Should Have Put A Ring On It.

Pellie was in a long term relationship with Tony that lasted over 40 years. They never married. Pellie became Tony’s caretaker when his health began to fail. Tony died in 2015. Pellie had received about $300,000 in assets from Tony up to and after his death. But Pellie believed she was entitled to much, much more. After Tony’s death, Pellie filed a claim against Tony’s trust for over $2,700,000 based upon Tony’s purported promises to take care of her. The trustee disallowed the claim. Pellie sued the trust in probate court, claiming that she and Tony had an agreement that he would take care of her after his death.

At the trial, the evidence showed that over the course of their relationship, Tony had often told here that he wanted her to take care of him and in return he would take care of her needs. Tony had verbally told Pellie that she would share in his estate. Tony’s estate plan did provide some stock and other assets to Pellie, including four bank accounts owned jointly with Pellie.

The county probate court dismissed Pellie’s lawsuit. The probate court reasoned that Tony’s promises were, in effect, a contract to make a will, and since it wasn’t in writing, the “agreement” wasn’t enforceable. Pellie appealed to the Michigan Court of Appeals, and the Court of Appeals affirmed the probate court decision.

Under Michigan law, a contract to make a will or devise, not to revoke a will or devise, or to die without a will (intestate) may only be established by either: a) provisions in a will stating the material terms of the contract; b) an express reference in a will to such a contract with extrinsic evidence proving the terms of the contract; or c) a writing signed by the deceased establishing the contract.

A party seeking to enforce such a contract must prove an actual express agreement and not merely a statement of intentions. Since Pellie could not produce a writing evidencing Tony’s agreement to provide her financial security after his death or to compensate her for caretaking services, she could not prevail.

It is pretty clear from the evidence that Tony made promises of care and support to Pellie. We don’t know why Tony didn’t adjust his estate plan to fulfill those promises; Nor do we know to whom Tony left the bulk of his assets.

Their’s was a 40 year relationship. However, without the benefit of marriage or a some type of written agreement, Pellie didn’t have a leg to stand on. Purely moral obligations are not enforceable. Had they been married, Pellie may have had claims to Tony’s assets.

When it comes to the distribution of a deceased person’s assets, oral promises or intentions aren’t worth the paper they’re written on. The moral of this story is that if you are in a relationship with another — without the benefit of marriage — you need to make sure to get any promises of financial support or security from your partner in writing.

The case is Norton-Cantrell v Anthony Bzura Trust Agreement.

You can read the Court of Appeals decision here.

The Pitfalls of DIY Estate Planning, Part ?

According to an article at news.com.au, a woman from Queensland, Australia died of cancer in 2015. In an apparent effort to save money on her estate plan, she chose to use a cheap do-it-yourself will kit. The four page document had numerous hand-written attachments and contained multiple changes. It is likely to end up costing her estate tens of thousands of dollars in legal fees and costs to sift through the numerous errors and ambiguities contained in the document.

“‘No one should attempt their own will. It is very dangerous,’’’ barrister Caite Brewer, who represented the named executors of the will. “‘This case is a good example of someone trying to save a few hundred dollars, doing their own will, which ends up costing their estate potentially twenty thousand dollars. They should see a solicitor who specialises in estate planning.’”

Couldn’t have said it better myself. Will kits are advertised as the low cost estate planning alternative to using an attorney. The will-kit publishers advertise that you will end up with a will that is legal, but never advertise that it will be right. And that’s what you pay an attorney to do, to make sure the will is right – that it accurately expresses your intentions concerning the disposition of your estate. Yes, it costs more up front, but the extra money spent to make sure your estate plan is drafted correctly will save thousands in the long run.

Read the entire article here.

Struggling with your own estate planning? Contact me, I can help.

The Pitfalls of Do-It-Yourself Planning

Ed owned a bank account at First State Bank. Two months before he died, he went to the bank and named one of his five children, daughter Ann, as a joint owner of the account. He specifically selected an account with rights of survivorship, which, under Michigan law, meant that the balance of funds in the account would become Ann’s property when Ed died. After Ed’s death, Ann asserted that the money was hers and did not have to be shared with her siblings. Ed’s other four children filed a petition with the local probate court claiming that Ed had added Ann’s name solely for convenience and that he actually intended for the account proceeds to be shared equally among all of his children. The probate court held a hearing and ruled that the evidence was sufficient to establish that Ed had indeed added Ann’s name to the account merely for convenience to assist with his bill paying should he die, and that he wanted the proceeds shared among all of his children after his death.  The Michigan Court of Appeals affirmed the ruling of the probate court.

