Category: Estate Planning

What’s Included In Your Estate Tax Estate?

July 3, 2011 / Michael

In last week’s post, we took a look at what an “estate” is here in Michigan. Guess what? That’s not the only “estate” you need to consider when working with a Grand Rapids, MI estate planning attorney (or going through the probate process . . . yuck!). You also need to consider your federal estate tax estate. No, that doesn’t necessarily mean that you will have to pay estate taxes, but you do have to add things up to find out if estate tax is due. To do that, you need to know what is included when adding up those numbers. I guarantee you there will be at least a few surprises.

The easiest way is to think about everything you own . . . everything! Real estate, bank accounts (including some or all of jointly held accounts), retirement accounts, brokerage accounts, automobiles, collectibles, business interests, and life insurance, just to name a few. Did you catch that last one? It is a surprise to many people that life insurance they own is included in determining the size of their estate tax “estate.” I regularly hear, “but I was told life insurance is not taxed!” Well, yes, it is not income taxed and it may not cause any estate tax (depending on the size of your “estate”), but it is included in determining how big your estate tax “estate” is and whether any estate taxes are due. You can read my previous post about how to avoid that by clicking here.

We’re not done yet! Here’s another big surprise to many people . . . your estate tax “estate” even includes some things you gave away! Yes, you read that right. A couple of common examples are gifts made within 3 years of death and property that you gave away but in which you retained an “interest.” The definition of “interest” for these purposes is too in depth for this post, but it is roughly (very roughly) the same as keeping a “benefit” of what you gave away (e.g. the right to say who gets it, the right to receive payments, etc.).

A little bit surprised by all that’s included? Most people are. Here’s the thing about probate (your Michigan estate) and estate taxes (your estate tax estate) . . . they are voluntary! The only people who have deal with them (or whose loved ones have to deal with them) are those who don’t plan to avoid them.

So you can see that we all have an estate and in many cases it is bigger than we thought. Knowing that, why wouldn’t you call us at 616-827-7596 to have your say in how your “estate” is handled? We look forward to planning with 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.

What is a Michigan Estate?

June 26, 2011 / Michael

As a Grand Rapids, Michigan estate planning attorney, I field all sorts of calls and conversations about estate planning and probate. I also receive calls and questions about areas of law outside my practice area and I am happy to refer those folks to colleagues I trust explicitly to handle the matter well. I had just such a call this past week. Why, you may ask, would I use that story to start a post about having a Michigan estate? Well, as we were wrapping up the call the nice lady said “I really like you and you can be sure that I will call you for estate planning if I ever have an estate.”

I have news for her and everyone else . . . we ALL have estates. Sure, some are bigger and some are smaller . . . it is not necessarily the vision we may conjure up of rolling green hills with a stately colonial mansion set atop a hill with horses grazing in a field nearby. Although that sounds nice! So that begs the question – what is an “estate” for probate and estate planning purposes?

There are actually two “estates” that matter in this context – (1) your Michigan probate estate, and (2) your federal estate tax estate. In this post I will tackle the first one.

First, make sure you understand what probate is and the context(s) in which you may find yourself (or your loved ones) dealing with it. If you are unsure, you can read my post on it by clicking here.

So, what makes up a probate estate? I would start by considering the value of everything you own. Oh yeah, do not deduct any debt owed on what you own. That’s right – no deduction. Why is that? Because according to Michigan law, the value of assets that must be reported to the probate court is the “fair market value.” Yes, you can list any “encumbrance” (close to “debt,” but technically not the same), but as far as the inventory fee with the probate court, such “encumbrance” will not be deducted.

Ok, so you’ve added everything up. Is it a bigger number than you thought? For most people it is. Now, you will be happy to know that several common ways of owning assets will keep them out of your probate estate. If you have any of the following, it will not be part of your probate estate:

Jointly owned property (bank accounts and marital homes are the most common in this category). Note: this only works as long as there is more than 1 joint owner . . . because if there isn’t, it is no longer jointly owned.
Beneficiary designated assets – IF the person designated is still alive and is at least 18 years old (retirement accounts and life insurance are the most common in this category)
Assets owned by a trust. Note: just having a trust is not enough . . . it must own the property (you can read more about that in my previous posts by clicking here and here)

So there you have it. The basics of a Michigan probate estate. Keep in mind, this is just a basic overview. It is more complex when you “dig down into it,” which is why I recommend meeting with an attorney who really focuses on estate planning so you can fully understand your specific situation.

