tag:blogger.com,1999:blog-48947882832200880152024-02-25T02:29:37.678-05:00MICHIGAN ESTATE PLANNINGGREAT LAKES BAY LAWYERS - Smith Bovill, P.C. - Providing quality legal services throughout Mid-MichiganMichigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.comBlogger27125tag:blogger.com,1999:blog-4894788283220088015.post-2242347799677957182018-01-04T14:43:00.000-05:002018-01-04T14:43:02.310-05:00Do TOD and POD Designations Really Work?<span style="font-size: small;">“<b><span style="font-size: large;">T</span></b>.O.D.” (Transfer on Death), and “P.O.D.” (Pay on Death) designations have become common with most financial institutions. These are essentially “beneficiary designations” like we usually see with life insurance, annuities, IRA and qualified plans. At one time it was common for banks and brokers, not to offer these. When we used Revocable Living Trusts in planning, they would require that the account be re-registered in the name of the Trust. By popular demand these designations are frequently offered today, and even when we have done Trusts, <i>I usually regard these designations as the preferred way of titling accounts</i>.<br /></span><br />
<blockquote class="tr_bq">
<span style="font-size: small;"><span style="color: red;"><span style="font-size: large;">It is important to read these forms; ask the “what if” questions; and be certain that they do and say what we think they do</span></span></span></blockquote>
<span style="font-size: small;"><br /><b><span style="font-size: large;">P</span></b>.O.D. and T.O.D. forms are contractual in nature. This means the institutions regard them as a contract and will follow them. <i>They will override the terms of a Trust or Will</i>, and so must be carefully integrated with those documents. The forms are almost always created and published by the institution itself, to fit their own particular goals. The "devil is always in the detail." Thus, as clients and as advisors, we need to read them carefully. Every company will have a different agreement (indeed, the same company may well have different agreements for different products).<br /><br /><b><span style="font-size: large;">T</span></b>he forms are also often “generic,” “one-size-fits-all,” documents, for perhaps obvious reasons of economy. In doing this, they often make an “educated guess” about what the “typical” client would want. But that doesn’t always fit the desires of clients. For example, they may provide for a beneficiary designation with “<i>per stirpes</i>” distribution in the event the beneficiary is not living (which has a very specific legal meaning). The form may also call for a distribution of remaining assets to the other designated beneficiary(s). Or, the form may not directly address this at all. Even more problematic is the designation (directly, or as a result of the form’s default beneficiary designations) of minor or incapacitated individuals as beneficiary. This may result in unintended and unexpected Probate proceedings. I like to say that the forms do not always adequately answer the question: “what if?” We have had some success negotiating with some of these companies to let us “custom draft” beneficiary designation forms to fit the desires of the client. <i>But what is critically important is to read these forms; ask the “what if” questions; and be certain that they do and say what we think they do (or should do)</i>.<br /> </span><br />
<blockquote class="tr_bq">
<span style="font-size: small;"><span style="color: red;"><span style="font-size: large;">“The Devil is always in the detail”</span></span></span></blockquote>
<span style="font-size: small;"><br /><b><span style="font-size: large;">G</span></b>enerally, when designating a Trust as beneficiary, we can avoid these problems, by making the Trust the direct, primary beneficiary. The Trust can be structured to address the “what if” questions, and have alternative disposition for unexpected situations. <i> For the majority of clients’ assets, my preferred method is to have them own the asset, with a T.O.D./P.O.D./beneficiary designation to their Trust</i>.</span><br />
<br />
<blockquote class="tr_bq">
<span style="color: red;"><span style="font-size: large;">IRA and “Qualified Retirement Plans,” “non-qualified annuities,” and some government savings bonds)
do not “play well” with Revocable Trusts</span></span></blockquote>
<span style="font-size: small;"><br /><span style="color: red;"><b><i><span style="font-size: large;">T</span></i><i>here is a very important exception, however</i></b></span>! <i>There is one category of assets where naming the Trust as a beneficiary might be disastrous.</i> One of the unfortunate truths about Estate Planning is that our laws, rules and conventions are anything but consistent. More consistent treatment of some of these things would make our jobs as planners easier, and the goals of our clients more certainly met. But this would require the IRS, banks, brokers, insurance companies and state legislatures (among others) to all get on the proverbial “same page.” Probably not gonna’ happen. In this case, it is the IRS (really, Congress) that is the bad guy. Surprise, surprise. :-)<br /><br /><b><span style="font-size: large;">C</span></b>ertain tax-deferred accounts (namely, IRA and “Qualified Retirement Plans” [401(k), 403b, pensions, <i>etc</i>.], certain “non-qualified annuities,” and some government savings bonds) do not always, unfortunately, “play well” with Revocable Trusts. I think this could be rather easily addressed by Congress and simplified. Instead, they have chosen to go another way and have created perhaps the most complex “morass” of rules in the entire Internal Revenue Code. This is another topic for another day, but suffice it to say that when these assets are involved, the proper beneficiary designation scheme should come under heightened scrutiny.<br /><br /><b><span style="font-size: large;">W</span></b>hen the account owners are joint owners (typically Husband and Wife, but occasionally others), it is important that the form (or the institution’s policies) make clear what happens if one of the joint owners dies. Presumably, the T.O.D. / P.O.D. would not be activated yet and the co-owner would continue to be the owner with the right to change or re-designate beneficiaries. But the forms are not always crystal clear. I recall an issue recently on an annuity contract where there were co-owners, but on the death of one of them, the contract required that the surviving co-owner re-designate beneficiaries. No one ever raised that issue with her and she did not do so. Instead, she assumed the original designation of one of her 4 sons was still valid. On her death, that son made a claim. The annuity company denied it and insisted that the proceeds be paid to her estate because since there was no re-designation, there was in effect, no designated beneficiary. So it is very important the upon the death of a joint owner, the other joint owner(s) review and perhaps re-designate beneficiaries.</span><br />
<span style="font-size: small;"></span><br />
<span style="font-size: small;"></span><br />
<br />
<blockquote class="tr_bq">
<span style="font-size: small;"><span style="font-size: small;"><span style="color: red;"><span style="font-size: large;">POD/TOD forms do not always adequately answer the question: “what if?”</span></span></span></span></blockquote>
<span style="font-size: small;"><br /><b><span style="font-size: large;">T</span></b>he takeaway is that we must read the forms and not just rely on the fact that they are the “company standard form,” and therefore will always “work.” It is also important to communicate with the institution if there are any questions or concerns.</span><br /><br /><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com4tag:blogger.com,1999:blog-4894788283220088015.post-77762047182140583582017-02-10T08:50:00.000-05:002017-02-10T08:50:05.048-05:00Designating IRA and other Qualified Plan Beneficiaries<span style="font-size: x-small;"><span style="color: red;">Please note that this is a very complex area and what follows is generalizations. This is an area that should be reviewed on a client-by-client, case-by-case basis with a qualified attorney or CPA</span></span>.<br />
<br />
<span style="font-size: large;">T</span>he surge of Estate Planning “experts,” including websites and seminars over the past 20 years has created a surplus of “information” related to estate planning. Much of this information, while useful in context, is misunderstood and consequently, misapplied.<br />
<blockquote class="tr_bq">
<span style="color: red;"><span style="font-size: large;"><i>My “rule of thumb”
for the past few years has been to name adult, responsible beneficiaries
as direct beneficiaries on IRA and qualified plan assets, unless there
is a compelling reason otherwise</i>.</span></span></blockquote>
<br />
<span style="font-size: large;">A</span>long with the growth in family Estate Planning Trusts, has come a misunderstanding by many clients and advisors, of the inter-reaction between Trusts and Qualified Retirement Plans. We tend to think of Trusts as the best solution for all of our Estate Planning clients’ needs. In a perfect world, this might be true. <b><i> From a planner’s perspective, I would like nothing better than to have the flexibility to funnel all of a client’s assets through their Revocable Living Trust</i></b>. It would give us ultimate control. Unfortunately, it doesn't work that way, and while a frustration for planners, it is what we have to work with.<br />
<br />
<span style="font-size: large;">T</span><i><b>here is no area more fraught with potential economic disaster that so-called, “qualified retirement plans” and IRA’s</b></i>. Unfortunately, because our laws are sometimes at odds with each other, there is potentially <i><b>major income tax peril</b></i> in linking qualified plans with a Revocable Trust. While there will be times when the clients’ objectives will require us to do so, such linking is not without pitfalls, and should be undertaken only very carefully.<br />
<br />
<span style="font-size: small;">My “rule of thumb” for the past few years has been to name adult, responsible beneficiaries as direct beneficiaries on IRA and qualified plan assets, unless there is a compelling reason otherwise.</span><br />
<br />
<blockquote class="tr_bq">
<span style="color: red;"><span style="font-size: large;">In spite of this advice, we too often find that a client (or their financial advisor) has designated their Trust as beneficiary.</span></span><br />
<span style="color: red;"></span></blockquote>
<br />
<h3>
<span style="font-size: large;">Qualified Plan and IRA Basics</span></h3>
<span style="font-size: large;">T</span>he “idea” of qualified plans was to encourage people to do their own retirement savings. The “carrot” was the ability to remove a portion of income from taxation when earned, and while it grew (in some cases, it worked “too well”). Over my years as an Estate Planning Attorney, I have found it more common than not that a client has IRA and qualified plan assets that they are not drawing from, even when well into retirement. However, the idea was never intended to be an Estate Planning mechanism for passing wealth down to the next generation.<br />
<blockquote class="tr_bq">
<span style="color: red;"><span style="font-size: large;">the idea was never intended to be an Estate Planning mechanism for passing wealth down to the next generation</span></span></blockquote>
