Author: Michael

What Is A Charitable Remainder Trust?

December 26, 2011 / Michael

Many of the great families I work with as a Grand Rapids, Michigan estate planning lawyer, desire to give some or all of their “stuff” (e.g. assets) to charity when they pass away. In some cases, their children support this goal and in some cases they do not. Well, it turns out that you can benefit your family AND a charity by using a charitable trust. Charitable trusts generally come in two flavors: (1) a Charitable Remainder Trust (CRT), or (2) a Charitable Lead Trust (CLT). In this post, we’ll get a high-level view of a CRT.

Benefits of a CRT can include any or all of the following:

Defer capital gains taxes on the sale of appreciated assets;
Provide you with a new source of income;
Provide you a substantial current income tax charitable deduction; and
Provide you future estate tax deductions.

What is a CRT? Well, much like a CLT, a CRT is what’s called a “split interest trust.” That is, there are two main interests, many times referred to as a “lead interest” and a “remainder interest. The difference in these interests is what enables you to benefit you (and your family) AND the charities you support. In a CRT, the “lead interest” typically benefits you and/or your family. A CRT generally delivers the best results when you have a highly appreciated asset (e.g., real estate or stocks) that provide little or no income.

The first step is design and drafting the CRT. General terms involve direction on the “lead interest” and the “remainder interest.” Generally, during the lead time, the CRT pays you (and whoever else you may designate in the trust) an income stream based on either a term of years or a percentage of the value of the assets in the trust over one or more lifetimes. When the lead interest has run it’s course, the remaining trust assets (the “remainder interest”), if any, will go to a charity or charities of your choosing.

The second step is transferring the highly appreciated asset to the CRT in return for the trust’s obligation to provide you with an income stream over the term or lifetimes you choose. The annual income stream cannot be less than 5% of the asset’s value and may range up to as much as 50% depending on the term over which you have chosen to be paid and the interest rate involved.

The third step is for the CRT to sell the appreciated asset (paying no tax because of its favorable tax status).

Step four involves the CRT paying you an income steam for the term or lifetimes you designated, from the liquid resources provided by the sale.

Finally, after the CRT’s lead term has run (in years or lifetimes), it distributes any remaining assets to the charities you have designated and the CRT terminates.

This explanation is a big simplification of the process involved, but it should give you a great example of how a CRT may play an important role in your family’s estate plan. Call me at 616-827-7596 if you have questions about how a CRT can benefit your family or how to administer a CRT you’ve already put in place.

Michael Lichterman is an estate planning and business 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 finances – it’s about who your are and what’s important to you. He focuses on estate and asset protection planning for the “experienced” generation, the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses and pet planning. He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients – many of which have become great friends.

Popular Press Recognizes Importance of Estate Planning

December 18, 2011 / Michael

I’m always encouraged when I see non-legal publications recognize estate planning as critically important for all families and individuals. I recently ran across just such an article in USA Today, entitled “12 Smart Ways to Spend $1,200 in 2012.”

The article is a relatively short, easy read, so I won’t recap it here – I will just point out a few of my observations. The first observation is this: they have estate planning WAY too low on the list! #12 . . . the last one . . . seriously?! They put a new computer and an e-reader higher on the list than estate planning. You have to be kidding me! I appreciate that they included it on the list, but what does it say to caring families and individuals to have it listed last? It’s already something that many families put off for any number of reasons and ultimately don’t have in place (or don’t have an updated one in place) when it’s needed most. Telling people that a new computer, e-readers, and supporting a political candidate are more important than estate planning is a sad commentary on something that can “make or break” families in many cases.

Second comment – I applaud them for recognizing and recommending that everyone needs an estate plan and needs one long before retirement. Estate planning is often misconstrued as being only for the “wealthy” (whatever that means). I can assure you “estate” is not meant to refer to a stately colonial mansion sitting atop rolling green hills surrounded by white fencing and horses galloping around. Everyone has an “estate.” It is simply everything you own (including life insurance!). And the “planning” refers not just to the “estate,” but to caring for you while you are around (through financial and healthcare powers of attorney) and your loved ones or charities after your passing. We never know when something will happen to us, so having a comprehensive estate plan in place helps many families have added peace of mind.

