Category: Multi-generational Planning

The Importance of Planning Communication

February 21, 2015 / Michael

I have had a lot of conversations recently centered around communication and financial information. Each had its own twist, the context rarely being the same. But, the two recurring themes were: (1) lack of organization and communication about your financial situations can cause a lot of frustration and expense if you are disabled or pass away, and (2) the process of creating and properly funding a living trust can help keep #1 from happening. I know it is not necessarily fun or exciting to talk about. Be that as it may, it can make a HUGE difference.

Here is one of the “bad” examples. The person had a will-based estate plan that was put in place some time ago. It will not shock you to know that a lot changed over the years. In addition to not keeping the estate plan updated, the person never shared anything about the person’s financial situation (what they had, where it was, etc.). I am now working with their family to try and sort everything out. It is proving quite difficult. Each financial institution seems to have different requirements for finding out information about accounts, and quite honestly, the family does not even know where to look. It has led to a lot of frustration on their end and much higher legal fees as we help walk them through it and get the information they need.

On the flip side are a couple of clients who passed away in 2014. Both had a trust-based plan that was fully funded. If you are curious about what I mean by “fully funded”, you can read a blog post of mine on the topic by clicking here. Because I work with clients to make sure their trust is fully funded, including putting together a spreadsheet of their assets, there is a list of the “what” and “where”. I also tend to find that by talking through the financial side of things with clients, they seem to be more willing to talk about it with those they have trusted with handling their financial affairs during their incapacity or after their passing. In both of these cases, those people who were called upon to act as successor Trustees were able to quickly get a handle of the financial side of things which, in turn, led to a quick, smooth, and less costly transition.

Now, don’t get me wrong – there are always exceptions to these examples. Having a will-based plan does not mean that administering your estate will be a frustrating and costly experience. And likewise, just having a trust does not guarantee that everything will be smooth sailing. But, I have generally found the exceptions to be few and far between. Whether a will-based plan or a trust-based plan, the important part is to make sure to keep track of your financial affairs and communicate with those you choose to help with your estate. A well-qualified financial advisor can be a big help with this process too, so do not overlook them.

As you know, I welcome questions, comments, and stories about the topic, so please let me know if you have any.

Wills vs. Trusts – The Battle Continues

March 24, 2012 / Michael

In a previous post we discussed many of the differences between wills and trusts. That discussion was from more of a “technical” standpoint, which can still leave a lot of questions. And those questions are typically the practical questions, such as “I have a couple of retirement accounts . . . would a will or trust be better for me?”

Generally speaking, here is a brief comparison of wills vs trusts relating to some practical considerations:

Wills tend to be sufficient in situations such as: simple and outright distribution of assets when privacy is not important.

Trusts tend to be better for handling the following: life insurance policies, qualified retirement plans (IRA, Roth IRA, 401k, 403b, etc.), somewhat more involved distribution of assets, maintaining privacy, possible or probably mental disability, desire to make it as easy as possible for family and loved ones, out-of-state real estate, out-of-state trustees (and beneficiaries), tax planning, protection of inheritance for spouse, children and grandchildren (or other loved ones), second marriages, and loved ones with special needs.

Keep in mind that there is no “one size fits all” answer to estate planning questions because each individual and each family is unique. Each estate plan should be too! Beware of the standard form document and a “telling you” versus “listening, learning and sharing with you” approach.

Call us at 616-827-7596, if you have questions or want to make sure your family’s plan is specific to who you are and what’s important to you.

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.

Estate Planning Is For Everyone . . . Including You!

February 19, 2012 / Michael

Many Grand Rapids families and families throughout Michigan have the misperception that estate planning is simply preparing for one’s death and is only necessary for the “wealthy.” The truth is that estate planning is as much about passing values to loved ones as it is about passing material possessions.

So, it should come as no surprise that a February 16, 2012 Forbes article describes estate planning as “the most important love letters you’ll ever write,” encouraging readers to “find inspiration in knowing that you’re caring for the people and causes you love, even if you’re not here anymore.”

The Forbes article correctly concludes that estate planning is for every adult American (including us right here in Grand Rapids, Mi), and that everyone should successfully complete “thoughtfully prepared estate planning documents.” The complexity of those documents may change for more affluent people, but the need to care for loved ones and causes exists for everyone. And working with a qualified Grand Rapids, Mi wills and trusts attorney helps enlighten people as to all they can accomplish through the estate planning process.