<span style="font-size: large;">B</span>ecause of this, <i><b>the rules eventually require a “forced” withdrawal</b></i>. This normally ocurrs when the account holder (participant) reaches retirement age (“the year in which they reach age 70 1/2”). A second instance is upon the death of the participant. If the rules simply required a lump sum distribution at the death of the participant, it would be a simple mathematical equation and it would end there. In that case there would be no issue with Revocable Trust beneficiary designation. However, the law identifies some different methods of distribution and several of them are very tax-significant.<br />
<br />
<span style="font-size: large;">W</span>hile an IRA is technically not a “qualified” retirement plan, it is by far the most common form of retirement savings, and shares essentially the attributes of a “qualified” plan. Indeed once you are in “retirement mode,” the IRA is perhaps the better and more flexible retirement plan vehicle, particularly in terms of estate planning (and for this reason, we often counsel fully retired persons to roll their qualified plan assets into an IRA). Most of the rules contained within IRS Regulations are specifically directed at IRA accounts. IRAs are a more or less statutory retirement plan and as, such, are pretty typically similar, from sponsor to sponsor. However, it is always advisable to read the plan document (be it an IRA or some other plan type), to ensure that it provides for what we think it does. While we often apply IRA rules to other qualified plan accounts, it is important to understand that the plan documents may differ significantly. <br />
<br />
<h3>
<span style="font-size: large;">When there is a Surviving Spouse</span></h3>
<br />
<h4>
<span style="font-size: small;"><b>The Typical Family.</b></span></h4>
<span style="font-size: large;">T</span>he most significant beneficiary designation involves the surviving spouse. In the majority of planning situations, I deal with a married couple who have acquired assets together and raised their mutual children for a period of years. Their typical wishes are to take care of each other in their retirement years and have any remaining assets go on to their children on a relatively equal basis upon their deaths. In this case we almost never designate anyone but the spouse as the primary beneficiary of a participant’s retirement plan. The spouse, in most circumstances, can elect to treat the decedent’s plan as their own.<br />
<br />
<span style="font-size: large;">I</span>n spite of this advice, we too often find that a client (or their financial advisor) has designated their Trust as beneficiary. While this is often a cause for angst, there are IRS rulings (in the case of an IRA) that would allow a surviving spouse who was the sole income beneficiary of the trust to remove the IRA and make the favorable spousal election. It does, however, increase complexity and reduce flexibility.<br />
<br />
<h4>
<span style="font-size: small;">“Unique” Circumstances.</span></h4>
<span style="font-size: large;">T</span>here may be circumstances where a direct beneficiary designation to a is not the desired result, such as where there is a second marriage, blended families, non-resident spouse, or perhaps just a concern that the surviving spouse may not appropriately manage the assets. In this case, we may still want to designate a Trust as beneficiary. For example, in a second marriage situation, the participant may wish to have the spouse have the annual income from the retirement plan, but ensure that any remaining plan assets go to their own children. However, to use a common advertising disclaimer; <i><b>"Do not try this at home."</b></i><br />
<br />
<span style="font-size: large;">W</span>hile Congress has provided that it is permissible to designate a Trust as an IRA beneficiary (and, presumably, by analogy, other “qualified” plans); and the IRS has provided us with guidance on how to safely do so, that guidance is a <b><i>proverbial minefield of danger</i></b>. Any misstep will likely not only result in a deemed lump-sum distribution (and therefore immediate income taxation) of the entire remaining balance, but will also very possibly result in taxation at the highest percentage brackets.<br />
<br />
<span style="font-size: large;">A</span>nd, even if done properly, the appropriate administration of such accounts in a Trust guarantees long-term ongoing trust administration and lack of ultimate flexibility for the surviving spouse.<br />
<blockquote class="tr_bq">
<span style="color: red;"><span style="font-size: large;">There may be circumstances where a direct
beneficiary designation to a is not the desired result, such as where
there is a second marriage, blended families, non-resident spouse, or
perhaps just a concern that the surviving spouse may not appropriately
manage the assets</span></span></blockquote>
<br />
<h3>
<span style="font-size: large;">Contingent Beneficiaries and When there is no Surviving Spouse</span></h3>
<span style="font-size: large;">T</span>he concerns are even more compelling when there is no surviving spouse, or when, because of a prior death, the contingent beneficiary designation becomes effective. <b><i> Only the spouse</i></b> is entitled the <i><b>“treat-the-account-as-is-it-were-my-own”</b></i> (referred to as a <i>spousal rollover</i>) election. However, an individual beneficiary may still have some ability to reduce the effects of taxation on the account.<br />
<br />
<span style="font-size: large;">A</span>n individually designated beneficiary may elect “beneficiary IRA” treatment (sometimes called a “stretchout” IRA by financial advisors). The rules here are pretty clear when the beneficiary is an identifiable individual. The beneficiary may use his or her life expectancy (in accordance with published IRS tables), to calculate an annual required minimum distribution. Distributions must commence shortly after the death of the participant, regardless of the age of the beneficiary. But obviously, there is significant value in the continued tax deferral of the balance of the plan assets during the lifetime of the beneficiary.<br />
<br />
<blockquote class="tr_bq">
<span style="color: red;"><span style="font-size: large;">“pass-through” language must comply with some very technical IRS
Regulations requirements that attempt to match trust fiduciary
accounting rules with IRA distribution rules.</span></span></blockquote>
<br />
<h4>
<span style="font-size: small;">Unpredictable Beneficiaries</span></h4>
<span style="font-size: large;">W</span>hat if our intended beneficiaries are minor children, or children with special needs or other “disabilities?” These are instances in which we might wish to use a Trust, even in light of all the pitfalls. <i><b>These might be one of the “compelling” reasons my “rule of thumb” acknowledges</b></i>.<br />
<br />
<span style="font-size: large;">T</span>he IRS rules, as noted earlier, do allow for a Trust to be the designated beneficiary of an IRA. But as also noted, not without complexity and inflexibility. The Trustee may “step into the shoes” of the trust beneficiaries in only a couple of instances. First, if all of the trust beneficiaries are identifiable persons and the trust provides for immediate distribution of all of their shares to them; or second, if the trust contains specific “pass-through” (sometimes called “see-through”) language. If there is a class of beneficiaries (like “children” or “grandchildren”), the distribution rules will be keyed to the oldest person in the class (with the effect of forcing the taxable income out in the fastest manner).<br />
<br />
<span style="font-size: large;">I</span>n each case, the IRA custodian will likely be somewhat inflexible. Typically, this means that a trust “beneficiary” IRA is set up and the Trustee is charged with calculating the annual minimum distribution amount, requesting it from the custodian, and distributing it to the beneficiary, in accordance with the trust language. This will likely continue on a yearly basis for the lifetime of the youngest beneficiary or until assets have been exhausted. While this gives the “stretchout” benefit, it must be balanced with the economic and emotional costs of maintaining the trust.<br />
<br />
<span style="font-size: large;">A</span>nd, the “pass-through” language must comply with some very technical IRS Regulations requirements that attempt to match trust fiduciary accounting rules with IRA distribution rules.<br />
<br />
<h3>
<span style="font-size: large;">What about Charitable Beneficiaries?</span></h3>
<span style="font-size: large;">T</span>he IRS regulations are also clear about who may be a designated beneficiary for purposes of the “stretchout” election. They must be <b><i>identifiable individual beneficiaries</i></b>. So what if the trust (or the IRA by direct designation) provides for a charitable beneficiary? The purpose behind the individual requirement appears to be so the life expectancy calculations may be accurately made. Obviously, <i><b>an entity cannot have a life expectancy</b></i>.<br />
<br />
<span style="font-size: large;">B</span>ut the IRS has acknowledged that charitable beneficiaries are common, and has given us a planning “out.” As long as the charity’s portion can be determined and is paid out within a year after the death of the participant, the IRS will essentially ignore it.<br />
<br />
<span style="font-size: large;">W</span>hat this does tell us is how important the details in planning are. I often find it fits client’s objectives more closely to designate a specific portion of the IRA to charity, or event to split off a separate account and designate it entirely to charity.<br />
<br />
<span style="font-size: large;"><span style="color: red;">As with all Estate Planning, we need to remember that it is a “moving target.” Regular period review of designations and of your goals are important to making sure this all works.</span></span><br />
<br />
<br />
<br />
<br />
<br />
<br />
<br /><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com1tag:blogger.com,1999:blog-4894788283220088015.post-71277445126523831672017-01-02T13:35:00.000-05:002017-01-02T13:35:58.483-05:00Should You Have a "Ladybird Deed" ?<span style="font-size: x-large;">W</span>ith all the competition for customers (from lawyers and non-lawyers alike) in the estate planning field, it is easy to see why the consuming public has the perception that an estate plan merely consists of a pre-printed form, or a set of forms, and that there is a “standard” method of planning. And <i>it seems like there is always some hot, new technique for estate planning being advocate</i>d, often by marketers. It is nearly impossible these days to find an article, or attend a presentation on Estate Planning these days without hearing about the virtues of the “Ladybird Deed,” and why everybody should have one. It is common to have a client call or come in for an appointment, already convinced that they <i>“need”</i> a ladybird deed.<br />
<br />
<blockquote class="tr_bq">
<span style="font-size: large;"><span style="color: red;"> <i>it seems like there is always some hot, new technique for estate planning being advocate</i>d,<i> often by marketers</i>.</span></span></blockquote>
<br /><span style="font-size: x-large;">T</span>he reality is that these are actually somewhat complicated real property conveyancing tools. And like all tools, I have often said over the course of my career that estate planning is not a “one-size-fits-all,” proposition. And there is perhaps no better example of this than the “Ladybird Deed.” The truth is that some people may benefit from the technique and many may find it a detriment. In order to appreciate this, we need to discuss what a “Ladybird Deed” is and what it does.<br />
<br />
<h3>
Ladybird: What’s In a Name?</h3>
<br />