Under Michigan law, when you add a child or other person’s name to a bank account, a legal presumption arises that you intend that funds in the account belong to the survivor when you die.  Even if you intend that the account balance be shared after your death, the law presumes otherwise. This presumption can be overcome, but only if it can be proved in a court of law, by “reasonably clear and persuasive proof,” that you did not intend that the account funds vest in the survivor.  This type of proceeding can cost a fortune in legal fees. What gets less attention is the emotional cost.   Battles like this, pitting sibling against sibling, wreak havoc within a family. While Ed thought he was doing good, the actual effect of his actions was quite the opposite.

It is never a good planning move to add a child or other person’s name to a bank account or other asset without first carefully considering all of the ramifications. What Ed may have thought would be a simple way to make sure funds would be readily available to pay his bills turned out to be anything but. Ed could have given Ann his power of attorney to access the account, or created a trust to hold the account and named Ann a trustee. In either scenario Ann would have been able to pay Ed’s bills out of the account, and remainder of the account would have been shared by all of his children after his death. Sure, there may have been legal fees associated with employing those techniques. But, when one looks at the emotional and financial cost of this family’s battle, it would have been money well spent.

Many things people do in their DIY planning appear on the surface to achieve an intended goal, but end up creating serious problems that are very expensive to fix. Always, always, always, work with a competent professional. Get the peace of mind that your intentions will be fulfilled using techniques that are best suited to your individual situation. The cost to do so is pretty reasonable in the long run.

The case is: In re Estate of EDWARD SADORSKI, SR., Deceased. You can read it here.

Are you looking for solutions to your financial or estate planning problems?  Contact me, I can help.

 

A New Estate Planning Tool – The Michigan Asset Protection Trust

On February 5, 2017, Michigan became the 17th state (along with Delaware, Nevada, Ohio, and others) to permit residents to use asset protection trusts in their estate planning. Michigan’s new law, the Qualified Dispositions in Trust Act (the “Act”), allows an individual to create an irrevocable trust known as a domestic asset protection trust (DAPT) that, if set up correctly, will shield the trust’s assets from the claims of the individual’s creditors.

Until recently, asset protection trusts were available only in foreign (offshore) jurisdictions. The Bahamas, Bermuda, the Cook and Cayman Islands, Nevis, and several other jurisdictions developed highly favorable asset protection legal environments featuring sophisticated banking and trust services for clientele. Offshore asset protection statutes typically feature very short statutes of limitations periods for creditors to attack the trust, high burdens of proof for creditors, and require the creditor to challenge the trust in the jurisdiction of the trust’s location. However, with our federal government closely scrutinizing transfers of money away of the U.S., DAPTs are become more popular here in the states. In 1997, Alaska became the first state to enact a DAPT law for Alaska-based trusts.

Under the Act, a Michigan DAPT must be irrevocable, it must have a trustee located in Michigan, and, while the person who creates the trust (the “grantor”) may be a beneficiary of the trust, the grantor cannot have unrestricted access to the trust’s assets.

If a Michigan DAPT is set up correctly, a grantor’s creditors will be prohibited from reaching the trusts assets if the creditor brings a claim more than two years after the assets are placed into the trust. (A longer period applies to claims brought in bankruptcy.)  A Michigan DAPT cannot be created to defraud one’s existing creditors. Therefore, the trust must be created and funded before creditor claims arise.

The Michigan DAPT will be a useful planning tool for people with significant exposure to creditors, such as business owners and those engaged in high-risk professions, such as doctors and lawyers, where insurance may not offer adequate claim protection. A DAPT will not generally be suitable in a typical estate plan.

The End of Life Talk Is One of Estate Planning’s Necessary Evils

Estate planning is a difficult process no matter the circumstances. And end-of-life conversations with loved ones are probably the most uncomfortable aspect of that process. They require you and your loved ones to take a sober look at your life circumstances and mortality. Yet as difficult as such conversations can be, they can help avoid stress and heartache later on. Clearly conveying your wishes concerning medical treatment, your funeral, and disposition of your assets will help loved ones avoid the stress and burden of putting your affairs in order after you’ve become incapacitated or die. Topics should include who should be notified of your death, wishes concerning funeral and burial, where your important documents are kept, accessing passwords and usernames, and how you want your remaining assets distributed after your death.

