Category: Estate Planning

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

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.

Michigan Celebrity Dies Without An Estate Plan

February 12, 2012 / Michael

If you are a sportsman who lived in Michigan over the past 30 years or so, the name Fred Trost may sound familiar to you. Fred Trost was a celebrity among Michigan outdoorsmen, hosting “Michigan Outdoors” and “Practical Sportsman” on PBS. I remember growing up watching his show, having an affinity to it over the others because he was from right here in Michigan. Sadly, Mr. Trost passed away unexpectedly in 2007.

And to add to the shock, he died without an estate plan. This caused no small problem in his family, with the in-fighting recently coming to an end with his wife winning a $195,000 lawsuit against his son (not her son). You can read about it by clicking here. Although we’ll never know, it is quite possible that much of the conflict and hurt could have been avoided with a caring and comprehensive estate plan.

You may say, “c’mon Mike, how could an estate plan have helped in this situation? This was a matter of contract between his wife and his son.” Well, you may be right. But as a Grand Rapids, Mi wills and trusts attorney I’ve seen situations that were not too far off from this one that did not come to this level of conflict directly as a result of a caring and comprehensive estate plan. Why? Because the estate plan covered all the contingencies. For example, in this case, Mr. Trost could have used an estate plan to say what would happen if he passed away before he received his anticipated inheritance and what would happen if his son received it as a result of Mr. Trost’s premature death (read the article to see how that caused a problem). Or, he could have provided a way to “equalize his estate,” by using life insurance to make the monetary amounts more “fair.”

One interesting item that was not mentioned in the article is what intrinsic value the show tapes had. Sure, maybe they are financially valuable if they can be replayed, but I believe their bigger value to Trost’s wife is a way to remember the husband that she loved. Remember, his “stuff” is still here, but he is gone. When we lose someone for whom we care deeply, we usually look for something that reminds us of them. It could be that the show tapes are that physical way for his wife to remember him. Something of a family legacy.

Ultimately, we’ll never know what could have happened and how Mr. Trost’s family could have got along, because the fact is, he didn’t invest the time or money to do the planning that may have avoided it. I encourage you to not make the same mistake. Call us at 616-827-7596 to schedule a Peace of Mind Planning Session to help make sure your family is cared for and kept together in the most loving way possible.

Watch Those Beneficiary Designations

February 4, 2012 / Michael

Many families have retirement accounts and life insurance as a way to plan for the future. As common as they may be, a lot of confusion remains about what happens with those accounts if something happens to you (the account owner and insured). Many married folks believe they go to their surviving spouse and then maybe their kids. Maybe yes, maybe no.

You see, retirement accounts and life insurance are what we call beneficiary designated assets. This means that you instruct the retirement account custodian (the financial institution) and the life insurance company to distribute those asset to the person (or people) you name on a beneficiary designation form. You may or may not remember filling one out, but you did. As a Grand Rapids, Mi estate planning lawyer, I’ve seen many cases where beneficiary designations caused serious problems when the account owner passed away because they weren’t updated for changed life circumstances.

For instance, just this past week I had a family share just such a story with me. They had a relative who got divorced 20+ years ago and who had a decent sized retirement account. When he divorced his ex-wife, he decided to name his sister-in-law as the beneficiary on his retirement accounts because he did not want his minor children to receive the funds through the probate process. By the way . . . that is NOT estate planning and is almost always a very bad idea from a planning standpoint.

So, time went on, his kids grew up into fine adults, and life kept rolling . . . until it stopped. He died. Guess what? He never changed the beneficiary designation on his retirement account and it all went to his sister-in-law . . . his kids received NOTHING! As you might expect, the kids challenged this by taking the sister-in-law to court. The judge sided with the sister-in-law. That may seem unfair, but the judge was correct. The beneficiary designation is a contract you have with the financial institution that they are to pay the assets to the person (or people) you named – if they don’t, they are in serious trouble.

This is just one example of why it is SO important to review your financial planning and estate planning on a regular basis. There are many more stories – some with more disastrous outcomes. This is a large part of why we include ongoing 3-year reviews at NO CHARGE for all of our estate planning clients and why we are developing a ClientCare Plan Monitoring system for our clients. Your life will change, the law will change, and what you have will change . . . your plan needs to change with it so it doesn’t fail.