"<span style="font-size: x-large;">L</span>adybird" is a name that caught on from use by a Florida attorney and lecturer whose favorite fictional spouse reference was “Ladybird,” in his examples. The technically correct name is “<b><i>Enhanced Life Estate Deed</i></b>."<br />
<br />
<blockquote class="tr_bq">
<span style="color: red;"><i><b><span style="font-size: large;">The reality is that these are actually somewhat
complicated real property conveyancing tools. And they are not
a “one-size-fits-all,” proposition</span></b></i></span></blockquote>
<br /><span style="font-size: x-large;">A</span>ttorneys learn early in law school that property rights in the most of the U.S. can be divided up into different interests, and that the interests can be defined in different ways. The sum total of all the rights held together, is known as the fee title. It is not uncommon to see specific rights be divided (such as mineral, water and wind rights) and conveyed or reserved when the underlying land is conveyed. It is also possible to convey rights that can be measured by the duration of ownership. One such division and conveyance is the traditional “life estate.” Like it sounds, a life estate is measure by the lifetime of the owner of the life estate. <i><b>Usually</b></i>.<br />
<br />
<blockquote class="tr_bq">
<span style="color: red;"><i><b><span style="font-size: large;">There is a very real temptation (often by persons unqualified to give
estate planning advice) to indiscriminately use Ladybird Deeds</span></b></i></span></blockquote>
<br /><span style="font-size: x-large;">A</span>n Enhanced Life Estate reserves or conveys the traditional duration (life of the owner), but also adds an element (usually reserved by the transferor) to in effect, “change their mind,” and convey the fee title of the property away to someone else (or back to themselves).<br />
<br /><span style="font-size: x-large;">L</span>adybird deeds can be very powerful, versatile, estate planning tools. But like any tool, they can be misapplied. Estate Planning is a process involving the careful application and combination of available tools. There is a very real temptation (often by persons unqualified to give estate planning advice) to indiscriminately use Ladybird Deeds. <i><b>But the deed is just a tool, not a process!</b></i><br />
<br />
<h3>
Why Shouldn’t You Use a Ladybird Deed?</h3>
<br /><span style="font-size: x-large;">T</span>he danger in casual use of these deeds lies in viewing real estate conveyances as on-dimensional. There are numerous related risks.<br />
<br />
<h4>
“Uncapping."</h4>
<span style="font-size: x-large;">M</span>ichigan’s <i>ad valorem</i> real property tax scheme is based on complex valuation rules. In the late 1990’s Michigan’s Constitution was amended to impose a “cap” on how much real property tax assessments could be increased. This capped value is known as “Taxable Value,” and is subject to a cost of living – based formula, limiting increases. Like so many laws, over time a series of exceptions and exemptions have emerged. Taxable Value, for example, may be “uncapped” when the property is conveyed (remember that there is a conveyance – or perhaps multiple conveyances – involved when a “Ladybird Deed” is created). While there are certain exemptions to this “uncapping” rule when Estate Planning and Family transfers of residential real estate are involved, current Michigan law does not appear to apply such exemptions to the end conveyance accomplished by the Ladybird Deed. <i><b>So beware!</b></i><br />
<br /><span style="font-size: x-large;">I</span>n order to track the changes of ownership (and therefore “uncapping” opportunities), Michigan has an affidavit filing process (MI Department of Treasury Form L4620 – Property Transfer Affidavit) with local assessors. There is a relatively nominal fine for failure to file the affidavit and perhaps a temptation to ignore filing it. One significant concern is that if the time period between the recording of the conveyance and the automatic conveyance by termination of the life estate is substantial, will this cause issues. The affidavit should be filed, and one of the exemptions invoked, in my view.<br />
<br />
<blockquote class="tr_bq">
<i><b><span style="color: red;"><span style="font-size: large;">Indiscriminate use of a Ladybird Deed may have unintended and undesirable results </span></span></b></i></blockquote>
<br />
<h4>
Probate Avoidance.</h4>
<span style="font-size: x-large;">O</span>ur modern society has evolved with the ability to structure “pay on death” direct beneficiary designations with nearly every type of asset people own today. Michigan is one state where such transfer techniques are plentiful and easy to accomplish. The Ladybird Deed, is such a technique. It is relatively easy to create, and may well result in a probate--avoided transfer. Again, indiscriminate application however, may create undesirable results. This is particularly true where the intended recipients are multiple children. “Joint” ownership of real property may create a whole set of unintended problems of its own.<br />
<br />
<h4>
Medicaid Planning. </h4>
<span style="font-size: x-large;">T</span>he so-called Elderlaw planning industry really thrust the use of the Ladybird Deeds into the forefront. They have been a very powerful tool for Elderlaw planning. But a lack of understanding of the tool and the process may well create unintended consequences. The filing of a Medicaid Application is very timing specific. Whether to convey property by Ladybird Deed, directly to a trust, by JTWROS designation, or not to convey at all, should be carefully considered by the planner, in light of all of the client’s circumstances.<br />
<br />
<h4>
What State are You In? </h4>
<span style="font-size: x-large;">N</span>ot all States recognize Ladybird Deeds. Since the real estate laws and rules vary by State to State it is wise to consult a knowledgeable specialist in the State where the property is. Some States recognize a "pay on death," or "transfer on death" conveyance.<br />
<br /><span style="font-size: x-large;">L</span>adybird Deeds are a powerful and often desirable planning tool. My objection to them is when they are used in an unconsidered, “knee-jerk” one-size-fits all approach to the planning process as a whole.<br /><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com2tag:blogger.com,1999:blog-4894788283220088015.post-58255537558519624092016-12-05T10:59:00.000-05:002016-12-05T10:59:17.429-05:00Should your Children have an Estate Plan<span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-size: large;"><b>O</b></span></span>ccasionally, during an Estate Planning conference with clients, this question comes up. As an Estate Planning lawyer, I should probably be more pro-active about suggesting this topic. As a professional, however, I always feel some discomfort about coming across as just “selling” services or forms. So, I tend to soft-peddle the selling aspect of my job, and try to focus on the needs of the client. <br />
<blockquote class="tr_bq">
<b><span style="color: red;"><span style="font-size: large;">It is a question that should be addressed in every client relationship</span></span></b></blockquote>
<br /><span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-size: large;"><b>B</b></span></span>ut it is a good question, and one that at some point should be addressed in every client relationship. Most of my clients have children. Many of them are yet living at home, or are in school somewhere. These are the children my question addresses. Once emancipated, I think the question is an unequivocal yes. But for children still “living at home,” whether an estate plan is appropriate is dependent on the circumstances.<br /><br /><span style="font-family: Arial,Helvetica,sans-serif;"><span style="font-size: large;"><b>A</b></span></span>s long as children are minors, the parent is generally still their legal guardian, and can make most legal and health decisions for them. However, it often comes as a surprise to parents who are still “footing the bill” for everything for their children, that they no longer have legal rights to many important areas once their child has reached the age of majority (18 in Michigan and in most states). And more surprisingly to some parents, in some states, their legal rights may be somewhat limited at an earlier age.<br /><br /><span style="font-size: large;"><span style="font-family: Arial,Helvetica,sans-serif;"><b>T</b></span></span>he concern here is not usually any kind of adversary relationship with parent and child. The concern is that third parties will (and in most cases are legally required) to honor the privacy rights of children. This means that it can be very difficult in some instances to get information, speak to people on behalf of your children, and generally remain “in the loop.”<br />
<blockquote class="tr_bq">
<span style="color: red;"><span style="font-size: large;"><b>it often comes as a surprise to parents who are still “footing the bill”
for everything for their children, that they no longer have legal
rights to many important areas</b></span></span></blockquote>
<span style="font-size: large;"><b><span style="font-family: Arial,Helvetica,sans-serif;">P</span></b></span>articularly when they were away at college, we had our children execute Durable Powers of Attorney and Health Care Designations of Patient Advocate. There were a number of instances during those times when those documents came in very handy – both for us and for our children.<br /><br /><b><span style="font-size: large;"><span style="font-family: Arial,Helvetica,sans-serif;">I</span></span></b>n some instances, we have also created Trust Agreements for children who have accumulated some financial wealth. In most cases, this wealth would be either turned back to the parent, or distributed among siblings.<br /><br /><span style="font-size: large;"><b><span style="font-family: Arial,Helvetica,sans-serif;">A</span></b></span>s a general matter, I believe the answer to the question will often be yes, and that the question should almost always be asked as part of the Estate Planning Process.<br /><br /><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com2tag:blogger.com,1999:blog-4894788283220088015.post-33383535554466906242014-11-17T21:14:00.000-05:002014-11-17T21:14:19.375-05:00Welcome Clarification on Family Transfers of Residential Real Property and “Uncapping”<br />
<blockquote class="tr_bq">
<b><i><span style="color: red; font-size: large;">The new law now provides that transfers of property into and out of a trust, and via an estate, to these family members, are exempt, in addition to direct transfers.</span></i></b></blockquote>
<b><span style="font-size: large;"><br /></span></b>
<b><span style="font-size: large;">B</span></b>eginning December 31, there is yet another beneficial new exception to “uncapping” of transfers of residential real property between certain family members.<br />
<br />
<b><span style="font-size: large;">I</span></b>n the early 1990’s the Michigan Legislature passed legislation that “capped” the ability of local taxing bodies to increase the “taxable value” of real property to a the lesser of (currently 1.05%) and the rate of inflation for the year. The statute attempted to define “transfer,” and also set out a series of exceptions to “transfers.” Over the ensuing years, other exceptions (notably the Agriculture Exception) were added. But also during this period, some disagreements arose over the meaning and intent of this legislation. The was a particularly important issue for family cottages and recreational properties that were passed down from generation to generation.<br />
<br />