Stay tuned as next time I will share what makes up your federal estate tax estate. That one is not one you want to miss . . . I guarantee you will discover some BIG surprises in that one. And if you’re ready to make sure that your “estate” is taken care of and that it is done in a way that is unique to who you are, then call us at 616-827-7596 to schedule your Peace of Mind Planning Session.

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.

The Downside to Joint Account Ownership

May 29, 2011 / Michael

As a Michigan estate planning attorney, I regularly see families that own much (if not all) of their property jointly. Joint tenancy involves both (or multiple) people having full ownership of the asset. I see it most commonly with homes, bank accounts and non-retirement investment accounts.

Now don’t get me wrong, there are situations where owning something jointly is just fine. However, I regularly see it as a replacement for proper estate planning (for example, putting children on your accounts as joint owners). That is a very bad thing. Why? We’ll cover that in a second, but first lets think about why people own property jointly.

Many people consider it easy. Well, I can’t argue with that. It is easy. You just put the names of all the owners on the document(s) proving ownership. Some consider it a gesture of love. After all, the idea of jointly owning something seems to have a “love” or “trust” connotation. “I love you enough that I’m giving us both full right to this.” Very common in a marriage (traditional or otherwise). Finally, some people know that jointly owned property bypasses the probate court process when the first joint owner dies. That’s true.

Yet each of those “pluses” comes with a whole host of “minuses.” Here’s a look at some examples:

No control – you have given up some control while alive and a lot of control if you become incapacitated or pass away. Ultimately, what you have may pass to people you would have never wanted to receive it.
Probate. Yes, jointly owned property bypasses the probate process, but that only delays it . . . it does not avoid it.
For unmarried individuals, there could be unintentional estate or gift taxes.
Loss of planning opportunities now and down the road.
It is available to the other person’s creditors and you lose asset protection possibilities when you pass away.

As with all planning, each family situation is unique. If you jointly own property with someone else, don’t you think you owe it to yourself and your family to find out what would happen and how you can make sure your wishes are followed? Call us at 616-827-7596 to schedule a Peace of Mind Planning Session and have your questions answered.

Non-Tax Reasons for Estate Planning

May 22, 2011 / Michael

If you read this previous post, you know that I’ve had several recent conversations with families and other professionals that think estate planning is “dead” due to the increase in the estate tax exemption. Those conversations have continued, which prompted this follow up post.

It’s true that many families believe that estate planning is all about minimizing taxes and distributing your “assets” to the next generation. I believe that approach places the emphasis on the wrong considerations. Sure, minimizing taxes and distributing assets are considerations for estate planning, but without a bigger context they will lead to an estate plan that is not much more than a form document.

The emphasis should be on creating a legacy for your family. No, that doesn’t mean you have to be a gazillionaire . . . it means that you create your plan in a way that will benefit those you want and do so in a way that shares your values, insights, stories and experiences with them and others. It can even make them better people (or encourage them to stay a “good person” if they already are).

Think about it this way . . . which of these concerns you more:

Your family loses 35% of the value of your estate that is over $5 million (if at all) -or- that 50% of the legacy you pass on to them is lost in a divorce?
Your young children (or grandchildren) receive less money for their care -or- that they are cared for by someone you would never want raising them?
Your child with special needs is disqualified from government benefits -or- that they never reach their full potential because they are limited to government benefits and limited supplementary services?
That there is a tax owed when your family business goes to your children -or- that your children fight over who runs the business or hold a grudge because they didn’t want anything to do with the business and are stuck with it anyway

See the difference? The focus should be on the personal considerations and the legacy that will be passed on . . . taxes can almost always be handled.