Finally, I applaud them for recognizing that a great, comprehensive estate plan is an investment, not a “cost.” They support that when they state that $1,200 can “go a long way.” Note that they don’t say it gets you all the way there. Sure, you can get a set of standard documents and very little listening and counsel for that amount. But many truly caring families realize that who they are is just as important (if not more important) than what they have, and that capturing their values, insights, stories and experiences for future generations is worth more than $1,200.

So, how about you? Why wouldn’t you make 2012 the year that you take this critical step to securing your family’s future and giving yourself some added peace of mind? Anyone can say “I’ll get around to it.” It’s the truly caring families that make estate and legacy planning a priority, realizing that procrastination may leave their children and other loved ones in an unthinkable situation. So give us a call at 616-827-7596 to “get the ball rolling” on a New Year’s resolution to put a caring plan in place for your family.

Basics of Charitable Giving in Michigan

December 11, 2011 / Michael

As a Grand Rapids, Mi estate and charitable planning attorney I am proud of the many wonderful families and businesses in West Michigan that support the great work of charities. We are blessed with charities in our area that serve just about any cause you may support – from education, arts, health, animals, music, various disabilities, and beyond. Personally, I am privileged to serve on the Board of the Southeast Ottawa Community Foundation and the Family Hope Foundation.

Given the short timeframe left (only a few weeks) on some incredible giving opportunities, please check out this blog post before reading on about other contribution opportunities.

Ok, now that we have the urgent opportunities covered . . . moving on. So, you’ve decided that you would like to support a cause through giving to a charity. Whether it is the cause, the potential tax deduction, something else or a combination of one or more factors, the question comes down to “what should I give?” Some will say, “well, that’s an odd question Mike . . . I’ll just write a check.” And that is certainly one of the ways to contribute to a charity, and probably the most common. There are many other ways you can contribute in a way that may increase the benefit to the charity and to you.

Here are some examples of the numerous ways you can give to a charity that supports a cause dear to you:

Cash (or cash equivalents)
Gift of appreciated stock
Gift of closely held stock
IRA charitable rollover
Life insurance
Real estate
Other items of value such as jewelry, artwork, collections, antiques, automobiles, etc.
Donor advised funds
Charitable gift annuities
Pooled-income funds
Charitable lead trust
Charitable remainder trust
Private foundation
Conservation easements

Whew – that’s a lot of options! So how do you decide which one (or more) is best for your particular situation and cause? Well, I’ll talk about them in more detail in future blog posts to give you a better idea of the pro’s and con’s of each. However, I strongly recommend talking with a estate and charitable planning attorney who (a) understands and is familiar with the various giving options, and (b) has a passion for charitable giving himself/herself. Ready to get started? Call us today at 616-827-8596 to get started creating your charitable legacy today!

Act Now! Two Expiring Charitable Giving Opportunities

December 4, 2011 / Michael

As of this writing, there are only 26 days left until two incredible charitable giving carriages turn into pumpkins. That’s right, December 31, 2011 will bring the expiration of the IRA charitable rollover option and the Michigan Community Foundation tax credit. Both of these charitable planning options have been responsible for a great amount of charitable giving. It is my hope that their expiration will not cause a drop off in donations, as charities play an incredibly valuable role in our society and economy. Here is some more information on both opportunities:

Michigan Community Foundation Tax Credit
This tax credit offers donors making a contribution to a Michigan Community Foundation a maximum credit of $200 on a gift of $400 for couples filing jointly and a maximum credit of $100 on a gift of $200 for single filers. It also includes the up-to-$5,000 tax credit that businesses can earn for a gift of $10,000. This is the last year for the tax credit. It was eliminated to help balance the Michigan budget.

We have so many great opportunities to take advantage of this credit and increase our giving to Michigan Community Foundations. Where I live in West Michigan we have the Grand Rapids Community Foundation and several of it’s community funds, such as the Southeast Ottawa Community Foundation (of which I’m proud to be a Board member). These Community Foundations are doing incredible things in communities throughout Michigan for things such as education, arts, the environment, and health.