<b><span style="font-size: large;">I</span></b>n 2011, the Michigan Supreme Court interpreted one of these disagreements, in <i>Klooster v. City of Charlevoix</i>, holding among other things, that if at the time all owners at one generation died, but there was also a surviving joint tenant in the next generation (most commonly one or more children), that the survivorship conveyance of title by operation of law was not a “transfer” as the Legislature intended that term. While I have never been persuaded by the Klooster analysis, who am I to rock the boat – particularly when the decision is basically favorable to the taxpayer? See my blog, “Michigan Supreme Court Buys Us Another Generation on Real Property Taxes,” from March, 2011. The Klooster case gave us some new, limited planning opportunities to preserve the “cap” on family transfer of property. But it wasn’t enough.<br />
<br />
<blockquote class="tr_bq">
<span style="color: red; font-size: large;"><b>It wasn’t enough</b></span></blockquote>
<br />
<b><span style="font-size: large;">I</span></b>n December of 2012, Governor Snyder signed new Legislation aimed at this problem. See, New Michigan Law Avoids “Uncapping” in Family Transfers.” But as we will see, the aim was not as accurate as it might have been. The new legislation (effective December 31, 2013, and on), provided that a direct transfer or conveyance of residential real property to a person related to the transferor “by blood or affinity to the first degree,” where the residential use continued, was not deemed a transfer for “uncapping” purposes. This rather archaic definition seemed reasonably clear to those of us who took the basic Wills and Estates course in law school, but it left way to much uncertainty on the table.<br />
<br />
<b><span style="font-size: large;">I</span></b>t remained unclear whether these transfers among family members only applied to direct transfers (which would exclude transfers using Trusts, Wills, Estates and Limited Liability Companies). If they did, it was – though a welcome forward step – still not enough.<br />
<br />
<blockquote class="tr_bq">
<b><span style="color: red; font-size: large;">It was still not enough</span></b></blockquote>
<br />
<b><span style="font-size: large;">M</span></b>y own view was that given the history of interpretation of similar issues by local governments and by the Michigan Department of Treasury, combined with the near-bankrupt condition of our state government, they were going to take a very literal interpretation of the statutory language. In Michigan State Tax Commission Bulletin number 23 dated December 16, 2013, my supposition was confirmed. They would view this as <b><i>only applying to direct transfers: </i></b><span style="font-family: Calibri, sans-serif; font-size: 11pt; line-height: 115%;">“<b><i><span style="color: red;">Due
to the blood relationship clause, the Commission has defined the transferee and
transferor as a ‘person.’</span></i></b></span><span style="font-family: Calibri, sans-serif; font-size: 11pt; line-height: 115%;"><b><i><span style="color: red;"> </span></i></b></span><span style="font-family: Calibri, sans-serif; font-size: 11pt; line-height: 115%;"><b><i><span style="color: red;">Therefore,
this exception to uncapping does not apply to a trust, a limited liability
company, or a distribution from probate</span></i></b>.”</span> Transfers to and from estate planning devices like trusts would not come within the exception. Nor would transfers from an estate, whether by Will or intestate succession. Again, while there were some additional planning opportunities (the “Ladybird” Deed, for example would work), they were still too limited. One of the benefits of estate planning – and particularly the trust as a planning tool – is the ability to maintain some management and control where the beneficiaries are either not sufficiently mature to manage, or where there are multiple beneficiaries. The trust allows ownership and management of assets for the benefit of children, including family legacy real estate (like the family cottage).<br />
<br />
<blockquote class="tr_bq">
<span style="color: red; font-size: large;"><b>Now there is good news</b></span></blockquote>
<br />
<b><span style="font-size: large;">T</span></b>he title of the blog promised good news. And there is. On October 10, the Legislature passed still more legislation, clarifying the “uncapping” rules. Effective December 31,<i> the law now defines those family members within the no uncapping exception more specifically as transfers to “a mother, father, brother, sister, child, adopted child, or grandchild</i>. And even better, <b><i><span style="color: red;">the new law now provides that transfers of property into and out of a trust, and via an estate, to these family members, are exempt, in addition to direct transfers.</span></i></b><br />
<br />
<b><span style="font-size: large;">W</span></b>e now can breathe easier as estate planners and clients, knowing that we can continue to plan for estates using tried and true techniques. Like any new law, there will be a period study and analysis and inevitably, questions about clarity of certain provisions and interpretation.<br />
<br />
<blockquote class="tr_bq">
<span style="color: red; font-size: large;"><b>All in all: I think this is a great development.</b></span></blockquote>
<br />
<i>Thanks to my Law Partner and fellow Estate Planner, Elian Fichtner for her research and help on this article and topic. See more about both of us on our website link at the top of the Blog </i><br />
<br /><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com1tag:blogger.com,1999:blog-4894788283220088015.post-846787333396159452014-03-09T15:26:00.000-04:002014-03-09T15:26:03.663-04:00Should You have a “Ladybird” Deed?<span xmlns=""></span><br />
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>wenty-five years ago, I was covering for an astute, senior partner at my first law firm employment. I got a call from the title company questioning a deed he had drafted. His proposed form of conveyance purported to convey all but a "life estate," to her son, while retaining the right of the grantor to essentially change her mind and convey the property to someone else at any time during her lifetime. This seemed to go against everything I had learned in law school about vested life estates, fee interests, remainder interests and all sorts of "future" interests in real property. Knowing the drafter was an experienced real estate lawyer, I gave him the benefit of the doubt and did a little research.</span><br />
<span xmlns=""><br /></span>
<span xmlns=""><span style="color: #f79646; font-size: 16pt;"><strong>Maybe; Maybe not</strong></span></span><br />
<span xmlns=""><span style="color: #f79646; font-size: 16pt;"><strong><br /></strong></span></span>
<span xmlns=""><span style="font-size: 18pt;"><strong>M</strong></span>ichigan Land Title Standards (Std. 9.3), allows for precisely that type of conveyance. I have used it occasionally during my 30 year career, but up until recently, sparingly. While the deed has been around for many years in Michigan, it has only recently gained popular recognition, particularly as a Medicaid planning tool. However, it really is a more diverse and useful tool, and is becoming increasing popular with estate planners. So much so, that currently, one of several most often asked questions when clients call or come in for estate planning conferences is: "<em>should I have one of those lady bird deeds</em>?" My answer: "Maybe. Maybe not." <span style="font-family: Wingdings;">J</span></span><br />
<span xmlns=""><span style="font-family: Wingdings;"><br /></span></span>
<span xmlns=""><span style="color: #f79646; font-size: 16pt;"><strong>The "ladybird" deed is not a one-size-fits-all" panacea for all of our real property estate planning challenges</strong></span></span><br />
<span xmlns=""><span style="color: #f79646; font-size: 16pt;"><strong><br /></strong></span></span>
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>he Estate Planning process often lends itself to automation, and generalities. In many cases this is unfortunate, as we really should be looking at each individual circumstance as unique and carefully tailoring our planning solutions to that unique situation. So while I am using "ladybird" deeds more often these days, it is actually making me think more carefully about this particular aspect of planning.</span><br />
<span xmlns=""><br /></span>
<span xmlns=""><span style="font-size: 18pt;"><strong>U</strong></span>rban legend is that the "ladybird" deed gained its name because Lyndon Johnson conveyed property to his wife using one. This writer finds it hard to believe that Lyndon was the first to use the technique. The technique involves a property concept known as a "power of appointment," and the concept was surely around before Lyndon was even a gleam in the elder Mr. Johnson's eye. But I am content to let legend be legend. One prominent Michigan Probate Judge has opined that it should really be more properly titled a "<strong><em>Deed subject to Life Estate</em></strong>," which is how it is characterized in the Title Standard. The "ladybird" deed is as close as we can get to a "beneficiary designation," on real property here (a number of states actually have statutorily recognized transfer on death deeds, but Michigan is not one of them). It can be used to effect a transfer-on-death conveyance of real property, either to other individuals, or to a trust. I can see some real utility there.</span><br />
<span xmlns=""><br /></span>
<span xmlns=""><span style="color: #f79646; font-size: 16pt;"><strong>The Estate Planning process often lends itself to automation and generalities</strong></span></span><br />
<span xmlns=""><span style="color: #f79646; font-size: 16pt;"><strong><br /></strong></span></span>
<span xmlns=""><span style="font-size: 18pt;"><strong>B</strong></span>ut, whatever we ultimately call it, the "ladybird" deed is not a one-size-fits-all" panacea for all of our real property estate planning challenges. We still need to examine the goals of the client carefully. And not every consequence of the use of this deed is clear.</span><br />
<span xmlns=""><br /></span>
<span xmlns=""><span style="font-size: 18pt;"><strong>I </strong></span>recently wrote about the changes to Michigan's real property tax statute, regarding the "uncapping" of taxable value on the transfer of property. One of the advantages of the "ladybird" deed is that it is really not a transfer. The "transfer" occurs on the death of the grantor. And under the new law, a transfer of residential real property to a party related in the first degree, will not be "uncapped" as long as the transferee continues its residential use. But there are traps here, for the unwary. What if I want multiple children to benefit from the family cottage? Remember, the new law addresses a transfer to a person related in the first degree. It does not say to a trust, or other entity established by the transferor for the benefit of her children. <i><b> Indeed, the State Tax Commission has recently confirmed my suspicion that they view this exemption as not applicable to Trusts, LLC's, or to a distribution from Probate!</b></i> (Bulletin 23, December 16, 2013).</span><br />
<span xmlns=""><br /></span>