Ready to have a plan that is based on who you are and what’s important to you? Contact us at 616-827-7596 to schedule your Peace of Mind Planning Session.

Having Your Say in Your Michigan Estate Plan

May 15, 2011 / Michael

You’ve probably heard about the unique estate planning of Saginaw, MI resident Wellington R. Burt. If not, you can read an article about it here. Mr. Burt was very well off, under any definition, but that is not what makes his story interesting. What makes his story interesting is how he used estate planning to accomplish specific goals for reasons important to him.

What did he do? He made sure that his fortune would bypass his children and grandchildren. Instead it would be distributed to his living heirs 21 years after the death of his youngest grandchild living at the time that he passed away.

I’ve heard many conversations about this case, both in person and online, many of which are demonizing Mr. Burt for “not caring for his family” or being an “old curmudgeon.” What many people don’t realize is that estate planning is all about your goals, desires and wishes, not those of others. And I believe that more families would have unique plans like Mr. Burt’s (ok, maybe not totally skipping 2 generations) if they only knew it was possible. That’s why it’s important to work with an estate planning attorney who gets to know you, your family, your wishes and desires, and counsels you through various planning approaches based on what’s important to you . . . not what fits in the attorney’s standard form!

Think about it. Warren Buffett – he has publicly said that his family will receive only a small portion of his estate, the vast majority of which will go to charity. Bill and Melinda Gates have expressed the same plan. Sure, even a portion of those estates is a large amount of money, but nowhere near what they could have received.

And this is not uncommon among “normal” folks like you and me. Why? Because each family is unique and each plan should match the family in uniqueness. For example, some parents will “disinherit” a child who is a physician or business owner. Most folks have a very negative reaction to that . . . but the reason was that the child made enough money and didn’t need any more. In fact, the child was in favor of being skipped, because a sibling was much more in need.

So maybe your wishes, values and goals don’t call for disinheriting two generations of your family like Mr. Burt’s. However, I encourage you to think of the sky as the limit, no goal is off the table, when you do your planning. That way you can have the peace of mind and comfort of knowing you have truly created a lasting legacy.

Oh yeah . . . one more thing. This story points out an “unsung” benefit of using trusts in your planning. In large part we know about Mr. Burt’s story because he used a Will. A Will goes through the probate process and guess what? That process is public. By planning with a fully funded living trust (or other types of trusts) you can maintain your family’s privacy.

Wondering how YOUR family can have an estate plan based on who you are and what’s most important to you? Give us a call at 616-827-7596 to schedule a Peace of Mind Planning Session and find out. Mention this blog post and we’ll waive the Planning Session fee (a $750 value!)

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.

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.

Protecting the Cash Value of Life Insurance in Michigan

May 1, 2011 / Michael

If you read my previous, you know that the cash value of life insurance may not be protected from creditors in Michigan – it is still questionable. As a Michigan estate planning attorney, I’ve seen the disappointment on some faces when I explain the current state of affairs. Then they ask the logical question . . . “well, is there any way that I can protect it for sure?”

The answer is yes! Although there may be other ways, one good way to protect the cash value of life insurance in Michigan is by having the insurance in an Irrevocable Life Insurance Trust – many times referred to as an ILIT.

In simple terms, an ILIT is an irrevocable trust that is the owner of one or more life insurance policies. Although it may go without saying, because it is irrevocable it cannot be revoked or amended. A an additional key component is that the person whose life is insured cannot retain any “incidents of ownership.” Although not comprehensive, a good overview of “incidents of ownership” can be found here. Because you do not “own” the insurance, it is not available to creditors . . . that is what protects it.

Please note that an ILIT is an advanced estate planning technique and is rather intricate in its creation and operation. Run, don’t walk, away from any attorney who say they are “simple” or a “piece of cake”, or those that don’t ask you very many questions before drafting it.

What you read above is an enormous simplification of how ILITs work. Do NOT try to draft or implement an ILIT on your own. Make sure to work with a dedicated estate planning attorney that is familiar with ILITs and their intricacies. Otherwise you will spend your money on something that won’t do much for you.

