Category: Estate Planning

A silver lining to asset values decreasing?  I must be crazy!  I may be crazy, but I promise you it has nothing to do with this topic.  The silver lining is this – with assets (property, business interests, etc.) at their current depressed values, there is the opportunity to transfer those assets and reduce the tax-related consequences.  Fair Market Value (FMV) largely determines the tax liability incurred by gift or estate transfers.  Typically, the lower the FMV of an asset, the lower the gift or estate tax liability associated with the asset.  Because many assets have lost considerable value over the past 12-24 months, you may be able to transfer the asset with a much lower (or possibly no) tax liability.

For instance, let’s say you have a vacant piece of property you have been planning on giving to an adult child who wants to build his or her first house.  The value of the land 2 years ago was $20,000.  It currently appraises at $12,500.  It may be advantageous to transfer it to the child now to take advantage of the $13,000 annual gift tax exclusion.  Many businesses have lost value in these turbulent times as well.  There are planning methods that can lock in the current value for purposes of transferring ownership interests in the business.  This may be particularly appealing to closely held businesses.

These are just a couple of examples of the benefits of the current depressed asset values.  The list of estate and gift planning benefits provided is too numerous to give them all here.  Please feel free to contact me if you would like to discuss the potential benefit to your family or your business.

For the sake of not jumping on the news bandwagon surrounding Michael Jackson’s death, I will keep this post short.  I am always curious to see how the “super lawyers” handle the estate plans of the wealthy.  I am often surprise to find that, despite being drafted by VERY highly paid attorneys, they are not much different (if at all) than the estate plans I provide my clients.

If you haven’t already read the will, you can read it here.  It is a relatively straightforward pour-over will – that is it “pours” into his trust any assets that are not already in the trust.  It further appoints executors of his will – called “Personal Representatives” in Michigan.  In this case there are three.  Finally it provides for the guardian of his children (his mother) and a successor . . . surprisingly it is Diana Ross!

There are 2 key points I want to make:

(1) We are able to access his will because probate is public.  You can go to the probate court and ask for the file for any decedent estate and review it.  This is why, I’m sure, most of the important asset information and administration is stated in his trust(s) (I’m assuming).  A will does NOT keep your estate out of probate – it simply gives direction on how you want your assets to be distributed, to whom, and provides some guidance as to your desires for your estate’s administration.

(2) I typically recommend that my clients re-visit their estate plans every 3-6 years, and more often if there are major changes in family or assets.  With all that Michael Jackson had going on in his life, both good and bad, I can only hope that his trust was updated more often than his will (written 7 years ago)

One of my parents recently gave me a mailer and shared a story that served as reminder of some of the shady “estate planning” characters out there.  The mailer warns the recipient of how probate courts deplete their estate.  It goes on to talk about revocable living trusts and how they can save “thousands in court fees, invetory costs and attorney fees.”  It then offers to provide a free book on protecting your estate if you return the mailer.

None of those statements are lies, so why do I consider it shady?  First, there is no street address or business name provided anywhere on the mailer.  What are they trying to hide?  Second, although not explicitly stated in the mailer, it is drafted in a way that leads the reader to believe that (1) revocable living trusts are a new tool for handling a person’s estate and (2) you need one.  Revocable living trusts are not a “new” estate planning tool and, althought they are beneficial for many situations, they are not needed by everyone.  Depending on the estate size, the burdens of administration could outweigh the benefits of having the trust – there are alternative planning methods in those cases.

This is why I always recommend talking to an attorney who is knowledgable in the different estate planning techniques (whether me or someone else).  Through information gathering and conversation, they will be able to determine what estate planning methods will be best for the given invidual.

Side note – the story: my father has a friend who sent in a mailer much like the one given to me (although not identical).  The book was delivered by 2 salespeople who wanted to sell their investments to the person.  Yikes!

Just this past week, the Michigan Trust Code was signed into law. It is officially Public Act 46 of 2009 (2009 PA 46). The Code will replace the current Article 7 of Michigan’s Estates and Protected Individuals Code and will become effective April 1, 2010. Among other things, it does the following*:

• the capacity required to create, amend, or revoke a revocable trust, or to direct the actions of its trustee, are the same as that required to make a will
• allows a settlor to revoke or amend a trust unless the terms of the trust provide that it is irrevocable
• provides that certain rules of construction that apply to the interpretation and disposition of property by will also apply to trust property
• provides for representation of beneficiaries by fiduciaries and others in such matters as the receipt of notice and consent
• specifies requirements for the creation of a trust
• provides that a trust may be created only to the extent its purposes were lawful, not contrary to public policy, and possible to achieve
• allows the settlor, a named beneficiary, or the Attorney General, among others, to maintain a proceeding to enforce a charitable trust
• provides that a trust is void to the extent its creation was induced by fraud, duress, or undue influence
• provides for the modification and termination of trusts and allows the termination of uneconomic trusts
• indicates how a trustee accepts a trusteeship
• provides for co-trustees, the appointment of a successor trustee if a vacancy in a trusteeship occurs, and circumstances in which a trustee may resign, and
• requires a trustee to administer the trust solely in the interests of the trust beneficiaries