<span xmlns=""><span style="font-size: 18pt;"><strong>C</strong></span>onveyance of property in Michigan requires that the parties file a "Property Transfer Affidavit" with the County Register of Deeds and the Tax Assessor when a "transfer" occurs. Is a "ladybird" deed a "transfer" requiring the filing of this form (L-4260)? Arguably not. But prudence suggests that filing—with an explanation—might be a good practice. More importantly, is there a Form L-4260 filing requirement upon the death of the grantor? I think there is room in the statutory language to conclude that the answer is yes. So, in our planning, we need to think about who will be responsible to ensure such a filing on a timely basis. Form L-4260 has a box to check for "transfer of that portion of a property subject to a life estate." But a conventional "life estate" is different in that both it, and the remainder interest are vested in their respective owners. There is in fact a transfer or conveyance of an interest in property. It is just an "exempt" transfer under the statute (until the Life Estate expires). Technically, there is not such a conveyance with the "ladybird" deed. Until there is judicial or administrative clarification, the proper approach to this will remain uncertain. My thinking is to be "redundant." Perhaps the best (albeit confusing and to me somewhat inconsistent) approach is to check both the "life estate" checkbox and the "other" checkbox, and insert language indicating that the deed was executed pursuant to Title Standard 9.3.</span><br />
<span xmlns=""><br /></span>
<span xmlns=""><span style="font-size: 18pt;"><strong>A</strong></span>s use of the "ladybird" deed increases, there are bound to be questions by third parties about whether mortgage provisions (e.g., "due on sale clause") are triggered, as well as other restrictive deed items (P.A. 116 liens, conservation easements, etc.) will be affected. Use of this deed, like any other legal tool, requires thought about its application to the circumstances—both current and future. And the answer to the question is, as always: "Don't try this at home."</span><br />
<div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com3tag:blogger.com,1999:blog-4894788283220088015.post-78599255967148206862013-02-25T13:28:00.000-05:002013-02-25T13:28:43.085-05:00New Michigan Law Avoids “Uncapping” in Family Transfers<span xmlns=""></span><br />
<span xmlns=""><a href="http://michiganestateplanning.blogspot.com/2011/03/michigan-supreme-court-buys-us-another.html"><span style="font-size: 18pt;"><strong>T</strong></span>wo years ago in March, I reported here on the <em>Klooster v City of Charlevoix</em> case</a>, which addressed the issue of "uncapping" in a real estate transaction between family members. 1994 amendments to the Michigan Real Property Tax, placed a "cap" on the amount a taxing authority could increase the value of real property under consistent ownership. Under the 1994 rules, a taxing authority may raise the taxable value of real property no more than the lesser of 5% and a CPI calculation.</span><br />
<blockquote class="tr_bq">
<span xmlns=""><span style="font-size: 16pt;"><strong><span style="color: #c00000;">The principal change is new sub-paragraph (s) which provides a new exception for residential real property transferred to a relative who is related by blood or affinity to the first degree (<em>i.e.</em>, children)</span></strong></span></span></blockquote>
<span xmlns=""><span style="font-size: 18pt;"><strong>H</strong></span>owever, when there is a "transfer" of ownership in real property, the taxing authority may "uncap" the valuation for the "tax day" immediately following the transfer, raising the taxable value as high as the state determined State Equalized Value (SEV) of the property. This can be a considerable increase in taxes for the new owner.</span><br />
<span xmlns=""><br /></span>
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>he <em>Klooster Court</em> interpreted the transfer provisions of the statute, holding that where a father added his son as a "Joint Tenant with rights of Survivorship" while the father was alive and while the father remained a joint owner, there was no transfer. That seems to track with the plain language of the exceptions to "transfer" in the statute. In what was a surprise to many of us (most certainly to the City of Charlevoix and municipal entities around the state), the further held the death of the original joint owner (the father) was not a transfer. This lead to a new (for some of us at least) avenue of planning and caused us to re-think our planning strategies <a href="http://michiganestateplanning.blogspot.com/2012/03/some-family-cottage-strategies-in-light.html"><strong><em>see</em></strong>, <i>Some Family Cottage Strategies in Light of the Klooster Case</i></a>; my follow up to the <em>Klooster</em> article.</span><br />
<span xmlns=""><br /></span>
<span xmlns=""><span style="font-size: 18pt;"><strong>P</strong></span>erhaps in response to <em>Klooster</em> and the uncertainty that surrounded its reasoning, and certainly to protect family interests in family-owned residential real estate, the Michigan Legislature passed, and Governor Snyder signed into law in December of 2012, a newer, clearer exception to the "transfer" for family-owned real property. House Enrolled Bill No. 4753, signed into law on December 27, 2012, amends Section 27a(7) of the Michigan General Property Tax Act (MCL 211.27a) to provide several new exceptions. Most are clarifications of existing exceptions.</span><br />
<span xmlns=""><br /></span>
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>he principal change is new sub-paragraph (s) which provides a new exception for residential real property transferred to a relative who is related by blood or affinity to the first degree (<em>i.e.</em>, children). Notably, the exception does not limit itself to "cottage" or "vacation" property. Nor are the number of instances or parcels limited. Indeed, the Senate Fiscal Agency's "Bill Analysis" acknowledges that the exception is not limited to "homesteads," nor is there any limit to the number of times a single parcel could be transferred to first-degree relatives.</span><br />
<span xmlns=""><br /></span>
<h2>
<span xmlns=""><span style="color: #cc0000;">Caution!</span></span></h2>
<span xmlns=""><span style="font-size: 18pt;"><strong>I</strong></span>t is important to note that this new transfer exception does not become effective until December 31, 2013! Thus, for owners dying before December 31, it may still be wise to consider the strategies discussed at the link above, at least temporarily. Still, this is a welcome change for owners of family real property, particularly in those instances of homesteads and family cottages that may have remained in the family for multiple generations. Like all legal changes, this development will require planners to consider whether old strategies remain viable and what, if any, new strategies may come into play.</span><br />
<div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com2tag:blogger.com,1999:blog-4894788283220088015.post-7082916761781445722013-01-04T11:36:00.000-05:002013-01-04T11:36:25.879-05:00Congress Finally Gives us Answers on Estate and Gift Tax<span xmlns=""></span><br />
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>o quote former President Gerald Ford, with respect to the Federal Estate and Gift Tax: "<em>our long, national nightmare is over</em>." Late on January 1, Congress enacted "The American Taxpayer Relief Act of 2012." I won't go into great detail about the act (there is a lot about it we still don't actually know and will have to wait for the analysis of people more capable than I am), but will point out the highlights of the Estate and Gift Tax provisions which are of considerable importance to Estate Planning.</span><br />
<span xmlns=""><br /></span>
<blockquote class="tr_bq">
<span style="color: red;" xmlns=""><b>The Act preserves the $5 million per person ($10 million per married couple) "unified" estate and gift tax exemption and indexes it for inflation.</b></span></blockquote>
<span xmlns=""><br /></span>
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>he Act preserves the 2012 levels of a $5 million per person exemption, maintains the "unified"estate and gift structure (meaning the $5 million threshold applied to total transfers, whether by gift during lifetime or inheritance on death), and indexes them for inflation. The Act also makes the concept of "portability," which was added in the 2010 extension for the first time, a permanent part of the tax structure. What "portability" means is that for married couples, the $5 million credit can be allocated or "shared" between them at any time, including after death. <b><i>This effectively eliminates–in most cases–the need for those "clunky," inconvenient, "AB Trusts" ("his and hers"), and all the allocations and adjustments we were constantly making in those plans</i></b>. This should have the effect of greatly simplifying the planning process in all but a few instances. The only real, substantive change in the law is a (modest?) increase in the rate (which will only apply after the $5/10 million credit has been used up).</span><br />
<span xmlns=""><br /></span>
<blockquote class="tr_bq">
<span style="color: red;" xmlns=""><b>What does "<i>permanent</i>" mean?</b></span></blockquote>
<span xmlns=""><br /></span>
<span xmlns=""><span style="font-size: 18pt;"><strong>M</strong></span>ost importantly, the Act makes the current Estate and Gift tax laws permanent. One of my colleagues asked me, <i>what does "permanent" mean?</i> I think that is a fair question. In 2000, the so-called "Bush Tax Cuts" were implemented and because of internal machinations in Congress, were built around a 10-year "sunset." This meant that unless Congress acted during the 10-year period, the laws would automatically expire on December 31, 2010. In a demonstration of the "brinksmanship" for which our modern Congress has become so famous for, in late December of 2010, they "extended" the law for 2 more years.</span><br />
<span xmlns=""><br /></span>
<blockquote class="tr_bq">
<span style="color: red;" xmlns=""><b>For the first time in the past 12 years, planners will be able to tell clients what to expect in this area. As we move forward in 2013, I expect that many of our clients will be looking at much simpler estate planning devices. I think that is a plus</b></span></blockquote>
<span xmlns=""><br /></span>
<span xmlns=""><span style="font-size: 18pt;"><strong>B</strong></span>ut when they extended the general tax laws, they made unanticipated major changes to the Federal Estate and Gift tax. This was in every way a good change. But it was "temporary," because it was part of an extension, again due to expire recently on December 31, 2012. The new law does not have a "sunset" provision. This means that until Congress acts by legislation to change it, it is permanent. That is as "permanent" as any law gets these days.</span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>M</strong></span>y personal view, and what I have been able to glean from reading other sources, suggests that Congress has no appetite to make future major changes to this area, for a number of reasons. So, what we now have is some consistency and something on which we should be able to rely for the foreseeable future.</span><br />
<span xmlns=""><br /></span>
<span xmlns=""><span style="font-size: 18pt;"><strong>F</strong></span>or the first time in the past 12 years, planners will be able to tell clients what to expect in this area. As we move forward in 2013, I expect that many of our clients will be looking at much simpler estate planning devices. I think that is a plus.</span><br />
<div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com3tag:blogger.com,1999:blog-4894788283220088015.post-58449353592189288412012-11-21T12:11:00.000-05:002012-11-21T12:12:10.567-05:00SHOULD YOU BE DOING LARGE YEAR-END GIFTS IN 2012?<span xmlns=""></span><br />