Call us at 616-827-7596 to determine if an ILIT can protect the cash value of your life insurance.

The Biggest Misconception About Trusts

April 24, 2011 / Michael

Last week I wrote a post about the biggest misconception about wills. The same recent conversation that I mentioned in that post also reminded me of what I believe is THE biggest misconception about Trusts. Remember what my friend said? “So I have my will or trust, so I don’t have to worry about going through probate…”

The Myth: having a trust means that you don’t go through probate. And the buzzer says “bzzzzt,” wrong. You may be thinking, “what?! Mike, you are off your rocker. That’s why I have a trust . . . to avoid probate!” Just *having* a trust does not bypass the probate process. To bypass probate, the trust must be “fully funded.” “Funding” a trust is the process of changing ownership or beneficiaries of an asset to the trust. I still have not had a trust come through my office for a review that was fully funded. Yes, you read that right. I know they’re out there, but I have yet to have one come in for review! Not exactly what you thought when you started creating your legacy, huh? If you’re curious to know more, you can read my blog post on the topic by clicking here.

The Biggest Misconception About Wills

April 17, 2011 / Michael

As a Grand Rapids Estate Planning attorney, I regularly hear misconceptions about estate planning. A recent conversation reminded me of what I believe is THE biggest misconception about Wills. During the conversation, a friend said “so I have my will or trust, so I don’t have to worry about going through probate…”

The Myth: having a Will means you don’t go through probate. And the buzzer says “bzzzzzt,” wrong. Just having a Will virtually guarantees that you go through probate. A Will serves as a “roadmap” for the probate process – it allows you to say who you want to do certain things and how you would prefer they be done (and if you have minor children it is one of the ways to name guardians, but definitely NOT the “best” way, in my opinion). If you’re curious to know more, you can read my previous blog post on the topic by clicking here.

Beneficiary Designations – Doing It Wrong Could Disinherit Your Children

April 10, 2011 / Michael

I wrote about beneficiary designations once before in this post. And yet there is a common comment I hear . . . “when is it actually a problem if your beneficiary designation isn’t changed . . . the rest of your estate plan will sort it out.” Well, that’s not true. Having beneficiary designations on retirement accounts, life insurance and other similar assets “match up” with the rest of your estate plan is critical to having the plan work the way you want. And if you haven’t done estate planning (other than Michigan’s default law plan for you), beneficiary designations are equally important.

With that in mind, here is an example of a “real life” situation that turned out WAY different than the parents expected (I’m sure)! It is the case of Kennedy v. Plan Administrator for DuPont, which was decided recently in 2009. Certainly you didn’t think beneficiary designations would be important enough to go all the way to the U.S. Supreme Court, right? Well, they are! Although there is more detail in the opinion, the short version goes like this.

Dad had invested in his employer’s Savings and Investment Plan (SIP) for some time. His wife was named as beneficiary. They divorced. In the divorce agreement, his wife relinquished all claims to his company benefits. Dad, however, did not change the beneficiary designation on his account in his employer’s SIP. Dad died several years later with about $400,000 in the plan. The employer paid all the money to his Dad’s ex-wife, who was still the designated beneficiary. Dad’s estate sued the employer to recover the funds that they felt should go to the estate according to the divorce agreement, his estate plan and state law. The Supreme Court unanimously ruled for the employer.

Dad’s failure to revisit his beneficiary selections thwarted his estate plan and effectively disinherited his daughter from what she likely would have received had he made the change.

And THAT is a great example of how important beneficiary designations are. And even moreso, it shows how important it is to work with a Michigan estate planning lawyer who will regularly followup with you to make sure the necessary changes are made and that your estate plan continues to follow your wishes as they change throughout life . . . not just when you initially created the plan. That is truly creating a legacy for generations to come. Remember, you get what you pay for (maybe) and you pay for what you get.

Ready to make sure your wishes are followed throughout life and not just the short term? Call us at 616-827-7596 to schedule a Peace of Mind Planning Session. Mention this blog post and get a special gift.

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