Tag: grand rapids michigan estate planning lawyer

The Boilerplate Debate

November 25, 2017 / Michael

I’ve heard it a lot over the years when meeting with client families: “I did not read the boilerplate”; or “that’s not important, it’s just boilerplate”. The general feeling tends to be that boilerplate is a pain and really does not accomplish anything. The truth may surprise you.

What really is “boilerplate”? The definition is “standardized pieces of text for use as clauses in contracts or as part of a computer program”. Contrary to what many may believe, the “boilerplate” can make or break your estate plan. You see, it is impossible to predict what will happen in your life, your family and with the laws that affect your estate plan. At least in documents I draft, the boilerplate is there to cover all the situations I can think of that may come up. I do not draft it thinking it will happen; I draft it knowing that I want your plan to work how you want even IF it does happen.

We had a case recently where the boilerplate was critical to carrying out my client’s wishes after passing. A disgruntled beneficiary brought a suit to have my client’s trust declared invalid. We won. Then, we petitioned the court to have her removed as a beneficiary. How could we do that? Because the “boilerplate” of the document stated that if a beneficiary challenged the validity of the document, they would no longer be considered a beneficiary of the trust. It was very important to my client that his wishes be carried out. He had several friends, family and charities he wanted to benefit from his hard work and he did not want a beneficiary’s lawsuit to upend that plan or lessen the amount his chosen beneficiaries would receive. The “boilerplate” included a “no contest clause”, which was the key to minimizing the impact of the lawsuit on the other beneficiaries.

So, next time you review your estate plan documents, take some extra time to read through the “boilerplate”. And if you have any questions about why a particular provision is there, just ask me. I expect there is a good reason it’s there.

What Is a Trustee Supposed to Do?

September 6, 2015 / Michael

This summer has brought an increase in contested probate matters – that is, family and/or friends not getting along, or people taking advantage of others based on their position of power in someone’s estate planning documents. In many of the cases, it was actual or alleged breach of duties by a person appointed as Trustee.

I will not get into the gory details of the cases we’ve had this summer (several of which are still pending), but I do think they emphasize one thing – we all should know who/what a Trustee is, what they are required to do, and what they can be liable for. Of course, I am not going to be able to go into too much detail in this post . . . well, I could, but it would put you to sleep, if you are not asleep already 😉

In short, a Trustee owns and manages property for the benefit of someone else. Most commonly, this is someone named to administer and distribute your revocable living trust during a period of your incapacity or after you pass away. It is not like managing your own finances. A Trustee has the power and the obligation to manage someone else’s (your) assets for the benefit of the beneficiaries named in the trust. It is not a role to take lightly.

As far as the powers the Trustee has, basically they can do anything you can do. Sell, buy, transfer, get loans, make loans, and, if the your trust specifically gives them the power, they can handle your business, specially regulated assets (e.g. firearms), and many other things.

But, as they say, with great power, comes great responsibility. The Trustee has several duties and obligations, all of which fall under the general heading of “fiduciary duties” – that is, duties that are owed to others based on the Trustee’s relation to them as Trustee. A short and non-exhaustive list of Trustee duties are:

Marshalling assets: gathering all of your assets together
Acquire a tax ID number, if the trust does not already have one
Inventory and appraise (formally or informally) trust asset
Send legally required notices to trust beneficiaries within a certain timeframe
Keep the trust beneficiaries informed of trust assets
Invest trust assets as a “prudent person” would
Keep “accountings” (e.g. values, income and expenses) of trust assets and provide reports to beneficiaries no less than annually
Prepare and file trust tax returns (or, preferably, work with a qualified CPA to prepare and file them)
Make distributions as required in the Trustee agreement
When the trust is fully administered, close the trust

As you can see, there is a lot for a Trustee to do and to do correctly. The top two recommendations I make to Trustees are: (1) keep meticulous records on everything you do and why you did it, and (2) enlist the assistance of professionals, such as an Attorney, Financial Advisor, and CPA, to make sure you are properly administering the trust and the assets owned by it.

When choosing a Trustee, you should choose someone you trust and who is either capable of handling the above items on his/her own, or is willing to work with professionals who can guide him/her through the process. Given what is involved, it is not uncommon for families to choose a professional Trustee, such as a bank or trust company.

In closing, I would recommend that you bookmark this post. Or, better yet, keep it yourself and share it to anyone who is named as a Trustee in your plan or who may be named in someone else’s plan (friend or family member). It will be a good starting point if you (or they) are called upon to act as Trustee.

And remember, if you ever have a questions, please contact me.

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.

Wills vs Trusts – Which Is Better For Your Family?

March 11, 2012 / Michael

Is seems like the most common question I receive as a Grand Rapids, Mi estate planning attorney – what is the difference between wills and trusts? Does my family need a will or a trust?

Well, as you might expect, the answer to the second question is different for every family. Why? Because no two families (or individuals) are the same. Oh, sure, there are plenty of attorneys out there who will look at your family’s assets and tell you what you should have. That approach doesn’t sit well with me. I think it’s best to share with you some of the advantages and disadvantages of wills and trusts, and let you determine what is best for your family based on who you are and what’s important to you.

So, here are some examples of how wills and trusts differ on a few key considerations:

Privacy:Wills – with a Will there is no privacy. Documents and proceedings after death are public record. Trusts – totally private, unless court intervention is required, which is usually a result of poor drafting, lack of funding, or loss of Trustee.
Disability Planning:Wills – no provisions for physical or mental disability. The disabled person is subject to the court process for guardianship. Need a power of attorney, updated over the years. A power of attorney can provide that disability be determined privately by family members and friends. Trusts – Handles assets upon disability without court intervention. Need a power of attorney for non-trust assets. A trust can provide that disability be determined privately by family members and friends.
Creditor/Predator Protection:Wills – None while alive. Testamentary trusts can give protection. Trusts – None while alive. Creditors have only a specified amount of time to present claims after death or they are forever barred. Trusts which become irrevocable at death can give protection.
Effort Required:Wills – Less effort now unless you require tax planning and asset protection for your heirs, but more work for your heirs after disability or death. Trusts – More effort now to properly design the trust to accomplish all of your goals upon disability and after death, but far less work for your heirs after disability or death if done correctly.
Cost Now:Wills – less. Trusts – more.
Costs to Amend:Wills and Trusts – similar.
Cost Later:Wills – average all-inclusive cost of a probate in Michigan is 3-5% of the value of the estate. Trusts – No probate fees if the trust has been fully funded and properly maintained and trust administration fees less than estate administration fees.

In a future post we’ll look at how wills and trusts compare on common family goals. Make sure to contact us at 616-827-7596 if you have any questions and to schedule a Peace of Mind Planning Session to see how wills and trusts compare in your family’s specific situation.

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.

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!

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!

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