<span xmlns=""><span style="font-size: 18pt;"><strong>U</strong></span>nfortunately, before we can intelligently answer this question, some history is necessary. With the pending expiration of the so-called "Bush Era Tax Cuts," there is a significant amount of <em>buzz</em> about making large year end gifts to take advantage of the current high gift threshold. Historically, the current Federal Estate and Gift Law scheme dates back to the early 1980's when the "unified estate and gift tax exemption" and the "unlimited marital deduction" were created. A 1986 threshold of $600,000 was set as the amount exempt from federal estate and gift tax transferred by each person. This effectively meant with some careful planning, a married couple could pass $1.2 million to their heirs by lifetime gift or at death before a federal transfer tax was imposed. The amount was capped in 1986 at the $600,000 level. Many of us watched as inflation and growth took our parents' modest estates (often substantially below $600,000) and turned them millions. As we watched, many of us also felt strongly that the $600,000 threshold was no longer a reasonable measure of "modest" wealth and that Congress' failure to address an inflation factor in this threshold was a serious policy flaw.</span><br />
<span xmlns=""><span style="font-size: 18pt;"><strong>I</strong></span>n 2000, a "conservative" Congress enacted the "Bush Era" tax laws. In the context of the Federal Estate and Gift Tax, those laws made some major changes, but had some perplexing provisions. Inexplicably, they <strong><em>de-unified</em></strong> (if that is a word) the exemptions. They increased the $600,000 <strong><em>Estate Tax Exemption</em></strong>, incrementally over a series of years, to $3.5 million in 2009, and entirely eliminated the Federal Estate Tax (sometimes called the "death tax") in 2010. At the same time they increased the <strong><em>Federal Gift Exemption</em></strong> to $1 million and <strong><em>froze</em></strong> it there. Their plan was that in 2010 and later, there would be no transfer tax on death, the untaxed lifetime gifts would continue to be limited (to $1 million per person). I have never heard a sensible explanation for this "policy." There were some other "nightmarish" provisions in the new law, including a change to "carryover basis" for inherited capital assets.</span><br />
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>he problem with their plan was that due to some internal rules, the conservative majority in Congress did not have the numbers to make the changes permanent. So this tax law had a 10-year lifetime, which was due to expire on December 31, 2010. Rather than deal with it, Congress (mostly) "punted" and extended this expiration deadline to December 31, 2012 – right around the proverbial corner!</span><br />
<span xmlns=""><span style="font-size: 18pt;"><strong>H</strong></span>owever, they did some surprising and unexpected things regarding the Estate and Gift tax laws. It gave me some hope that perhaps there would be an end to the seemingly endless uncertainty involve in Estate and Gift Tax planning over the past decade. In late December, 2010, <strong><em>Congress re-instated the Federal Estate Tax</em></strong> (remember, it expired under the short-lived law in 2010), <strong><em>but increased the threshold to $5 million!</em></strong> They also re-unified the credit, increasing the Gift Tax Exemption, also, to $5 million. Then they indexed both of these exemptions for inflation (in 2012, they are slightly over $5 million). But wait – there's more. They also created a new (and long awaited) allocation rule called "portability" (portability means that we no longer had to have separate trusts in most instances for Husband and Wife).</span><br />
<span xmlns=""><span style="font-size: 18pt;"><strong>B</strong></span>ut Alas, all of this is scheduled to end at midnight on December 31. And the aftermath will be all the way back to a $1 million per person unified exemption.</span><br />
<span xmlns=""><span style="font-size: 18pt;"><strong>N</strong></span><span style="color: red;">ow, to the question proposed in the title: Should you make large gifts? I like to think of what we have now as a window. At the moment, it is open wide and at its widest opening, there is room to fit $5 million of assets through it ($10 million for married couples). If nothing changes, Congress will close the window most of the way, leaving it open just enough to fit $1 million of assets through it. So, as I view it, there is little to be gained by making gifts of $1 million or less. We will always be able to get that much through the window. Where the gain comes is if we can put more than $1 million through the window, because once it's closed down, we will have forever gotten the excess amount through the window</span>.</span><br />
<span xmlns=""><span style="font-size: 18pt;"><strong>W</strong></span>hen planning year end strategies, we cannot make this analysis in a vacuum. There is always an argument for making gifts of appreciating assets, up to and even above the $1 million discussed above. We move not only the asset itself, but the future growth out of the estate. But we also have to be cognizant of the nature of the asset being moved and whether we can truly afford not to own it anymore. And, perhaps equally importantly, we need to ask whether we want to continue to own it. It has always seemed bad planning policy to me to let tax considerations override the desires of the client.</span><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com0tag:blogger.com,1999:blog-4894788283220088015.post-9708671628453806312012-05-16T11:22:00.000-04:002012-05-16T12:43:22.519-04:00The Michigan Property Tax Personal Residence Exemption<span xmlns=""></span><br />
<br />
<span xmlns=""><a href="http://www.legislature.mi.gov/(S(nyw0zy55weix1lvknvjw1q55))/mileg.aspx?page=getObject&objectName=mcl-Act-206-of-1893"><span style="color: blue; text-decoration: underline;"><span style="font-size: 18pt;"><strong>T</strong></span>he Michigan General Property Tax Act</span></a> authorizes municipal entities, including cities, townships, villages, schools, and municipal "authorities" to levy taxes real and personal property in Michigan. There are two principal exemptions from part of the taxes that routinely impact our clients. The most commonly invoked exemption is the "personal residence exemption" (a/k/a "homestead exemption). The second important exemption is the "qualified agricultural property" exemption (<u>see</u>, <a href="http://michiganaglaw.blogspot.com/2012/05/navigating-michigan-general-property.html">Navigating The Michigan General Property Tax Qualified Agricultural Property Exemption</a>). Both exempt the subject property from the school tax. The mechanics of their application differs somewhat.</span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>here is a lot of misinformation out there, much of it by word of mouth. This is an important exemption, as the school tax tends to be one of the highest taxes levied. So, understanding its applicability is worth a few moments' reading.</span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>he <a href="http://www.michigan.gov/taxes/0,1607,7-238-43535_43539-211055--,00.html"><span style="color: blue; text-decoration: underline;">personal residence exemption</span></a> applies to property which is classified by the tax assessor as "residential property." Classification as "residential," does not by itself qualify the property for the exemption. The owner must demonstrate, to the satisfaction of the taxing authority (or – ultimately – the Michigan Department of Treasury), that the property for which they are seeking the exemption is their one, true personal residence.</span><br />
<br />
<span xmlns=""><span style="color: #f79646;"><strong>Obtaining the Exemption</strong></span></span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>I</strong></span>n order to qualify for the principal residence exemption, a homeowner must file an <a href="http://www.michigan.gov/documents/2368f_2605_7.pdf"><span style="color: blue; text-decoration: underline;">Affidavit of Personal Residence</span></a>, (Form 2368), which may be obtained on line at the Michigan Government Website (<a href="http://www.michigan.gov/treasury"><span style="color: blue; text-decoration: underline;">www.michigan.gov/treasury</span></a>). The affidavit must be filed – in most cases – not later than May 1 of the year the exemption is sought. The Affidavit is filed with the Local Assessor, not with the Treasury Department.</span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>here are instances when a "late" filing can be sought by appearing before the tax board of review (which convenes in most municipalities in July and again in December). It probably makes sense to seek some professional assistance at that point, as there are rules and deadlines that must be carefully observed.</span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>he greatest area of concern is when a residence is purchased after the May 1 deadline. In most instances, the prior homeowner has already filed the affidavit and qualified and the exemption will remain in effect until December 31, after which you may file to meet the May 1 deadline for the following year. The Affidavit need only be filed once and the exemption remains in effect as long as the residence continues to qualify for that owner.</span><br />
<br />
<span xmlns=""><span style="color: #f79646;"><strong>Qualifying For the Exemption</strong></span></span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>his is the area where the most confusion (and frankly, a fair amount of "license" with the rules) usually arises. This exemption is intended to apply to one personal residence where a resident of Michigan intends to permanently use as their primary home. There are certain indicia that the Department of Treasury (or the local assessor) uses as "proof" of residency. The statutory provision makes clear that it is a matter of intent on the part of the owner. But proof of such intent is sometimes difficult. The authorities will look at things like voter registration address, address on Michigan Driver's License or other Michigan I.D., where the applicant has his or her mail sent, where bills are mailed and the address they use on official tax filing. None of these items alone will be determinative, but they will be used as evidence of intent.</span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>he Michigan Department of Treasury publishes a pdf pamphlet called "<a href="http://www.michigan.gov/documents/2856_11014_7.pdf"><span style="color: blue; text-decoration: underline;">Guidelines for Michigan Principal Residence Exemption Program</span></a>." It is worth noting that in the guidelines, they specifically address the vacation home or cottage issue. Up until just recently, most lakefront vacation property in Michigan was appreciating much more rapidly than suburban or urban residential property. The tax pressure on owners of these properties was enough that many such owners have attempted to make them their personal residence in order to have the exemption apply to their higher value property. Some even attempted to claim both residences as their principal residence. About 10 years back, there was a strong push by taxing authorities to seek out these "transgressors."</span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>he Guidelines make it clear that the state will view this as a matter of reality. In other words, you cannot simply change your driver's license, voter registration and other "indicators," and automatically have the property qualify. You have to demonstrate in a meaningful way that you indeed intend to reside in the property as your principal residence. While there are obviously grey areas (e.g., the "snowbirds," who may spend 6 or more months in a warmer climate), this means that you "live" there – you spend the bulk of your time there.</span><br />