For great insights and tips on end-of-life conversations, please see Barbara Bates Sedoric, The Critical Importance of End-Of-Life Conversations, Wealthcare, October 13, 2015

Estate Planning Isn’t Just For Married People

The majority of my estate planning clients are married couples. For them, it just seems the natural thing to do. However, estate planning for singles is just as important. While a single person may have to do some things differently, they still need to have an estate plan to avoid problems that will naturally arise during times of incapacity or after death.

Most single people do not own assets jointly with another person. By contrast, married people will naturally add their spouse to financial accounts and real estate to ensure continued access to accounts upon the disability of one of them, and the efficient succession of ownership upon the death of one of them. For singles, adding another person’s name to a financial account or real estate may have unintended consequences that can be disastrous.

When a single becomes incapacitated, access to, and control of their assets become matters for the courts to determine in the absence of documents that will allow for someone to step into their shoes with legal authority to manage their assets and affairs.

Without a will or trust, the laws of the state of his or her residence will determine how their assets are divided and distributed after death. This will necessarily require the involvement of the courts along the way.

To avoid these pitfalls, it is important for singles to put together a estate plan, just like married people do. A comprehensive estate plan will consist of 5 key elements: a will; durable power of attorney; medical power of attorney; trust; and beneficiary designations.

The will is the cornerstone of any estate plan. It allows you to name the person who will guide the administration of your estate after your death; to specify how your assets will be distributed; and to name a guardian for your minor children.

A durable power of attorney lets you appoint someone (your “agent”) to manage your day-to-day affairs if you cannot do so for yourself. Whether this person is a parent, sibling, or close friend, it must be someone you trust implicitly.

A medical power of attorney lets you appoint someone to make medical treatment decisions for you if you cannot do so for yourself. This authority can extend to end-of-life decision making. Again, the person you appoint should be someone you trust to follow your wishes concerning medical care and to be a strong advocate for you.

A trust will allow for long term management and control of assets during your lifetime and simplify the distribution of your assets upon your death. Trusts are typically used to maintain privacy, avoid the probate courts, and minimize the effect of taxes on asset distribution after death.

Finally, beneficiary designations control the distribution of assets such as life insurance proceeds and retirement accounts. If you don’t have beneficiaries named, those assets are typically paid to your estate. In the case of retirement accounts, not naming a beneficiary can result in significant income taxes being levied. If the beneficiaries are out of date, those assets are still going to go to the people named, even if you no longer want them to receive those assets.

If you are single and don’t have an estate plan in place, it’s not too late to put one together. Work with an estate planning attorney who can develop an estate plan tailored to your individual circumstances.  Give me a call, I can help.

We Did Our Trusts When Estate Taxes Were an Issue, Do We Still Need Separate Trusts?

New clients came in to review and update an estate plan they had set up several years ago. The estate plan included separate trusts for each spouse, which contained provisions to lessen the potential impact of federal estate taxes on their estates after their deaths. The trusts were drafted at a time when the federal estate tax exemption limit was much lower than it is today. In light of this they wondered if they still needed to keep the separate trusts or could they shift to a joint trust, combining all of their assets into one trust that they would both manage as co-trustees.

As with most legal questions, it depends. Most married couples assume the sole reason to use separate trusts in their estate plan is to reduce or eliminate estate tax liability after they die. But taxes are just one of many reasons for married couples to use separate trusts. Let’s look at a few of them:

These assets are mine, not ours. Let’s consider property intended to “stay in the family.” In other words, is meant to be passed down to lineal descendants, or it’s inherited cash or other property that you just want to keep separate from your spouse. This is often the case with family hunting land that has been passed down from generation to generation. Clients may want to keep these assets separate so they don’t end up in the hands of a new spouse should the survivor remarry. Separate trusts can be handy to ensure that property stays within a bloodline.

It’s a second marriage. Each spouse has children from a previous union and they want to make sure that their children will not be disinherited upon their deaths. The concern is that when the first spouse dies, all of their assets end up in the hands of the surviving spouse and when the surviving spouse dies, all of the assets will go the children of the surviving spouse, leaving the children of the first spouse who died with nothing. This happens more often than one may think. Separate trusts can be a great way to provide financial support to a surviving spouse (especially where the bulk of the financial assets belong to the spouse likely to die first) during his or her remaining lifetime, while guarantying that any remaining assets will pass to the children of the first spouse upon the death of the survivor.

One spouse has trouble managing money. Separate trusts can be of benefit to ensure competent asset management, stable cash flow, and asset protection from the claims of the surviving spouse’s creditors should he or she have trouble managing money or credit.