If you don’t have a plan in place for your family, call us right away to schedule a Peace of Mind Planning Session. And if you have a plan but your planning experience was dry, transactional, not explained well, and form driven, give us a call for a plan review meeting. In both situations we will share with you how planning works and make sure you have an active role in designing your family’s estate plan – it is not one size fits all. Call us at 616-827-7596.

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.

Understanding How Trusts Work

January 14, 2012 / Michael

In this week’s post, I thought we would cover something that is important to many Americans yet is sometimes misunderstood – trusts. In the right circumstances, trusts can provide significant advantages to those who utilize them, particularly in protecting trust assets from the creditors of beneficiaries.

Admittedly this can be a complex topic, but you see its implications in the headlines every day. So, let’s try to simplify the subject and explain the general protection trusts provide for their creator (the “trust maker”) as well as the trust beneficiaries. Given the numerous types of trusts, only look at the most common varieties. I encourage you to seek the counsel of a Michigan attorney who focuses on estate planning to help you apply these concepts to your specific situation, or if you have questions about specific types of trusts.

Revocable vs. Irrevocable Trusts
There are two basic types of trusts: revocable trusts and irrevocable trusts. Perhaps the most common type of trust is revocable trusts (aka revocable living trusts, inter vivos trusts or living trusts). As their name implies, revocable trusts are fully revocable at the request of the trust maker. Thus, assets transferred (or “funded”) to a revocable trust remain within the control of the trust maker; the trust maker (or trust makers if it is a joint revocable trust) can simply revoke the trust and have the assets returned. Alternatively, irrevocable trusts, as their name implies, are not revocable by the trust maker(s).

Revocable Living Trusts
As is discussed more below, revocable trusts do not provide asset protection for the trust maker(s). However, revocable trusts can be advantageous to the extent the trust maker(s) transfer property to the trust during lifetime. Revocable trusts can be excellent vehicles for disability planning, privacy, and probate avoidance. However, a revocable trust controls only that property affirmatively transferred to the trust. Absent such transfer, a revocable trust may not control disposition of property as the trust maker intends. Also, with revocable trusts and wills, it is important to coordinate property passing according to contract (for example, by beneficiary designation for retirement plans and life insurance).

Asset Protection for the Trust Maker
The goal of asset protection planning is to insulate assets that would otherwise be subject to the claims of creditors. Typically, a creditor can reach any assets owned by a debtor. Conversely, a creditor cannot reach assets not owned by the debtor. This is where trusts come into play. The right types of trusts can insulate assets from creditors because the trust owns the assets, not the debtor.

As a general rule, if a trust maker creates an irrevocable trust and is a beneficiary of the trust, assets transferred to the trust are not protected from the trust maker’s creditors. This general rule applies whether or not the transfer was done to defraud an existing creditor or creditors.

Until fairly recently, the only way to remain a beneficiary of a trust and get protection against creditors for the trust assets was to establish the trust outside the United States in a favorable jurisdiction. As you might imagine, this can be an expensive proposition.

However, the laws of a handful of states (including Alaska, Delaware, Nevada, Rhode Island, South Dakota, and Utah) now permit what are commonly known as domestic asset protection trusts. Under the laws of these few states, a trust maker can transfer assets to an irrevocable trust and the trust maker can be a trust beneficiary, yet trust assets can be protected from the trust maker’s creditors to the extent distributions can only be made within the discretion of an independent trustee. Note that this will not work when the transfer was done to defraud or hinder a creditor or creditors. In that case, the trust will not protect the assets from those creditors. Although Michigan does not currently have a domestic asset protection trust law, I am hopeful that we will in the near future (I happen to be on a committee working on drafting such a law).

Given this insulation, asset protection planning often involves transferring assets to one or more types of irrevocable trusts. As long as the transfer is not done to defraud creditors, the courts will typically respect the transfers and the trust assets can be protected from creditors.