<br />
<span xmlns=""><span style="color: #f79646;"><strong>Multiple Exemptions</strong></span></span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>I</strong></span>t is clear that a homeowner is only entitled to one principal residence exemption. You must be a resident of the State of Michigan and you may not have claimed a similar personal residence exemption in another state, country or territory. You cannot have dual residency, for purposes of the exemption.</span><br />
<br />
<span xmlns="">What if you are husband and wife? State and Federal laws are nothing if not unclear about this distinction. The general approach is that we treat married couples as a single unit. However there are exceptions. For purposes of the principal residence exemption, if a husband and wife file a joint income tax return, they are entitle to one exemption for their "marital unit." However, if they file separately, they may each claim an exemption. Beware, however, that they will still have to demonstrate the "intent" reality discussed above. In most cases, unless the parties are separated, that will be pretty difficult to do.</span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>M</strong></span>uch will depend upon the diligence of the local taxing authorities on all of the above issues.</span><br />
<br />
<span xmlns=""><span style="color: #f79646;"><strong>The Ownership Requirement</strong></span></span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>his requirement may be among the most elusive – and confusing. Like much legislation, the language is not necessarily consistent, nor clear. For example, the General Property Tax Act refers to the term "person." Yet they don't necessarily consistently apply their interpretation. For purposes of the principal residence exemption, "person" is interpreted as its plain meaning, a "human." A residence that has been transferred into a Limited Liability Company, a Partnership, or some other legal entity will cease to be qualified for the principal residence exemption. While this may seem harsh, it is the law in Michigan. Where we see this application cause the most problems is in the family farm arena, where we are often structuring land-holding entities and family limited liability companies and partnerships. Because there are other complex rules and programs affecting farmland, and because the farmstead and family home are often part of a larger tract of land, family estate and succession planning can become problematic and complex, and attention to detail is important in that context.</span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>Y</strong></span>ou do not, however, need to be a 100% owner of the property. The law says a partial owner may claim the exemption (again, subject to demonstrating that it is <em>their</em> one true personal residence). This means joint owners, and holders of life estates may still claim the exemption.</span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>he law does not specify the amount of ownership. This opens the door to some creative tax and estate planning. For example, a child, parent or sibling could legally own a fractional interest (as little as a 1% joint tenancy interest), but reside in the home and claim the exemption. This, combined with the "uncapping" protections we learned about in the <em>Klooster</em> case (<span style="text-decoration: underline;">see</span>, "<a href="http://michiganestateplanning.blogspot.com/"><span style="color: blue; text-decoration: underline;"><em>Some Family Cottage Strategies In Light of The Klooster Case</em></span></a>") may present some very enticing family property succession strategies.</span><br />
<span xmlns=""><br /></span><br />
<span xmlns=""><span style="font-size: 18pt;"><strong>A</strong></span> residence that has been transferred to a grantor-revocable trust also qualifies for the exemption. In that case, the grantor (in most cases) is deemed the "person" who is the owner and entitled to the exemption.</span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>F</strong></span>inally, note that you may claim the exemption if you are a Land Contract purchaser. This makes sense because Michigan Law sees such a purchaser as the "equitable" owner of the property, subject to the security interest of the Land Contract Vendor (the so-called "legal owner").</span><br />
<br />
<span xmlns=""><span style="color: #f79646;"><strong>What Property is Covered?</strong></span></span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>his is another area which is sometimes susceptible to confusion. Adjacent land parcels are often arbitrarily separated by legal description (<em>e.g.</em>, by the way they are acquired by deed) or by tax parcel identification code. They may be separated by roads, ditches, waterways, or other natural or man-made obstructions.</span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>he exemption covers all contiguous property to the occupied residence, as long as it is: (1) classified residential, (2) is vacant, and (3) is not used for non-residential purposes. The Guidelines provide several examples of what qualifies as contiguous. Essentially, it is property which is "touching" the property the primary residence is on. A road, ditch, stream, etc., does not destroy contiguity. Another parcel owned by another that is in between does (there is some thought that the state views a corner-to –corner touching as not contiguous, though I fail to see the logic in that view) .</span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>S</strong></span>eparately described or deeded parcels or parcels with separate tax code parcel identification numbers, will all still qualify, as long as they satisfy the contiguity requirement. You need not combine parcels in order to have the exemption. <em>You do, however, need to file separate exemption Affidavits for each separate tax code parcel</em>.</span><br />
<br />
<span xmlns=""><span style="font-size: 18pt;"><strong>T</strong></span>he state is dead-serious about the 3 limitations above. If a contiguous parcel has a separate structure on it, it is not "vacant" and does not qualify for the exemption. If any business use is occurring on the contiguous parcel, at least a portion of it will not qualify. The most common example of this latter occurrence is vacant farmland, which is being farmed for rent. In most cases, it will or can be classified as qualified farmland, which will solve the problem. In other cases, it will be important to seek qualified professional assistance.</span><br />
<br />
<span xmlns=""><br /> </span><br />
<br /><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com1tag:blogger.com,1999:blog-4894788283220088015.post-54085188757423289232012-03-19T08:58:00.003-04:002012-03-19T09:07:04.483-04:00Some Family Cottage Strategies in Light of the Klooster Case<span xmlns=""><p><span style="font-size:18pt"><strong>N</strong></span>othing triggers emotions more than the family cottage. You may have raised children who spent all their vacations there. You may have grown up there yourself. All the best memories are often there. Yet this family "heirloom" often becomes the most difficult asset to pass to the next generation; and sometimes the most contentious.<br /></p><p><span style="font-size:18pt"><strong>A</strong></span>s an owner-family, one of the first questions I have clients consider is whether they should even go down that proverbial road? There is simply no legal "GPS" for finding the right mix of ownership and management of multiply-owned family recreational property. Much has been written about this subject over the years, including "Saving the Family Cottage," by Stuart Hollander, a Northern Michigan Attorney who lived and practiced in Leelanau County; and "The Cottage Rules" by Nikki Koski. These books purport to help "solve" the problems arising in trying to pass a cottage from one generation to the next. Yet they admit that it is more of an art than a science. In the end, I usually counsel my clients that their own family "chemistry" will make or break the succession, no matter how good or clever our written documents and plans may be. And, a continuing problem is how, even after passing to the second generation, successive generations will be treated. This article is not really a piece addressing <em>whether</em> the family cottage should be passed. Nor is it really a road map illustrating <em>how</em> it should be done. Rather, it addresses some of the pros and cons of different ownership methods and when they might be considered, in light of the real property taxation.<br /></p><p><span style="font-size:18pt"><strong>I</strong></span>n 2010, the Michigan Supreme Court decided <em>Klooster v City of Charlevoix</em>, defining under what circumstances a "transfer" resulting in "uncapping" for purposes of the Michigan <em>ad valorem</em> real property tax. "Capping" refers to a limitation placed on the ability of the taxing municipality to raise the "taxable value" of real property as its fair market value increases. The intent of the act was to keep current owners from being unfairly taxed in relation to increase and development of surrounding properties, during their tenure of ownership. It imposes a formulaic limit on tax increases. However, when the ownership is transferred, this "cap" comes off and the taxing authority is free to make a one-time (for each transfer) adjustment to reflect fair market value in the hands of the new owner. The Klooster decision put an interesting (and for some of us, unexpected) twist on the meaning of "transfer" of ownership for purposes of the act. <span style="text-decoration:underline">See</span>, <a href="http://michiganestateplanning.blogspot.com/2011/03/michigan-supreme-court-buys-us-another.html"><em>Michigan Buys Supreme Court Buys Us Another Generation on Real Property Taxes</em></a>.<br /></p><p><span style="font-size:18pt"><strong>B</strong></span>efore addressing the pros and cons, it is appropriate to review ownership options for family cottage properties. Over the years, some different methods of ownership by the next generation have been prevalent.<br /></p><p><br /></p><p><strong>Joint Ownership<br /></strong></p><p><span style="font-size:18pt"><strong>P</strong></span>erhaps the most common (and the most fraught with problems) is joint ownership of property. Michigan law observes several different types of joint ownership. Among non-married owners, the most common and often presumed type is as <em>tenants-in-common</em>. In <em>tenancy-in-common</em>, each owner owns an "undivided" fractional interest in the property. The interest can be sold, or transferred freely. In the event a problem arises in co-ownership, a <em>tenant-in-common</em> may ultimately petition the Circuit Court for an action to partition. The court may, alternatively, order a sale or physical division of the property. A second type of concurrent ownership is as <em>joint-tenants</em>. This type of ownership presumes that on your death, your interest passes, automatically, to the surviving owner. But during lifetime, between non-married owners, the interests may be sold or transferred freely. Such a transfer converts the <em>joint tenancy</em> to <em>tenancy-in-common</em>. A third type of joint ownership is known as <em>joint tenancy with full rights of survivorship</em> (JTWROS). Here, the decedent's interest also automatically passes to the survivor(s). However, these interests may not be transferred or sold without the concurrence of all joint owners. The JTWROS tenancy may not be severed, even by a court.