Tax laws are complex and subject to change. If a joint trust is used, property of the trust may need to be allocated between the deceased spouse and the surviving spouse for various tax reasons.  Understanding the terms of the joint trust dealing with post death property allocations, and determining what assets go where, when, and with what tax consequence, can be very difficult.  Many times these provisions and issues are ignored, creating serious tax problems.  Presented as being simple and convenient, joint trusts can become anything but.  Most clients I see will escape federal estate taxes upon their deaths under current exemption limits. However, future tax law changes may reduce the exemption limit. And if the limits are reduced, it will be easier to address the problem if spouses have separate trusts than if they had a joint trust.

These are just a few of the factors to consider in determining whether joint or separate trusts should be used in an estate plan. Every situation is different, which is why you must carefully consider your own circumstances with your attorney to determine the best way to go.

5 Points to Consider When Naming a Beneficiary

Who is a “beneficiary?” The word includes more than just the recipient of insurance funds or the inheritor of property. A beneficiary can be the recipient of funds or other property from a will, trust, retirement plan or life insurance. But there are differences with each beneficiary type. A recent article in the Chicago Tribune discusses 5 important considerations when naming a beneficiary.

1. A beneficiary of a will must wait until the will goes into probate before they receive any of their inheritance. Beneficiaries of a will can wait months or even years before receiving their inheritance, and court costs and fees can erode the amount they eventually receive. That’s why many people choose to incorporate a revocable living trust into their estate plan.

2. A beneficiaries of a life insurance policy or retirement plan account will receive the money directly. These assets do not (generally) go through probate. Rather, the proceeds are paid to the beneficiary usually upon proof of identity of the beneficiary and proof of death of the account owner.

3. Minors generally do not make good beneficiaries. While the beneficiary is under age 18, a conservator will manage money or property for them until they reach age 18, when they receive the money outright. Which means that there is no further direction or control over how the money is spent – goodby college fund, hello Corvette!

4. Chose beneficiaries with care. Naming the “correct” beneficiary of a retirement account could allow the account to grow tax deferred for many years.

5. Beneficiary designations have consequences and you need to consider them carefully. For instance, naming a disabled person as the beneficiary of a life insurance policy could render that person ineligible for valuable governmental benefits such as Social Security supplemental income and Medicaid.

Please take a few minutes and read the entire article here.

Court of Appeals Upholds Rejection of SSI Special Needs Trust

The 8th Circuit Court of Appeals recently upheld a decision by the Social Security Administration to reject a type of special needs trust, known as a “(d)(4)(A) trust” (a trust designed to hold the assets belonging to a disabled person). A (d)(4)(A) trust is commonly used in special needs planning to qualify a disabled individual for Social Security supplemental income (SSI) or Medicaid benefits. This type of trust must be created by a disabled individual’s parent, grandparent, guardian, or a court, to hold the disabled individual’s personal funds.  The disabled individual cannot establish this type of trust for themselves.

In Draper v Colvin, the parents of 18-year-old Stephany Draper, who had suffered a traumatic brain injury in an automobile accident, attempted to create a (d)(4)(A) special needs trust to hold and administer the proceeds of a personal injury settlement for her benefit. Stephany had granted power of attorney to her parents to settle her personal injury claim and transfer the settlement funds to a trust on her behalf. Her parents, acting individually, established the trust “pursuant to 42 U.S.C. § 1396p(d)(4)(A).” They then transferred the settlement proceeds (more than $400,000) into the trust by authority of the power of attorney.

In reviewing her claim for benefits, the Social Security Administration found that, despite the express language of the trust agreement to the contrary, Stephany’s parents were acting as her agents and not as her parents when they created the trust, and an agent is not a person authorized by the statute to create a (d)(4)(A) trust. Therefore, the settlement proceeds were countable assets in determining Stephany’s eligibility for SSI benefits. SSA rejected her claim because the settlement proceeds put her over the asset limit. The 8th Circuit Court of Appeals affirmed the SSA’s denial of benefits.

The case turned on a very technical interpretation of the Social Security rules in regards to the language of the trust agreement and the way in which the trust was created and funded. The case underscores how careful one must be when it comes to qualifying for governmental benefits such as Medicaid or SSI and how easy it can be to run afoul of the rules despite careful planning.

You may read the entire decision here.

A Quick & Easy Guide to Basic Estate Planning

So, you’re thinking about putting an estate plan together (good for you!), but not sure if the timing is right, what to do, or what you need.  To help you get going, here is my quick and easy estate planning guide. Don’t worry, nothing complicated here, just basic information.

