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A: You may become incapacitated. Your estate plan can provide for management of your financial affairs and for your medical care.
You want to protect your family on your death. Your plan can say who will control your assets. You may want to set up a Trust so that a person with financial experience can manage your assets for family members who are too young or inexperienced to handle financial matters. You may want to set up a Trust to help protect your family from creditors. You want to be sure that your family will have enough money to live on.
You want to save on estate taxes. Your plan can help reduce those taxes. The estate of a person who dies in 2011 or 2012 will have a $5 million exemption, and be subject to a 35% tax above that level. If Congress does nothing, then in 2013 the federal estate tax exemption will drop to $1 million and the top rate will be 55% (60% in certain cases.) A well drawn estate plan can help reduce death taxes for you, your spouse and your children. However, your plan shouldn't interfere with your enjoyment of your assets. If you decide to make gifts, you should balance this decision against the need to preserve your assets so that you can be comfortable and financially independent for your lifetime.
Q: I hold everything joint with my spouse, therefore, I thought I would simply put my children's names on all the real estate that we own so we can avoid probate that way. Is there any problem with this?
A: The addition of children as owners introduces a lack of control by the parents over the disposition of that joint property because all joint owners must agree what to do with the property. You may also have allowed creditors of the children to be able to attack and attempt to apportion property to satisfy the children's debts. Also, accountants have stated that by putting the children's names on the property that this could become a taxable event as a capitol gain.
Q: Can I use a Will to keep my estate out of court?
A: No. Using a simple Will alone ensures that your estate will be involved in the probate process. A Will is literally an instruction to the Probate Court requesting that the court assure that the decedent’s taxes and expenses are paid and then the remainder of the estate is handled in the manner that the decedent described in the Will.
Q: Why does a trust avoid probate?
A: The key in avoiding probate with a revocable living trust is the retitling of assets. Assets titled in the name of the trust avoid probate. At the time of the person’s death, if the asset is owned by the trust and is not in the decedent’s name alone, that asset does not pass through the probate estate. Therefore the Successor Trustee of the trust is now able to handle the asset as the trust document instructs. Note that after a trust has been established, it is still necessary to transfer the ownership of the assets held in the person’s name over to the trust during the person’s lifetime or it too, will not avoid probate.
Q: Wouldn’t using a trust during my lifetime restrict me in what I can do with my own property?
A: No. A revocable living trust is a document created while you are living, but does not prevent you from continuing to use your property as you wish during your lifetime.
Q: I do not believe that our family needs the use of a trust since we have small children and our estate is well under the applicable exclusion amount for state taxes. Is this correct?
A: Even though your estate may be considered modest in terms of the likelihood of needing to pay federal estate taxes, you should consider what would occur if both parents died prematurely. Would you want your children to be able to receive their entire inheritance at age 18? If you leave assets to your minor children and both parents die before the child reaches 18, the court will set up a conservatorship with those dollars for that child. However, when the child reaches the age of 18 the child will then receive the entire lump sum inheritance.
Q: Aren’t Patient Advocate Designation documents simply for people over sixty (60) years of age?
A: No. Beginning at age 18 Michigan law enables you to name a surrogate known as a “patient advocate” to make medical care decisions for you in the event you become incapable of communicating such decisions for yourself. Your patient advocate can make any decision you can make within the limitations you set forth in the document.
Q: If I am going to use a trust, why do I have to use a will at all?
A: There are still very good reasons for having what is called a “pour over” Will. First, if you have a minor child the Last Will and Testament is the document in which to nominate a guardian and/or conservator for any minor child. There will need to be a court proceeding in order to appoint a guardian or conservator and so it is appropriate that the Will be used to make those nominations.
The Will is referred to as a “pour over” Will because the Will instructs that after any taxes and expenses are paid, the remainder of any assets would “pour over” into the trust and then be handled according to the instructions in the trust. In other words, the Will “catches” any assets that were held in your name alone at your death and “pour them over” into the trust to be handled as you have directed in that document.
Findlaw: Estate Planning 101--Basic Information for Estate Planning including a dictionary for probate and estate planning terms.
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