IRA Charitable Rollover Option
Although this giving opportunity has some restrictions on it, it also provides an opportunity to give a far greater amount and getting a far greater tax benefit for it. Why? Because this is a federal income tax benefit and federal taxes tend to be much higher than state taxes – so, each dollar contributed to the charity represents a greater savings to the donor.

The Charitable IRA Rollover was originally scheduled to cease in 2009, but was extended until the end of 2011 by the Tax Act of 2010. What this means is that any taxpayer age 70.5 or older can make tax-free transfers of up to $100,000 per year directly from his or her IRA to one or more charities. These gifts can be made without increasing your taxable income or withholding.

This presents an opportunity for huge savings over the previous method of using IRAs for charitable contributions. Before this direct rollover option, you would need to first take the distribution from your IRA, which would incur income tax, and then make the charitable contribution, which may have qualified for a charitable deduction on your tax return. With the direct rollover option you can greatly increase the impact of your giving because it will be the whole amount, not the tax-reduced amount folks previously gave.

There are some additional restrictions and guidelines, so I encourage to read this article on the topic to find out more.

I do hope you will take advantage of the tax benefits before the clock strikes midnight on December 31, 2011!

Grand Rapids Press Article About Living Wills

November 27, 2011 / Michael

It probably seems like all I’ve been writing about lately is healthcare related issues. There is a good reason for that. Recently I’ve been close to and read about many healthcare related situations where the treatment (or lack thereof) was very much related to the planning that the individual did (or didn’t do). Maybe I see and hear about more of these situations because I’m a Grand Rapids, Michigan estate planning attorney. However, I don’t think that is the case. Why?

Because the news media are writing about it too, due to the importance of the planning involved and what can happen if you don’t have a well-drafted and well thought out estate plan in place during a healthcare crisis. One such example is an article in the November 20, 2011 Grand Rapids Press (Section A4) entitled “Living will? Call me later. Aging boomers feel too good to plan for death.” The article is a result of an Associated Press – LifeGoesStrong.com poll.

The gist of the article was that, due to healthier lifestyles and a fear of thinking about death, a majority of “baby boomers” (64%) say they don’t have a health care proxy or living will. Of the people they interviewed, one said “I’m very healthy for my age, so death and dying isn’t on my mind,” another said, “I just feel like it’s something I’ll probably think about in my late 60s or 70s,” and my personal favorite, ” you always think something is going to happen to the other guy, not you.”

The article correctly points out that how you feel doesn’t determine what happens to you. I think that is the most important statement of the entire article, yet they fail to elaborate on it much . . . so I will. There are many “healthy” people who still need surgery, are involved in accidents, and have health issues resulting in disability, incapacity or even death. For example, just this past year, West Michigan lost a loving husband and father and a true gentleman, when he passed away during the Fifth Third River Bank Run. Those who knew him said he was the picture of health. Yet, it was a nascent condition that showed up that caused his passing. In the past six months I’ve also read about two individuals who passed away of brain aneurysms while working out. Both were described as being very healthy.

You see, our health is something we can control only to a point. Our bodies are complex and wonderfully created “machines,” and there can be many undiscovered conditions in a “healthy person.” A healthcare power of attorney or patient advocate designation is something everyone should have, no matter how “young,” “old,” “healthy,” or “unhealthy.” From the 18 year old embarking on college or their career, to the 90+ year old World War II veteran who still walks several miles a day – everyone needs these critical documents.

There are two points made in the article that I feel need some correction. First, the article emphasizes the importance of “living wills.” As a I wrote in this previous blog post, living wills are not legally binding in Michigan. Michigan is one of only a few states that have no living will statute. That said, I always have an in-depth discussion with my clients about care and end of life wishes. These become part of their healthcare power of attorney and patient advocate designation.

Second, the article mentions that each state has its own forms for healthcare proxies and living wills. It then goes on to say that “while it’s a legal document, . . . you don’t need an attorney to draft one.” Technically, that is correct – because there are some forms available, you don’t need an attorney to draft one for you. But you can say that about any estate planning document (e.g., wills, trusts, financial powers of attorney). The question you should ask is should you meet with a Michigan attorney who focuses on estate planning to discuss the issues involved and draft a plan that ensures those wishes/desires will be followed?