I recommend you read the full article, titled The Most Important Love Letters You’ll Ever Write, by clicking here.

And you can read some of my blog posts on similar topics by clicking the links below:

Beware the Double Tragedy in Estate Planning

Family Stories as a Priceless Treasure

Non-Tax Reasons for Estate Planning

Michigan Legacy Planning . . . Not Your Regular Estate Plan

Life Is More Than Money: Leaving a Lasting Legacy

Using Trust Protectors to Maximize Estate Plan Flexibility

January 29, 2012 / Michael

I’m the type of person who genuinely believes anything can be done. And as a Grand Rapids, MI estate planning attorney I bring that same attitude to helping craft caring estate plans for wonderful West Michigan families. How? Flexibility. That’s right – not the standard form document that seems to try and wedge your family into whatever box is the “standard,” but rather a plan that let’s you share your goals, aspirations, hopes, values, experiences and stories, and makes it a reality. One of the biggest “wishes” is that a plan will be flexible enough to handle changed circumstances throughout life. One incredibly powerful tool used to accomplish this is a trust protector.

Trust protectors (aka Trust Advisors) have long been used in British Commonwealth countries, originating with offshore asset protection trusts. With these trusts, their role was limited mostly to overseeing the foreign trustee and to make sure the trust maker’s intent was fulfilled.

Today, trust protectors are increasingly being used with trusts that are located here in Michigan. And, while their main job is still to oversee the trustee and make sure your intentions are followed after unforeseen changes in the law and other matters, they can be given additional duties that will provide you and your beneficiaries with added flexibility, security and peace of mind.

What is a Trust Protector?
A trust protector is someone you name in your trust agreement to oversee your trustee and make sure your trust carries on in the way you intended. This should be a trusted friend or advisor, someone who knows and understands your motives, family values and desires when you created your trust. In the case of a trust that will last many years, like a multi-generational trust, a trust protector is often an institution rather than a specific person.

A trust protector can begin to act immediately (for example, if your trust is irrevocable), or can take an active role only under certain circumstances (for example, at your incapacity or death). Think of your trust protector as your substitute, someone who can speak for you if there is uncertainty in interpreting your trust’s instructions, or the law changes and that change affects your trust. Your trust protector also can provide guidance for the trustee and protect your beneficiaries from a trustee that is not meeting its responsibilities, is overreaching, or is unresponsive.

How Much Power Should You Give Your Trust Protector?
The trust protector’s duties and powers are defined in the trust document, and can range from extremely limited to extremely broad. How much power you give your trust protector is completely up to you. Traditionally, the trust protector’s role has been a defensive one: to ensure that the trustee carries out the trustmaker’s wishes and to protect the beneficiaries from an under-performing or over-reaching trustee. But if you give your trust protector more power, the role can become a proactive one, allowing your trust protector to act before wrongs occur.

Some of the duties and powers you can give your trust protector include:

Oversee, Remove and Replace the Trustee
Your trust protector can oversee your trustee, providing guidance in interpreting your trust’s instructions and holding the trustee accountable. You can also give your trust protector the power to remove and replace the trustee. This authority can be restrictive, limited to specific bad behavior by the trustee that can include being unresponsive to the beneficiaries, not providing acceptable record-keeping, reporting and tax filings, or charging too much for services. The authority can also be extensive, allowing the trust protector to remove and replace the trustee for no specific reason (without cause). Usually potential replacements (successor trustees) are named in the trust agreement, but it may also be possible for the trust protector to select a successor trustee.

Just having these oversight provisions in place is often enough to keep a trustee in line. And if it does become necessary to remove a trustee, it is much easier for the trust protector to do this (because he or she already has the authority) than for the beneficiaries to reach an agreement and ask for court removal, which is a time-consuming, expensive and unpleasant procedure.

You can also allow your trust protector to control spending by the trustee, and even limit the trustee’s compensation, which can go a long way toward preventing disputes.

Resolve Disputes
You can also make your trust protector the mediator if disputes should arise between co-trustees, between the trustee and a beneficiary, or even among beneficiaries. Having the trust protector as the final arbiter in disputes over interpreting the provisions of the trust document can sometimes avoid costly and unpleasant trust litigation.

You could even give your trust protector the ability to sue or defend lawsuits involving the trust assets.