*Summary of certain changes as stated in “ICLE’s This Week in Michigan Law – June 23, 2009”

I will be presenting an Estate Planning seminar entitled “Show Your Family How Much You Care” on Tuesday, July 28, 2009 starting at 6:30pm.  I hope to provide valuable information regarding estate and business planning that is designed to provide you with peace of mind regarding your future and the future of your family.  Find out more in the “Seminars” section under the “Resources” heading or click here.

The Motley Fool’s “Fool School” section in today’s Grand Rapids Press gave some brief thoughts on a trust versus a will. I will (no pun intended) let the article speak for itself, as you can view it here. It is summed up nicely with the closing statement:

“Remember that having a sold estate plan is essential to achieving your ultimate goals and to saving your heirs time and money. Don’t put off thinking about your last financial arrangements.”

People have asked me in the past whether they might be a fiduciary without explicitly agreeing to do so, either verbally or in writing. Well, In re Cadarette Estate (Click here for case), a recent unpublished opinion from the Michigan Court of Appeals seems to answer that questions.

Decedent (the person who died) drafted a will in 1995 leaving her property equally to all five of her children. Before she died, approximatley $94,000 of her assets were transfered into joint accounts with one of her children, Norman, who then transferred them into his name only. Through testimony at trial it was shown that she requested Norman’s assistance with financial and other matters as she aged. He would write checks from the joint account for her needs and arranged for a relative to care for her for 2 years. She primarily looked to Norman for assistance and Norman helped her whenever she needed anything.

The court went on to explain that a fiduciary relationship can exist when one person “stands in a position of confidence and trust” with another persons (MCL 700.1212(1)). A fiduciary has a duty to act for the benefit of the other person on matters within the scope of the relationship (In re Karmey Estate, 468 Mich 68,74 n2; 658 NW2d 796 (2003)).

The facts clearly showed that Norman was in a position of trust and confidence with decedent and was therefore required to act for her benefit rather than his own personal interests. Norman benefited handsomely from the relationship as he testified that he spent the money on himself. Although Norman argued that he was entitled to the funds as a result of being the survivor on a joint account, the court pointed out that the presumption of survivorship can be overcome by evidence of fraud or undue influence. Given his closeness with decedent, his influence (he convinced decedent to transfer funds to at least one joint account for concern that a sibling was stealing from her), and evidence showing that decedent was not happy when she found out he opened the joint accounts, the court denied that Norman was not entitled to full access to the funds and instead ordered the money back into the estate to be distributed as stated in the will.

The moral of story: if you are going to help someone out on a regular basis such that you could be considered a fiduciary, act in an honest manner and be true to the relationship. Don’t try to pull a fast one.

A bill was recently introduced in Congress by Rep. McDermott (D-Washington) to allow a credit for 30% of qualified expenses (i.e., legal fees incurred establishing the advance directive) up to a cap of $500. The bill is freshly introduced, so there is not telling whether it will make it through all the committees and votes to become law. It sure will be interesting to follow.

The text of the bill HR 2705 can be found here

Having an an attorney create your estate planning is worth the cost according to a Kiplinger.com quiz about service costs and their worth (http://www.kiplinger.com/quiz/is_it_worth_it/index.html?qid=56). Question #4 on the quiz asks whether hiring a lawyer to draw up your will is worth the cost. If “no, save your money” is chosen, the response states:

SORRY, WRONG!
Your answer B. Save your money is incorrect.
The right answer is A. Worth the cost

This is not a time to take shortcuts in the hope of saving a few bucks. It makes sense to pay a competent lawyer a reasonable fee to write a document that will lay out your wishes and stand up later to scrutiny by the probate court, your beneficiaries and anyone you choose not to make a beneficiary. The lawyer’s fee can range from $300 or so for a simple will to $200 an hour for a complex estate. But that’s cheaper than a costly court battle later.

As an estate planning attorney I routinely advise individuals and couples that the costs of having a competent attorney create their estate plan pales in comparison to the potential costs – financial and emotional – if not done correctly. I am pleased to see agreement from a financial publication. Sometimes it is better to hear it from someone outside of the practice area.

I enjoy each opportunity I have to help individuals and couples with their estate planning needs. Providing them peace of mind – knowing that their family and assets are protected and taken care of – is a priceless privilege. I encourage each person reading this to take it as a reminder to talk to a competent estate planning lawyer at their earliest convenience to save potential headaches down the road.