Is the time right? Well, estate planning is planning for the future. Planning for when you are not able to take care of yourself, and planning for what will happen after you die. I tell clients that as long as they’re alive it’s not too late. But remember, “tempus fugit” – time flies – and we don’t know what tomorrow will bring, so the best time to plan is now!

Do you need an estate plan? Estate planning isn’t just for the wealthy. You need an estate plan if you want to designate the person who will make financial and medical decisions for you if you can’t do so yourself (if you don’t a probate court judge will), or if you want to name a guardian for your minor children (if you don’t a probate judge will), or if you want to designate who will receive your property after you die (if you don’t, Michigan law will dictate who gets what). So forget those notions that estate planning is something only rich people need to do.

Do you need a lawyer? YES! Work with a competent lawyer.  It will cost more than you’d pay for a DIY kit, but it’s worth the additional expense and trust me, way cheaper in the long run.  Despite what you may have heard on the radio or seen on television, estate planning is not a “one size fits all” endeavor. Sure, those DIY documents may be legal in all 50 states, but will those cookie cutter documents be sufficient to carry out your wishes when the time comes? A lawyer can help you examine the big picture, give you guidance and recommendations, and most importantly draft custom, tailored documents to help you achieve your particular planning goals and objectives.

So what should be in your estate plan? There are five elements that form the basis of an effective estate plan.

Last will and testament. A last will and testament does primarily three things: Direct who will take care of minor children; Appoint someone to tie up all of your loose ends and file/pay taxes; Specify how your property gets distributed after you die. You can make a will as long as you meet certain legal standards. In Michigan, that means one has to be at least 18 years old and have sufficient “testamentary capacity” – basically the ability to understand the nature and gravity of what one is doing. As people age their mental capacity can become an issue. However, even if a person has diminished mental capacity due to mild dementia or other condition he or she may still have the capacity to make a will.

A last will and testament takes effect after you die, so it’s important to have planned in some way to ensure that someone will look after your affairs and make decisions for you if you become incapacitated during your lifetime. For that you need a power of attorney and a medical power of attorney (patient advocate designation).

Power of attorney. With a power of attorney, you appoint an agent to handle your financial affairs and other transactions if you become incapacitated. Everything from banking and bill paying to preparing and filing tax returns on your behalf can be handled by your agent. Your agent will be able to keep your affairs in order until you regain the ability to do so. A durable power of attorney can be designed to take effect the moment you sign it, or at some point in the future if and when you become incapacitated. The agent can be a spouse, family member, or trusted friend or adviser.

Medical power of attorney. In Michigan, the medical power of attorney, or patient advocate designation, is authorized by law. It allows you to appoint someone (your “patient advocate”) to make medical treatment decisions for you in the event you cannot make them for yourself. Your patient advocate can access medical records, talk to your doctors and make treatment decisions for you as long as you can’t make them for yourself. It may contain expressions of your desires concerning medical treatment at the point where your condition is such that there is no longer any prospect of a recovery, such as at the end-stage of a terminal illness. These instructions will ensure that you live your last days in dignity and peace.

Revocable, or living trust. Do you need one? It depends. What are your goals and objectives; what types of assets do you own; do you desire to avoid probate or minimize taxes; do you desire to maintain control of your assets even after you die? These are some of the issues to address in determining whether a trust will be a beneficial element of your estate plan. While you’re alive, a trust can be beneficial during times of incapacity. Assets that are held in trust can continue to be managed and controlled by someone you’ve designated as your trustee until you’ve regained the ability to resume managing them for yourself, without having to involve the courts.  After you die, a trust can help avoid probate on the transfer of assets, maintain privacy of your affairs, provide long term control and management of assets (especially helpful if you have younger children or other beneficiaries who may not be capable of managing an inheritance on their own), minimize the effect of taxes on the disposition of assets, and even take care of a beloved pet.

Beneficiary designations. What do beneficiary designations have to do with estate planning?  Many common assets do not pass through a will or trust.  Among them are life insurance benefits and retirement plan assets. These assets pass to the person(s) designated as beneficiaries. Even if a will says who gets the life insurance, it won’t matter if the life insurance policy has a beneficiary designated. So, as part of your estate plan, it’s important to make sure that you’ve designated beneficiaries for assets such as life insurance, annuities, and retirement plan accounts, and to make sure those beneficiaries designations are up to date.

So there you have it. A quick and easy guide to basic estate planning.  (Nothing to it!)  Now that you’ve got some basic information, it’s time to get your plan in place.

If you’d like to get started, contact me, I can help.