Modify Your Estate Plan
You may also want to allow your trust protector to actually make some changes to your trust. For example, you could allow your trust protector to change the situs (location in which the trust is regulated) to a state that has more favorable asset protection or income tax laws, should the need arise.

You could also give your trust protector the power to amend or revoke the trust agreement, in its entirety or in part; to add or delete specific beneficiaries or classes of beneficiaries; or to change the terms of distributions to beneficiaries. These powers may be extremely beneficial to the trust’s ability to follow your intentions as tax laws change, as well as to protect the assets from potential predators and creditors.

Delegate Responsibilities among Advisors
Traditionally, and still with many trusts, the trustee handles everything – recordkeeping, tax returns, distributions, investing, etc. But over time, people have discovered that it is beneficial to allocate some of this responsibility to different parties that have different strengths.

Consider giving your trust protector the ability to appoint, oversee and substitute other professionals. For example, the management of your trust could be divided like this:

An Administrative Trustee maintains trust records, accounts, and tax returns. If the trust is governed by laws in a different state (often for tax or asset protection reasons), the administrator will usually be a local institution or professional.
A Distribution Trustee or Adviser that has discretion and can make or withhold distributions from the trust to the beneficiaries. Typically this will be an objective third party, which insulates the trustee from pressure and liability associated with the power to distribute trust assets. This is especially important if a beneficiary’s creditor tries to force distributions from the trust.
An Investment Trustee or Adviser oversees or directs trust investments, and may be granted specific powers, including: to hold, maintain or cancel life insurance; to direct the sale or exchange of property; and to open, manage and close accounts. A general trustee is held to the prudent investment standard because of its fiduciary duty and, as a result, has restrictions on the investments it can make. Having an investment advisor that is not bound by the prudent investor rule or held to the same standard will provide more flexibility in investments.
The “General” Trustee handles everything that is not delegated.

Who Should Serve as Trust Protector?
Ideally, your trust protector should be someone who knows you, your motives, desires, and intentions when you established your trust. It cannot be you or a family member who is a beneficiary of your trust because of possible tax complications. An unrelated third party – a family friend, an advisor, the attorney who drafted your trust, or your family CPA – is often the best choice. They obviously must be willing to serve in this capacity, and your trust agreement should specify if they are to be paid for their services.

Who Should Have the Power to Remove or Replace the Trust Protector?
This probably should not be you, unless the replacement is explicitly limited in the document to someone who is not related or subordinate to you. You could possibly give this power to the beneficiaries or an unrelated third party. Leaving this decision to the courts would be time-consuming and costly.

If your plan has asset protection elements, no beneficiary should have the power to remove or replace the trust protector. Doing so could cause your trust to be under the control of a beneficiary and that could put the entire asset protection part of your plan in jeopardy.

Conclusion
The use of trust protectors is an excellent way to provide added flexibility, security and peace of mind in trust planning, especially since you can control how much power the trust protector is given. If you would like to discuss adding a trust protector to your estate planning, please call our office. We are ready to help.

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.

A Creative Idea for “Supercharging” Your IRA – Part 2

June 12, 2011 / Michael

Ok, so you read my previous post about the incredible legacy you can create by “Supercharging” your IRA. The logical questions are: what are the drawbacks to the “traditional” approach to IRA beneficiary planning and how do I do the “supercharged” strategy? Well, I’m glad you asked. That is what this post is about.

So, how is IRA beneficiary planning typically done and what are the drawbacks? Usually, a married couple will name each other as the beneficiary of their IRAs. This is done for many reasons, two of the most common being love and the additional “rollover” options provided to a surviving spouse by the tax code. Yet, there is a problem . . . spouses are usually near the same age. That means when the first spouse dies, the “stretch” tax deferral period of the deceased’s spouse’s IRA will typically be rather short. This goes against the goal of many IRA holders’ desire to maximize the “stretch” period to take full advantage of the tax-deferred growth of their IRA after their passing.

One option is to name a person from a younger generation as the beneficiary of the IRA. There’s a problem with that too . . . the surviving spouse is left out of enjoying the “fruits of labor” from the IRA. The “Supercharged IRA” strategy mentioned above is the way to have your cake and eat it too.