The answer is “yes!” The documents are the documents. The value is in the counseling and discussion involved and implementing those wishes/desires by way of a comprehensive plan involving a healthcare power of attorney (among the other important estate planning documents).

Sure, we all think it will happen to “the other guy,” just like the quote in the article. But one day, “the other guy” (or woman) will be each of us. When that time comes, it is too late to put these important planning items in place. Take action now, while you can, by calling us at 616-827-7596.

Michael Lichterman is an estate planning and elder law attorney who helps families and create a lasting legacy. This goes beyond merely planning for finances – it’s about who your are and what’s important to you. He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients – many of which have become great friends.

Have a Healthcare Power of Attorney or Else . . .

November 20, 2011 / Michael

As a Grand Rapids, Michigan estate planning attorney I’m regularly involved in, and overhear, conversations involving the various aspects of estate planning. Interesting to me is that many of those conversation involve wills, trusts, and financial powers of attorney, yet far less involve healthcare powers of attorney or patient advocate designations. And many that do, give it merely a passing mention and may even involve talk of just “using the state form . . . it should work fine.” This concerns me!

Why? Because we’re talking about YOU – this is your life, your health and your well being. Why would you give it nothing more than a passing thought, especially in a day when we are living longer and have increased care needs because of it? I have heard many wonderful people say “my family knows what I want and I trust them to make the right decision.” Well, what is the “right” decision? Have you talked to them about it? How long ago was it? Has your mind changed about your healthcare in that time? Do you think they remember what you shared with them? Are you sure they will follow your wishes?

I’m not just talking about “pulling the plug,” although that seems to be what most of us think about when we think of others making medical decisions on our behalf. What about complications during surgery? During other period when you are unconscious? Choosing who will make these decisions on your behalf is very important!

I hope I’m not off base with my concern for the lack of care given to such an important part of our estate plans. I believe this should be a key consideration in every estate plan, no matter how young or old you may be – things happen that are out of our control. Please consider this a wake-up call to run (not walk) to an estate planning attorney who will take the time to learn who you are, what is important to you, and help you design a plan that provides you with the care you want and deserve while giving your family and friends clear guidance on your wishes.

P.S. I regularly hear “oh, I’m all set – I have a living will.” If that’s you, read my earlier blog post on the topic by clicking here.

Estate Planning Pitfall – Not Having A Stand-alone HIPAA Authorization

November 5, 2011 / Michael

The research is clear – we are living longer and needing more medical care as a result. This makes the Power of Attorney for Healthcare (also referred to as a Patient Advocate Designation) a critical component of any well-drafted, comprehensive estate plan.

But did you know that there is another healthcare-related document that can be critically important to managing your finances when you are unable to do so yourself . . . a document that many estate plans lack? It’s a stand-alone HIPAA authorization and it can help ensure a smooth transition for your financial agent(s) and help your family stay out of court.

You see, the trusted family, friends, or financial institutions that many individuals choose to manage their financial affairs if they are incapacitated are not necessarily the same ones chosen to make healthcare decisions. A comprehensive estate plan will use Financial Powers of Attorney and Trusts to help ensure your finances can be handled by those you trust most if your are unable to manage them yourself.

Many times the authority given to others in Financial Powers of Attorney or Trusts do not become “effective” until you are incapacitated or otherwise unable to manage your financial affairs. A physician is usually involved in making the determination of incapacity and signing the necessary certifications so that your financial agents can begin managing your financial affairs.

Traditional planning and the Health Insurance Portability and Accountability Act (HIPAA) can throw a wrench into the situation. How? HIPAA restricts access to your medical records to those who you authorize. Because your financial agents may not be the same as your healthcare agents, any HIPAA authorizing language in your Healthcare Power of Attorney will not cover them (you do have HIPAA authorizations in your Healthcare Power of Attorney, right?). Without that authorization, the physician most likely will not sign off on the necessary documentation and your family (and agents) could end up having to go to court to move forward. This would likely lead to costs and delays you no doubt wanted to avoid.

