Money Monday: The basics of estate planning - New York News

Money Monday: The basics of estate planning

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Shirley Kaigler from Southfield law firm Jaffe Raitt Heuer & Weiss talks about the estate planning and the difference between a will and a trust.

What is an Estate Plan?
An estate plan is a set of instructions directing trusted persons how to 1) manage your affairs and make medical decisions if you become incapacitated and 2) care for your family and manage and distribute your assets following your death.  An estate plan is as necessary for a single working mom with minor children as it is for a person with substantial wealth because first and foremost, an estate plan provides you with peace of mind.  It will ensure that your wishes on a whole range of issues are known, respected, and ultimately carried out.  These issues include (among others): management, preservation and future distribution of assets; protection of assets in the event of a divorce; guardianship of children; and, retirement, disability and health care decisions.  The goal of the planning process is to identify your concerns, desires and potential problems; and to develop and coordinate strategies to fulfill your objectives.

What happens when I do not create my own Estate Plan?
Don't worry!  The State of Michigan has already prepared an estate plan for you.  If you die without a will or a trust, the State decides who manage your affairs, who will inherit your assets, and who will raise your minor children.  However, most people prefer to make these decisions themselves.  In addition to the unwanted and intended inheritances, there could be confusion, conflict, family dissension, and anger over what may be viewed as unfair and inequitable distributions.   Examples of unintended consequences if you do not have a Will and rely on the State's plan to settle your estate:

1. If you are married without children and have a living parent, your parent may be entitled to a percentage of your assets.
2. If you have a child who is a minor or an adult child with a disability, he or she may receive a lump sum of money from your estate though financially immature or irresponsible to handle it.  
3. If your parent or a disabled child inherits your assets and are receiving governmental assistance for medical care or long term care in a nursing home, that parent or child may lose eligibility for the needed governmental benefits until they have used up all of the inherited assets.
4. If you have children from a prior marriage, those children may be totally disinherited from receiving any assets from your estate.
5. If you have a favorite charity or non-profit program or initiative you passionately support and want to make a gift after your death, that charity or program will not receive a financial contribution unless you specify the charitable contribution in a Will.

If I want a personalized estate plan, what documents do I need?
Most estate plans include the following fundamental documents.
Will — A "Will" is used to name guardians for children, appoint a personal representative for the estate and, if there is no trust, dictate who is to receive your property upon death.  Property distributed by Will is subject to potentially expensive and inconvenient probate procedures.  A Personal Representative is a fiduciary who has a duty to settle and distribute the decedent's estate expeditiously and efficiently and consistent with the best interests of the estate.

Trust — A "Living Trust" (sometimes referred to as a "Revocable Living Trust") is used to avoid probate and to reduce or eliminate any federal estate tax.  During your lifetime, you are typically in complete control of the trust with the ability to freely add and withdraw property and change the terms of the trust including how, when and to whom property is to be distributed after your death.  After death, a properly designed trust will distribute assets to beneficiaries only when they have reached certain ages and are ready to accept the responsibility for them.  It can also be designed to protect these assets from the creditors of your beneficiaries.  A trust may provide for many different contingency plans and has the added advantage of privacy.  It does not have to be filed in the local probate court following your death.  A Trustee is a fiduciary who has a duty of undivided loyalty, impartiality between beneficiaries, care and prudence in actions, and segregation of assets held in the fiduciary capacity. A Trustee must also expeditiously administer the trust for the trust beneficiaries' benefit and keep the trust beneficiaries reasonably informed via trustee reports.

Power of Attorney — A "General Durable Power of Attorney" gives a trusted person the ability to handle your financial affairs in the event of temporary or permanent disability.
Health Care Power of Attorney — A "Health Care Power of Attorney" or "Patient Advocate Designation" gives a trusted person the authority to make decisions about health care, life support and end-of-life issues if you are unable to make those decisions.  Michigan residents use this document instead of a document called a "Living Will", which is commonly used in other states.

What's the difference between a Will and a Trust?

A Will takes effect after death.  A Trust is sometimes viewed as a Will substitute but has the added advantage of providing instructions to the trustee on how to handle your personal and business affairs in the event of a disability during your lifetime.  For many, the most important reason to have a Trust in addition to a Will is that the Trust affords privacy for your family.  Unlike the Will, a Trust and the Trust inventory are not required to be filed in the local probate court.  The value of your assets at death and who will receive those assets are not made part of the public record.

What should I include in my Will?
A Will should include identity of who will be in charge of the management, preservation and distribution of your assets; who will take care of your minor children; and who will receive the assets.  The Will should be in writing, signed and dated by you at the end of the document, and witnessed by two persons who are not beneficiaries of your assets.

Where should I keep my will?

Many attorneys will agree to hold the original Will in a secure place in their law office.  If you prefer, however, you may place your Will in a safe deposit box or file the Will with the probate court in the county you live.

Is there anything I should NOT include in my will?
End of life directives, donation of organs and remains, and burial instructions should not be included in the Will because the Will does not have legal effect until filed in court to be probated after death.  By the time the Will is filed, it would be too late to make any organ donations and the funeral and burial would have already occurred.  In addition, I do not recommend that you reveal family secrets or make negative or derogatory statements about family or friends in a Will or Trust.  Although you may be relieved to get this "off your chest," such statements can be hurtful and divisive for family left behind.  Most people do not realize that an Estate can be sued for libelous statements.   

How do I talk about this with my family?
I recommend that you talk to an experienced estate planner before you have the discussion with children or other family members to avoid confusion and misunderstanding.  After you have developed strategies on the best way to carry out your wishes with the estate planner, you will be better prepared to discuss the decisions you have made with your family members.  The Will and Trust should ultimately reflect what you intend to do with your assets without the influence of others.
How does my family benefit?
The family will be better able to make end of life decisions and deal with the grief and shock of a crisis or following death if there is a plan in place to identify who is in charge and what they are expected to do.  Further, you can avoid the extraordinary expense to your estate if you can avoid or at least minimize the delays that occur because of conflict, disorganization and confusion that may occur during the crisis.

I have a Will that I signed several years ago; do I need to do anything now?
A Will, and other estate planning documents, should be reviewed by an estate planning attorney every four or five years to make sure that all of the planning is consistent with current law and your current wishes.  Of course, whenever there are changes in family circumstances (such as a new child, marriage/remarriage, divorce, change in health, death of named fiduciary, retirement, significant inheritance, or relocation to another state), your Will and Trust should be reviewed and, if necessary, updated.

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