In this strategy, a younger person is named as the beneficiary of the IRA. Or better yet, an IRA Legacy Trust for the benefit of younger people is named so that you can not only maximize the “stretch” tax-deferral period but also make sure the IRA proceeds are asset protected for future generations (from creditors, predators, divorce and poor spending habits). As mentioned in my previous post, the required minimum distributions from the IRA are used to purchase a permanent life insurance policy on the life of the IRA holder with the spouse named as the primary beneficiary (or better yet, an Irrevocable Life Insurance Trust purchases and holds the policy so that it is asset protected from the insured’s creditors, predators and potential divorce).

What is accomplished? The IRA tax-deferral stretch is much greater because a younger person is beneficiary and the surviving spouse doesn’t miss the IRA benefits because he or she receives the insurance proceeds, which can be much greater than the IRA due to leveraging the life insurance premium. An additional benefit of this strategy is that it can be used for non-traditional couples and single individuals.

Make sure to discuss this strategy with a financial adviser, life insurance agent and estate planning attorney who are familiar with it and accustom to the mechanics of implementing it in your situation.

A Creative Idea for “Supercharging” Your IRA – Part 1

June 5, 2011 / Michael

As a Grand Rapids, MI estate planning attorney, I regularly help individuals and families plan for how to transfer their IRA accounts according to the legacy they want to leave. One scenario that provides an incredible opportunity is when you don’t need the required minimum distributions (RMDs) for living expenses. If you don’t need your traditional IRA funds to live on during retirement, you may be focused on building up this nest egg for your children or other loved ones and be tempted to avoid taking any withdrawals from it. After all, the larger your IRA is, the larger your children’s inheritance will be, right?

Unfortunately, this isn’t necessarily the case. After age 70½ you must take RMDs annually. If you don’t, you’ll owe a 50% penalty on the amount you should have taken but didn’t — in addition to any ordinary income tax you owe. So, for example, if your RMD was $12,000 for a given calendar year, you would owe a $6,000 penalty. That’s $6,000 that would go to “Uncle Sam” rather than to a loved one or charity.

A much better option can be to take the RMD, pay the ordinary income tax on it and use the remaining amount to pay the premium on a life insurance policy. This strategy can “supercharge” your retirement plan by providing a way to maximize the “stretch out” of RMD payments after your death, lengthening the tax deferral period. The longer the RMDs are “stretched out,” the longer the IRA assets can grow tax deferred. Then you can use the RMD payments to leverage the benefits of life insurance to greatly increase the ultimate amount received by your loved ones, charities or others.

Curious how it works and how you can use it? Stay tuned . . . I will cover that in a future blog post.

Your Michigan Family Cottage and Estate Planning

May 8, 2011 / Michael

From the small cabin in the woods to the multi-million dollar cottages on Lake Michigan, many Michigan families have a “home away from home.” Maybe it’s a cottage, maybe it’s a second home. In either case, it is a place filled with memories, stories and important family moments. As a Grand Rapids, Michigan estate planning and cottage succession planning attorney, it is no surprise to me that many cottage owners want to ensure that the “family cottage” stays in the family for as long as possible. They want to make sure future generations have the same opportunity for family bonding and memories that they’ve had.

And yet many Michigan cottage owners do the complete opposite of what it necessary to reach this goal. Many assume that “it will work itself out.” Or they figure that “all my kids get along and they know that I want to keep it in the family as long as possible . . . I trust them to take care of it.” In my experience, relying on things to “work themselves out” virtually guarantees that they won’t.

Cottage planning is not putting your children’s names on the deed to the property or letting your foundational estate plan handle the distribution. Cottage planning is much more . . . and rightly so given the number of family members who can ultimately benefit from it.

The goal of cottage planning is to create a legal structure that will help ensure the cottage stays in the family for generations to come . . . rather than leaving it to chance. A proper cottage succession plan is created with a unique blend of estate planning, business planning and real estate law. If done correctly, it can even protect the cottage from creditors, lawsuits and divorce among the future generations. Truly creating a legacy that you can be proud of.

In future posts I will delve into some of the cottage planning strategies that work. In the meantime, call us at 616-827-7596 if you want to make sure that the “handing down” of your cottage isn’t left to chance.

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, cottage planning 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.