Asset Protection for Trust Beneficiaries
A revocable trust provides no asset protection for the trust maker during his or her life. Upon the death of the trust maker, however, or upon the death of the first spouse to die if it is a joint trust, the trust becomes irrevocable as to the deceased trust maker’s property and can provide asset protection for the beneficiaries, with two important caveats.

First, the assets must remain in the trust to provide ongoing asset protection. In other words, once the trustee distributes the assets to a beneficiary, those assets are no longer protected and can be attached by that beneficiary’s creditors. If the beneficiary is married, the distributed assets may also be subject to the spouse’s creditor(s), or they may be available to the former spouse upon divorce. Trusts for the lifetime of the beneficiaries provide prolonged asset protection for the trust assets. Lifetime trusts also permit your financial advisor to continue to invest the trust assets as you instruct, which can help ensure that trust returns are sufficient to meet your planning objectives.

The second caveat follows logically from the first: the more rights the beneficiary has with respect to compelling trust distributions, the less asset protection the trust provides. Generally, a creditor “steps into the shoes” of the debtor and can exercise any rights of the debtor. Thus, if a beneficiary has the right to demand a distribution from a trust, so too can a creditor compel a distribution from that trust. The more rights a beneficiary has to compel distributions from a trust, the less protection that trust provides for that beneficiary.

So, where asset protection is a significant concern, it is important that the trust maker not give the beneficiary the right to automatic distributions. A creditor will simply salivate in anticipation of each distribution. Instead, consider discretionary distributions by an independent trustee. Consider a professional fiduciary to make distributions from an asset protection trust. Trusts that give beneficiaries no rights to compel a distribution, but rather give complete discretion to an independent trustee, provide the highest degree of asset protection.

Lastly, with divorce rates at or exceeding 50% nationally, the likelihood of divorce is quite high. By keeping assets in trust, the trust maker can ensure that the trust assets do not go to a former son-in-law or daughter-in-law, or their bloodline.

Irrevocable Life Insurance Trusts
With the exception of domestic asset protection trusts discussed above, a transfer to an irrevocable trust can protect the assets from creditors only if the trust maker is not a beneficiary of the trust. One of the most common types of irrevocable trust is the irrevocable life insurance trust, also known as a wealth replacement trust, and often referred to as an ILIT.

Under the laws of many states, creditors can access the cash value of life insurance. Reasonable minds differ on whether that is the case in Michigan (read about it here). But even if state law protects the cash value from creditors, at death, the death proceeds of life insurance owned by you are includible in your gross estate for estate tax purposes. Insureds can avoid both of these adverse results by having an irrevocable life insurance trust own the insurance policy and also be its beneficiary. The dispositive provisions of this trust typically mirror the provisions of the trust maker’s revocable living trust or will. And while this trust is irrevocable, as with any irrevocable trust, the trust terms can grant an independent trust protector significant flexibility to modify the terms of the trust to account for unanticipated future developments.

If the trust maker is concerned about accessing the cash value of the insurance during lifetime, the trust can give the trustee the power to make loans to the trust maker during lifetime or the power to make distributions to the trust maker’s spouse during the spouse’s lifetime. Even with these provisions, the life insurance proceeds will not be included in the trust maker’s estate for estate tax purposes.

Irrevocable life insurance trusts can be individual trusts (which typically own an individual policy on the trust maker’s life) or they can be joint trusts created by a husband and wife (which typically own a survivorship policy on both lives).

Conclusion
You can protect your assets from creditors by placing them in a well-drafted trust, and you can protect your beneficiaries from claims of creditors and predators by keeping those assets in trust over the beneficiary’s lifetime. By working a caring attorney who focuses on estate planning, you can help ensure that your planning meets your unique goals and objectives. Why not get started now? Call us at 616-827-7596 to schedule your Peace of Mind Planning Session and put a caring plan in place for you family today!

Forbes Puts Estate Planning As a “Must Do” in 2012

January 8, 2012 / Michael

I recently ran across this article on Forbes.com entitled “12 Financial Resolutions for 2012.” The article has a good list of financial-based goals that every family should focus on for 2012. And I’m very happy to see that they list estate planning right near the top (#2 to be exact)!

