position, personal preferences and, even, your philosophy on the transfer of assets to future generations.” I think the articles frequent focus on “high net worth” or “wealthy individuals” is misplaced, as “regular” families like you and me can benefit from almost all of the points discussed in the article.

So, what do you think? Have you made any of the mistakes mentioned in the article? Can you think of additional common mistakes?

Transferring EE Savings Bonds to Your Living Trust

April 22, 2012 / Michael

Although their popularity seems to have gone by the wayside, it seems like we all have them or we know someone who does – U.S. Savings Bonds. According to this site, 14.9% of families have savings bonds, which makes up 0.4% of families’ assets. And according to this site, the average American household has over $1,800 in U.S. Savings Bonds. So you can see that although they are not a large part of the overal “net worth” of the average American family, they are widely owned.

As a Grand Rapids, Mi wills and trusts attorney, I’ve had a several families ask me how to transfer their U.S. Savings Bonds into their living trust. This will help ensure that they can be properly handled if you become incapacitated or pass away. The great news is that it’s not very difficult to transfer U.S. Savings Bonds to your living trust.

First, a technical matter. We don’t “transfer” the U.S. Savings Bonds to our trust . . . we have them “reissued” to properly register them to our trust. To do so, start by going to this U.S. Treasury site. From there you can download and fill out Form PDF 1851, which is specifically for reissuing the bonds in the name of a personal trust. The form has surprisingly good instructions and will guide you through properly completing the form and returning it to the U.S Treasury Department.

IMPORTANT: Michael is licensed to practice law in the State of Michigan and have offices in Kent County. I am ethically required to state that the above information does not create an attorney/client relationship. These posts should be considered general legal education and are intended to provide general information the topic discussed. Frequently, differing facts about the particular individual or family, if known, could significantly change the recommendations made in the blog post. Information provided on this site should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area in your state. The law changes frequently and varies from state to state.

The Critical Importance of Medical Directives

April 15, 2012 / Michael

National Healthcare Decisions Day is today, April 16th. It’s an important reminder for every adult to let someone know their most private wishes about medial treatments and possible end-of-life care.

Far too many people assume that their families would make the choices they would want in an emergency. Yet everyday we hear stories of adult children, siblings or other relatives battling during a health care crisis over “what their loved one would have wanted” in that situation.

The Terry Shiavo case is a great example of this. At the young age of 26, Shiavo suffered sudden cardiac arrest and slipped into a permanent vegetative state. She never documented her wishes about things like feeding tubes, life support and long-term quality of life, leaving her family to battle for years over these questions in court.

Her husband eventually had her feeding tube removed claiming, “That’s what she would have wanted”. But was it really? We’ll never know because Terry didn’t make her healthcare wishes known to her closest family and friends.

But it’s not enough to just tell someone about your wishes. You need to clearly document your preferences, too. Remember, emotions can run high during a health care crisis, and it might be hard for your loved ones to stop life support when they desperately want you around. Having your wishes spelled out in writing helps make these types of decisions easier for your loved ones, especially in cases when other family members don’t agree.

So in honor of National Health Care Decisions Day, I encourage you to start tough conversations with loved ones about your personal medical preferences for medical or long-term care. Here are some important questions to consider:

What are your thoughts on feeding tubes, life support and other artificial life saving devices?
Is there any type of medical care you would NEVER want?
If you were permanently disabled or incapacitated, what things would contribute or take away from your “quality of life”?
Who do you trust to make important medical decisions if you are unable to speak for yourself?
What are your thoughts on nursing home vs. in-home health care?
Who would you trust to manage your long-term care?

These are not the most fun conversations to have, but they will help to ensure that your most personal wishes are honored in a true medical emergency. Talk them over with loved ones and get something in writing that spells out your wishes and the care you want if something happens to you. If you have questions, call us at 616-827-7596 and get something in writing before an unforeseen emergency strikes.

Topics

Search My Site