That’s where the stand-alone HIPAA authorization comes in. It allows you to name individuals who can have access to your medical records without giving them authority to make medical decisions. Certainly your healthcare agents would be included, but you should also consider including your financial agents and trustees (if you have a trust). Doing so, will help ensure that the transition of authority can be a smooth one and your estate plan works when it is needed most.

What is a Michigan Registered Agent?

October 30, 2011 / Michael

As a Grand Rapids, MI business lawyer, this is a question I’ve been asked quite a bit. Due to the large number of corporations and limited liability companies (LLCs) formed in Michigan every year, it is important to know the requirements of a registered agent. Why? Because whether you form a Michigan corporation or a Michigan LLC, you are required to appoint a registered agent. The law for requiring one for Michigan corporations is here, and the law for requiring one for Michigan limited liability companies is here.

A registered agent can be an individual Michigan resident, or a domestic or foreign corporation (or LLC) authorized to transact business in Michigan. The registered agent of a Michigan corporation or LLC (I’ll refer to it as the “Company”) is the Company’s agent for the purpose of service of process. Service of process is the procedure used to give legal notice to the Company of a court or administrative proceeding against it. In other words, it’s how a Company is notified that it is being sued or that someone is bringing an administrative action against it.

Of course, to “serve process” on a Company, the Company is also required to have a registered office. Both the name of the registered agent and the street address (and mailing address if different than the street address) of the registered office must be included in the Articles of Organization (if the Company is a LLC) or Articles of Incorporation (if the Company is a Corporation).

Michael Lichterman is a relationship-based business attorney who leverages his business, marketing and legal knowledge to help business owners and entrepreneurs create a Foundation for Business Success™. This goes beyond merely drafting a set of documents – it’s about proactively preparing the business and the business owner for continued growth while remembering the “human side” of running a business. He best serves small business owners (less than 50 employees) and entrepreneurs. He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients and their businesses – many of which have become great friends.

Beware the Double Tragedy in Estate Planning

October 23, 2011 / Michael

Last week was National Estate Planning Awareness Week. An entire week dedicated to raising awareness of the critical importance of estate planning. It is estimated that over 120 million Americans do not have up to date estate plans. And according to a recent study, 70% of respondents said that Americans fail to plan because they lack awareness as to why they should. Even worse, 62% of respondents to the same survey believed that many Americans do not plan because they have the erroneous assumption that estate planning is only for the wealthy. It certainly is not – read my blog post on the topic here.

So what does that have to do with the double tragedy I refer to in the title? Even a better question is, what is the double tragedy? It is this: a dear family member or friend passing away (or you passing away) and a complete lack of an estate plan or a poorly drafted estate plan. I call it the double tragedy because your family will be dealing with the loss of someone they loved dearly, so why add to their frustration, grief and hardship by leaving them with a mess with your estate due to lack of planning or a “cheapo” estate plan.

Sure, sometimes things go smoothly, but that certainly is not the case in many circumstances. Why take the chance? Take the time and money to work with an attorney who focuses on estate planning to help create a comprehensive plan that will show your family how much you cared . . . even after you are no longer here for them.

Did Steve Jobs Have an Estate Plan?

October 16, 2011 / Michael

As someone who uses and iPhone® and an iPad® in my law practice and in my personal life, I’m grateful to Steve Jobs for his foresight, innovation, and refusal to let earlier failures and setbacks stop him from doing what he loved. I am saddened by his recent passing and hope to see another innovator of his type sometime in my lifetime.

As a Michigan estate planning attorney, I take a keen interest in the estate planning people have done (or not done) . . . and celebrities are no exception. Many times the stories of celebrity estate planning mistakes or triumphs are a way to help families better understand the importance of estate planning.

So, did Steve Jobs have an estate plan? As the famous “eight ball” would say – signs point to yes. According to a Forbes.com article there is some evidence that Mr. Jobs had some level of a trust-based estate plan. As the article points out, if that is the case, we may never know the extent of his planning. Why? Because trusts, when used properly, are completely private – unlike wills that must be filed with the probate court. This is a benefit of a trust-based estate plan that is often overlooked.