As a Grand Rapids, MI wills and trusts attorney I’m pleasantly surprised to see estate planning on the list . . . especially near the top where it belongs. Why am I surprised (even if it’s pleasantly)? Well, the article alludes to it when it says that it is “notoriously easy to procrastinate” on an estate plan. Most folks don’t think about it or put it off, sometimes until it is too late! I believe that is, in part, because estate planning doesn’t receive much press . . . or at least not much positive press.

The article also makes a point that folks close to me have heard over and over and over: “you never know when [you] might need [an estate plan, including] an advance healthcare directive, durable powers of attorney, and a will and/or trust.” Fortunately or unfortunately, estate planning is really the only area of law that we can’t get away from – one day we will pass on from this life. Like the article says, we don’t know when that will be, so it’s best to put a plan in pace now. It will give you some serious added peace of mind . . . trust me.

Head on over and read the article, as there are many other great suggestions. Make sure to share your thoughts here on the blog by way of comment below. And give us a call at 616-827-7596 to schedule your Peace of Mind Planning Session and have added peace of mind knowing you have a caring plan in place for your family.

What is a Michigan Gun Trust?

January 2, 2012 / Michael

As a Grand Rapids, MI estate and legacy planning attorney, I am always researching ways to better protect, preserve, and pass on my clients’ legacies in the way they want. In some cases, this may mean protecting and preserving a prized firearm or a firearm collection.

Think about it for a moment . . . there are four million members of the National Rifle Association (NRA) and an estimated 270+ million firearms in this country. Many families also have guns and other weapons as heirlooms that they would like to keep in the family and pass down from generation to generation. Although some may think their estate plan (or lack thereof) will “take care of” their firearms, sadly, many will find out that is not the case . . . and they will find out too late to do anything about it.

You see, firearms present some unique challenges. The National Firearms Act (NFA) as well as state and local laws strictly regulate possession of certain weapons and may affect the transfer of permissible weapons. For example, convicted felons, those with a history of mental illness, persons convicted of misdemeanor domestic violence offenses, convicted users of illegal drugs, dishonorably discharged veterans, and persons who have renounced their U.S. citizenship are not allowed to own or possess certain weapons.

When an estate includes firearms or other weapons, the executor must be careful to avoid violating these laws. Transferring a weapon to an heir to fulfill a bequest could subject the executor and/or the heir to criminal penalties. Just having a weapon appraised could result in its seizure. An out-of-state heir creates even more problems.

A revocable living trust designed specifically for the ownership, transfer and possession of weapons (commonly known as a gun, NFA or firearm trust) can avoid some of the problems or at least make them manageable. A corporation or LLC can also be used to own weapons, but trusts do not require annual filing fees, public disclosure or a separate tax return. Here are some of the main points:

The trust is the owner of the weapons.
The trust document must be carefully written to account for the different types of weapons held and comply with the applicable laws.
The name of the trust, once established, should not be changed. Because the regulated weapon is registered in the trust’s name, a change in the name of the trust would require that it be re-registered and a transfer tax paid.
The trust can name several trustees, each of whom may lawfully possess the weapon without triggering transfer requirements. (Persons not allowed by law to own or have access to the weapons in the trust are not eligible to be a trustee.)
Weapons can be purchased by a trustee to avoid having to pay a transfer tax.
Once a weapon becomes a trust asset, any beneficiary (including a minor child) may use it. However, the trustee is still responsible to determine the capacity of the beneficiary to use it.
Unlike a traditional revocable living trust which can be revoked at any time by the creator of the trust, the Bureau of Alcohol, Tobacco, Firearms and Explosives (BATFE) must approve the termination of a gun trust and the distribution of its assets to the beneficiaries.
No regulated weapons held in the trust may be transported across state lines without prior BATFE approval.
Also, since weapon laws vary from state to state, gun trusts may not be valid from one state to another as a traditional revocable living trust would be.

As you can see, one mis-step in a Michigan gun trust can have disastrous results for those involved (and possibly others). Give us a call at 616-827-7596 to help make sure you are protecting, preserving, and passing on the legacy you want and that you don’t “mis-fire” with your firearms in your planning.

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.

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.

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