5 Secrets to Estate Planning
Falvay Gocha Law - Attorney Kirk D. Falvay

Kirk Falvay Estate Planning Attorney

1. Probate is optional for your family.

You can avoid having your family deal with the probate courts and their unnecessary fees, taxes and legal costs. But to do so, you must be proactive.

If you have planned your estate around a will, you have planned an estate which will go through probate.  Having a will does not mean you avoid probate.  Probate is avoided when assets transfer on your death by beneficiary designation, joint ownership, or under the terms of a trust. Probate will be required when you own assets, other than vehicles or personal property, which are titled only in your name, have no beneficiary, or are not in a trust.

Knowing this, and in order to avoid probate, many people use joint ownership or beneficiary designation as a way to plan their estate.

There are benefits and detriments in having your assets pass to others on your death when these methods are used. The benefits are obvious – it is an easy, inexpensive way to transfer your property when you die without probate.

There are, however, detriments to this type of planning.  If the joint owner or beneficiary dies before you, or at the time of your death, your “plan” may be defeated. If the beneficiary is a minor, probate will show up in the form of a conservatorship, and the monies may be squandered when the minor becomes an adult.  If you put someone else’s name on your bank account or on other accounts, or add them to the title to your real property, their creditors can attach your accounts or property and take it from you without notice to you.

Prior to the last 25 years or so, living trusts were usually set up only by affluent families. They used trusts because they could minimize or avoid taxes for their families, and could pass their wealth down to future generations in ways which kept the wealth within the family.

Many estate planning lawyers have not promoted trusts for their clients because they have been getting rich off probating their client’s estates when their clients die.

Today, the average person can realize all of the benefits which wealthy people have always achieved by using a living trust as the foundation for a well-designed estate plan. The cost of setting up a trust is almost always going to be substantially less to the family than the expenses of going through probate. The time savings will usually be greater. Finally, unnecessary lawyer fees associated with probate will be avoided.

Access the county, people are now recognizing that living trusts are the preferred method of planning an estate, regardless of the amount of wealth they have.  Families of modest means are saving their loved ones thousands of dollars by using trusts to dispose of their estates when they die.  The only ones who suffer by such planning are the courts and the lawyers.

2. You can protect your children’s inheritance from future divorces.

The divorce rate in this country is over 50%. Many parents have children who have been divorced or will get divorced. Some parents don’t think highly of their son-in-law or daughter-in-law.

If you leave your property outright to your children on your death, you may be doing them a disservice. They don’t want to lose their inheritance in a divorce any more than you do.

There are ways you can design your estate plan so that your children’s spouses do not share the wealth you leave to your children. Most people do not realize that is possible.

A specially-designed trust can pass your wealth to your children in a way which will allow them the use and enjoyment of their inheritance, but protect it from being lost or divided in a divorce.  Here’s how such a trust works.  When you die, your trust can provide that separate trust shares be created for each of your children.  Each share remains in your trust name.  Each of your children can be in charge of his/her own share as trustee.  As trustee, the child can invest their portion of your inheritance any way they want.  They can own property, businesses, investments – whatever – all in your trust name.  They can spend the income their trust earns, and they can take out more if they need it to live on, or to pay for their children’s education.  When they die, you can let them decide where the property goes, or you can make the decision.  If structured properly, no divorce judge will be able to award your child’s inheritance to your in-laws.

As an added benefit, trusts set up in this manner can also protect your children’s inheritance from creditors – even from bankruptcy.

If you are leaving your estate to your children under a will, by beneficiary designation, or by joint ownership, these benefits will not be realized by your children.

Consider meeting with an attorney who understands these rules, and can explain to you how you can provide this protection to your children.

3. People often unintentionally disinherit their children.

A story is commonly heard.  It goes like this: “My stepmother just died, and she is not giving me anything that was my dad’s.  Her kids are getting everything.  What can I do?”

If you are married, but have children by a prior marriage, you need to take special care to assure that your children will inherit from you. If your current spouse were to survive you, and you leave him/her all of your assets and property on your death, there is no assurance that your children will ever receive anything when your spouse later dies. Your assets may go to your current spouse’s children, or to their new spouse.

If you have children by a prior marriage and have a will which leaves everything you have to them, they may still receive nothing.  If you die before your current spouse, he/she will get to decide where your property goes on their death if your property was left to them by beneficiary designation or joint ownership.  That means if your home and accounts are joint with your spouse when you die, these assets will go to him/her on your death.  You have no legal assurance these assets (or what remains) will ever go down to your children.

Often, there is no easy solution to this dilemma.  Some people leave part of their estate to their new spouse and part to their children.  Others trust their surviving spouse to include their children in their will or living trust.

If you have children by a prior marriage that you want to receive assets upon your death, or upon the death of your current spouse, you may need to consider having a living trust. A well-drafted trust can assure that your children will not lose out on their inheritance. Meet with an attorney who is experienced in assisting individuals who have children from prior marriages so you can learn about all the options available to you to assure your children’s inheritance.

4. Your will or trust will not determine who receives your IRA or 401 (k), or your life insurance.

The law in virtually all states provides the recipient of your qualified retirement accounts or your life insurance policies will be the individual(s) you designate as beneficiary of the account or the policy – not the beneficiary of your estate named in your will or trust. Great care must be taken when designating the beneficiaries of your retirement accounts and life insurance policies.

If you designate your spouse as beneficiary on your retirement accounts, he/she will be able to transfer the account to his/her own IRA. If you designate someone other than your spouse as the beneficiary, that person can stretch the withdrawals over their life expectancy. However, if that person is your minor child, the law requires that the court appoint a conservator to control the account.  Importantly, the child will be able to withdraw all the funds when the child reaches the age of 18 if the child resides in Michigan. The same problems will arise if you name minor children as beneficiaries on your life insurance.

Specially designed trusts can be used to receive your retirement accounts or your life insurance on your death. If you believe it is important that your retirement accounts or life insurance proceeds be distributed after your death in a way which will achieve your desired objectives, you should consider such a trust.

5. Having a living trust may not be enough to keep your family out of probate.

Living trusts are usually designed so that upon your death, probate will be avoided. However, families find out the hard way that just having a trust is not enough – your property and assets must be titled in such a way that the trust works as designed.

If you have a trust, most assets you own (except for vehicles, boats, and retirement accounts, for example) probably need to be held in the name of your trust. Certain jointly held real estate interests might also be an exception. If you have bank accounts or CDs, stocks or bonds, own real estate, or have a business interest solely in your name, your trust will not keep your family out of probate. All of those assets should be titled in your trust name if probate is to be avoided.

If you have a living trust, you need to review your investments from time to time to make certain they are held in your trust name. If you are unsure how to put them in the trust, or whether they should be in the trust, consult with your attorney.

Share
Bloomfield Hills Office
40900 Woodward Avenue
Suite 111
Bloomfield Hills, MI 48304
Tel: 248-642-5535
Ortonville Office
875 S. Ortonville Road
P.O. Box 744
Ortonville, MI 48462
Tel: 248-627-2808