With the caring, family man that he was, it wouldn’t surprise me if he did have a comprehensive plan meant to protect his and his family’s privacy. What an incredible gift to them. Avoiding what I call the “double tragedy” – the passing of someone they loved and a mess of an estate plan (or no estate plan) on top of it.

Don’t be fooled into thinking that Mr. Jobs’ enormous wealth was the reason he had an estate plan. The article points out several celebrities with ‘gobs’ of money who did not have an estate plan (or had an estate plan that was horribly inadequate for their financial and family situation).

Why NOT To Use Joint Accounts As Your Estate Plan

October 2, 2011 / Michael

You may remember that I wrote about some of the downsides to jointly owning assets in this previous blog post. Well, as with all good stories, that wasn’t the end of it and the topic continues to come up. Forbes.com had a recent article entitled “Top 5 Reasons to Beware of Joint Ownership Between Generations.”

Rather than reproducing the article, I will touch on the high points . . . please read the entire article. Unlike my previous post covering a wide view of why not to use joint asset ownership as an estate plan, this article focuses on the top reasons related to joint ownership among different family generations. I’ve heard more than one parent who shared with me that they were told to “just add your child to your bank accounts, financial accounts, and home to assist with financial issues and plan your estate.”

Here are the reasons the Forbes article gives for why that is a no substitute for proper estate planning:

The assets are subject to the child’s creditors;
The assets are subject to the child’s ex-spouse in cases of divorce;
The assets are subject to “borrowing” by the child. Borrowing is in quotes to signify that this is a case where the child, because he or she is equal owner on the account with mom or dad, uses the account for their own purposes – promising (or not promising) to pay it back.
The child who is on the accounts with mom or dad gets all of those assets when the parents pass away. That’s right . . . all of it! Much to the chagrin of their siblings, other family members, and maybe even charities that mom or dad supported.
Many times #4 can lead to family infighting.

Another critical factor making this a big “no no” in many situations is that by owning the assets jointly with their children, the parents are giving up control and risking complications that many would never think of happening.

As the article points out – it is better to have a comprehensive estate plan in place and to work with a Michigan attorney who focuses on estate planning. A good estate plan allows you to keep control of your “stuff,” receive assistance when needed, avoid probate court after death, and eliminate questions about your true intentions.

Call us at 616-827-7596 to take that important first step. The first step is always the hardest, and yet it leads to the reward of added peace of mind.

What Is a Pour-Over Will?

September 25, 2011 / Michael

As a Grand Rapids, MI estate planning attorney, I see a growing number of families who recognize the benefits of a living trust centered estate plan and want a living trust as the foundation of their estate plan. Many times the other documents in a comprehensive living trust plan are overlooked or giving only a small amount of attention.

One such important planning document is the pour-over will. No, it’s not actually called that in most cases. “Pour-over” is the common way to refer to it and helps explain what it is and how it works. Although the hope is that you never need to use your pour-over will, it plays a very important role if you do.

A pour-over will is . . . well, a will. More specifically it is the type of will that is often used in a comprehensive living trust estate plan. In such a plan, the living trust plays the most important role. In your living trust you will control who receives what, how they receive it, when they receive it, what happens if you are incapacitated, who is responsible for managing the trust assets, and much more. Think of it as the “hub” of the estate planning “wheel.”

Well, the catch is this – a living trust controls only what it owns. Said another way, if the living trust doesn’t own it, whatever “it” is will go through the probate court process (unless it is directed by a beneficiary designation or other non-probate transfer mechanism). That is why it is so critically important to make sure your living trust is fully funded (read my blog post on the topic by clicking here). But what happens if something you own is not owned by the living trust and ends up going through the probate court process?

That’s where the pour-over will comes in. The reason this type of will is commonly referred to as “pour over” is because it is designed to make sure anything that is part of your probate estate goes into your living trust after you pass away – it “pours” it into the trust. It does this by directing that it happen – the will says that any property left in the probate estate at the end of the probate process will be distributed to the living trust.

And like all the parts of a comprehensive living trust estate plan, it is important to make sure your pour-over will is reviewed on a regular basis. If not, it could fail to do what you wanted it to do!

Have questions? Call us at 616-827-7596 or contact us via email.

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