Inheritance Protection and Why Your Family Will Thank You

January 4, 2011 / Michael

Inheritance Protection . . . what does that mean? Well, some recent conversations I’ve had and reading this article have brought to light how unknown this very important estate planning strategy is. What if you could ensure that your beneficiaries (children, grandchildren, or other friends and family) would receive your the inheritance you provide for them in a way that could benefit them, yet not be open to creditors, predators, divorce, financial immaturity and lawsuits. Would you do it?

Unless your “estate” is quite small (including life insurance), I generally recommend that you do just that. Why? Read the article linked above. Although there is no sure thing, I think it is quite likely that Mr. Martin’s story would be very different had he received his inheritance in an inheritance protection trust. The trust could have provided for his general needs (in the Trustee’s discretion) and still not be accessible by creditors, financial predators, divorce or lawsuits.

I’ll leave you with one last example. I met with a couple some time back and when I mentioned inheritance protection, the husband said, “that must have been what my grandma did for my aunt.” Obviously, I wanted to know more and he was kind enough to share the story. It turns out that his grandma had set up inheritance protection trusts for her children. His aunt had approximately $500,000 in the trust for her benefit. And guess what? She went bankrupt!

I know you are probably thinking, “great, what a waste of $500,000!” Not at all. Because Grandma had set them up as inheritance protection trusts, the trust assets were not part of the bankruptcy. Now if Grandma had set it up like the vast majority of people and attorneys do, that money would have gone outright to the aunt and she would have lost it! Is that what you want for your family?

Michael Lichterman is an estate 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 planning for the “experienced” generation, the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned business succession and pet planning – and he is privileged to do so from a Christian perspective. 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.

The Importance of Your Parents’ Estate Plan

October 28, 2010 / Michael

The statistics are quite staggering: half of Americans do not have even the most basic estate planning documents (Forbes.com). That means that only half of Americans actually have a say in what will happen if they pass away or become incapacitated…the other half are relying on their state’s one-size-fits-all law and the state court system. Seriously?! You want legislators and judges who don’t know you from “Joe” next door to be determining who gets what if you pass away or worse yet, who will make decisions on your behalf if you become incapacitated?

The most common reason in my experience is procrastination. I can’t count how many times I’ve met with and talked with great people who say, “we’ve been thinking about it for a long time…we just kept putting it off.” Well, here’s another thing to think about in addition to needing to do your own planning. What planning, if any, have your parents done? That’s right…do you know if your parents have an estate plan? If so, do you know what it says and who they picked to carry out key rolls.

Your parent’s estate plan should be important to you for 2 reasons (and not the reasons you think): (1) you may likely be the one (or one of) who has to take care of their affairs if something happens to them, and (2) if something happens to you before them, their plan may control some of how your things are distributed.

Point #1: if people do have an estate plan in place, they typically pick relatives to carry out the duties of administering the Michigan estate (through Michigan probate or through Michigan –trust administration). Guess what? That could be you. Do you know what your duties would be? Do you know what your parents have done or have not done to ease the burden on you. Think about it. If something happens to your parents the last thing you want to think about is handling their financial affairs and administering their estate. You’ve just lost folks who were very dear to you…what do you want to have on your shoulders in addition to the loss?

Point #2: I have had several great people I’ve met with who have named their parents (or in-laws) as the beneficiaries of their retirement accounts and/or their life insurance. The reason: they didn’t want it to go through probate if they passed away and their children were under 18 (money paid to a minor child upon the parent’s passing must go through the probate court process). BIG uh oh with that “planning technique.” Why? Because once that money is paid to the parents it is their money. I don’t doubt that they are great people and would do whatever you requested, but there are a lot of things over which they have no control. Do they have creditors? What if they were in a car accident? Because it is their money, it is open to all those risks (including divorce)!

And more importantly for the subject of this post, what does their estate plan say? Most parents who don’t meet with a relationship-based Michigan estate planning attorney will name their children equally as the recipients of their estate when they die. Do you see the uh-oh? That means you and your siblings (if any) would get equal shares without any special provision for the resources you made for your children. For example, if you have 2 siblings, that would mean that your children will only receive 1/3 of the insurance and/or retirement benefits you wanted them to receive.

See why your parents’ estate plan is so important? I encourage you to talk with your parents about their planning (or lack of a plan!). And if you or they have any questions, call us at (616) 827-7596.

Michael Lichterman is an estate 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 planning for the “experienced” generation, the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, and family owned business succession – and he is privileged to do so from a Christian perspective. 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.

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