<br /></p><p><span style="font-size:18pt"><strong>Y</strong></span>ou may note that I have prefaced each of these with "among non-married owners." In Michigan, when a husband and wife take title to real property, it is presumed that they do so as <em>tenants-by-the-entireties</em> (a special type of JTWROS ownership reserved for married couples). It should be easy to see that, depending upon the makeup of owners and their ability to (and perhaps live) together, each of these owner methods may have potential significant disadvantages.<br /></p><p><span style="font-size:18pt"><strong>I</strong></span>t is permissible, and in my view, strongly recommended, that the parties have a separate, recordable and enforceable written agreement providing for use, management and succession issues.<br /></p><p><span style="color:#c00000"><strong></strong></span></p><blockquote><span style="color:#c00000"><strong>A separate, written agreement providing for use, management and succession issues is strongly recommended</strong></span></blockquote><span style="color:#c00000"><strong><br /></strong></span><p></p><p><strong>Trusts</strong><br /> </p><p><span style="font-size:18pt"><strong>A</strong></span>nother ownership method is a Trust. Most often, a parent-owner will create a Trust for ownership during their lifetime which provides for "rules" and management of the property following their death. Trusts can create complexities and difficulties that may have been completely anticipated by the client and/or drafter. Someone or some entity must act as the Trustee, with the significant responsibilities impose by both the Trust Agreement and the Michigan Trust Code. Tax reporting at both the federal and state level is required. The allocation of the taxable (and deductible) attributes is not always simple. There are annual reporting and accounting requirements, sometimes to more "remote" individuals who may have no current involvement, but have a possible future interest. Trusts are generally a cumbersome method for continuing ownership and often will direct another form of ownership upon the death of the original owners/trustors and transfer to the next generation. The "uncapping" circumstances for trusts are quite complex.<br /></p><p><br /></p><p><strong>Entity Ownership - Limited Liability Company / Partnership</strong><br /> </p><p><span style="font-size:18pt"><strong>F</strong></span>or numerous reasons, the Limited Liability Company (LLC) has become the real estate owning entity of choice in Michigan. It is an outgrowth of the Partnership, which was perhaps the preferred method before the LLC. The partnership's "<em>achilles</em> heel" was the unlimited liability every partner had on all partner activities. The LLC effectively created a Partnership with the same limited liability that a corporation traditionally had. And, over time, the Michigan LLC Statute has evolved as the most flexible and creative business entity tool available for planning.<br /></p><p><span style="color:#c00000"><strong></strong></span></p><blockquote><span style="color:#c00000"><strong>The LLC has become the Real Estate Owning Entity of Choice in Michigan – but it has "uncapping" Issues.</strong></span></blockquote><span style="color:#c00000"><strong><br /></strong></span><p></p><p><span style="font-size:18pt"><strong>W</strong></span>ith an entity format, the owners can have an agreement for management and succession of ownership for multiple generations. A manager(s) can be designated and "branches" among the family can be defined, for purposes of voting. A "buy and sell" agreement can be put in place, providing for valuation methods and payment methods, as well as limitations on sales and transfers. Accounts can be established for payment of expenses. And, because the entity is the owner of the real property, as "members" come and go, the ownership stays within the company. Because of this structure, the LLC is, in my view, a better practical and legal planning alternative to the Joint Property Agreement.<br /></p><p><span style="font-size:18pt"><strong>T</strong></span>here are negatives. There is a cost to set up the LLC, and a (generally nominal) cost of annual maintenance. Like the Trust, federal and state tax reporting is required. The LLC is a "public" entity, in that it is on file in Lansing, with a register address and agent. Perhaps the most significant negative is the "uncapping" issue mentioned above.<br /></p><p><br /></p><p><strong>How Klooster Applies</strong><br /> </p><p><span style="font-size:18pt"><strong>T</strong></span>he Michigan Tax Tribunal has ruled that transfers of real property interests to a LLC will automatically cause uncapping. While a reading of the statute does not, in my view, intuitively suggest that result, the rulings of the Tribunal have the force of law in Michigan until a court having proper jurisdiction says otherwise. To the best of my knowledge, at the time of this writing, no court has done so. Nor is the <em>Klooster</em> result, in my opinion, the intuitive result of a reading of the statute. But the Michigan Supreme Court is the highest legal authority in the state and they have spoken.<br /></p><p><span style="color:#c00000"><strong></strong></span></p><blockquote><span style="color:#c00000"><strong>If "uncapping is an issue, consider Joint Ownership with a written agreement; If it is not, go the route of the LLC</strong></span></blockquote><span style="color:#c00000"><strong><br /></strong></span><p></p><p><span style="font-size:18pt"><strong>I</strong></span>n summary, if "uncapping" is not a significant issue, you should strongly consider the formation of a LLC. Conversely, if "uncapping" is a significant issue, you should consider joint-ownership with a Property Agreement. However, before spending too much time on the "uncapping" issue, it is probably worth looking at whether the "uncapping" issue is as significant at one might think. Currently, most vacation property values are at a long-time low here in Michigan. Thus, the "jump" from current taxable value and fair market value (loosely, SEV in Michigan) may not be as significant as it first appears. Even though the "value" looks like a substantial number, it is worth doing the math to see what the actual increase in taxes might be. It may be that "uncapping" in the current environment is a "window" that should be taken advantage of. Remember that once the "uncapping" occurs, the "cap" starts over again for the succeeding owners.</p></span><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com3tag:blogger.com,1999:blog-4894788283220088015.post-76048709724377376352011-05-20T14:26:00.009-04:002011-05-20T14:43:49.510-04:00Why and When Is a Trust Accounting Report Required?Clients often ask why we need to report or account to beneficiaries. This is a particularly perplexing concept when the beneficiaries are remote (<em>i.e.</em>, they are not currently due to receive anything from the trust and may never receive, unless they outlive the current beneficiary(s)). A related question is to whom we must report and when?<br /><br /></p><p style="font-family: verdana;">When the grantor is still alive and is serving as his or her own trustee, there is no duty to report. This makes sense, as it would be a duty for the owner who retains total and complete control over the assets in the trust to report to him or herself. These very common estate planning trusts are known under the Internal Revenue Code as "Grantor-Revocable Trusts." The get this name from the section in the Internal Revenue Code which exempts them from filing or reporting separately on an income tax return. Instead, the grantor simply continues to report these items on their personal tax return. However, on the death of the grantor (and in some circumstances, when the grantor no longer is acting as trustee, if though they may be still living), the duty to report and file income tax returns arises.<br /><br />Perhaps the most direct answer to why we must do this is that the law requires it. But what, exactly does that mean? Estates, whether Probate Estates or Trust Administration, are mainly governed by the law of the state where the grantor is/was a resident, or where they stipulated in the Trust Agreement which state law would govern. So we must look to the Statutes of the State. At the same time, in an effort to achieve some uniformity from state to state, there are "unofficial," but very influential and persuasive guidelines to Trust and Estate administration. State statutes often follow the guidance of these "national" guidelines.The Restatement of Trusts (now in its 3<sup>rd</sup> iteration) is one such uniform nationally recognized guideline. The Restatement (Third) of Trusts states that <span style="font-style: italic;">A trustee has a duty to maintain clear, complete, and accurate books and records regarding the trust property and the administration of the trust, and, at reasonable intervals on request, to provide beneficiaries with reports or accountings</span>. Following on this, Michigan's new <em>Michigan Trust Code</em> contains provisions requiring a Trustee to report to beneficiaries.<br /><br />The Trustee of a Trust is a <em>fiduciary</em>. That means that they have a special duty to all of the trust beneficiaries, of fair and honest dealing, and of sensible management and investment of the trust's assets. This fiduciary duty also includes the duty to keep beneficiaries apprised of the status of the trust's assets and investments.<br /><br />Who are the beneficiaries entitled to an account or report? That is a bit less clear. It is clear that the <em>current</em> beneficiaries are entitled. But what about more remote (or contingent) beneficiaries? The commentary to the new Michigan Trust Code says the language of the code "clarifies" this formerly unclear area. I am not so sure. The Code uses the new term (new to us in Michigan, anyway), "qualified beneficiaries." It defines "qualified beneficiary" in what I think is a rather confusing way. What is clear is that current beneficiaries are entitled to an accounting and that more remote beneficiaries <em>may</em> be entitled. The code <em>requires</em> a reporting to the current beneficiaries (current generally meaning that they have some current rights to trust assets, either in the form of income distributions or the right to distributions of some or all of the principal in the trust). It then goes on to say that other "qualified" beneficiaries are entitled to an accounting on request.<br /><br /><br />The Michigan Trust Code authorizes the maker (grantor) of the Trust to limit the duty of the Trustee to report to certain beneficiaries. However, a Probate Court can override this and order reporting anyway.<br /></p><p style="font-family: verdana;">In my view, what this tells us is that a Trustee should keep detailed records, and prepare a report at least annually, to keep in its records. While that does not necessarily mean provide each beneficiary with an account, it puts the Trustee (or successors) in a position to provide that information upon an order of the Court. It may serve a secondary purpose of highlighting for the grantor and/or Trustee any problems that might be lurking out there in terms of trust accounting and record – keeping.<br /></p><p style="font-family: verdana;">Finally, on all but "grantor revocable trusts," the Trustee will be required to file an annual income tax return with the IRS and with any state or states in which it earns reportable income. So it doesn't seem like a huge inconvenience for the tax preparer and/or Trustee to simply put together some kind of accounting report each year as and when the tax return is prepared.<br /></p><p style="font-family: arial;"><span style="font-family: verdana;">The Michigan Trust Code does not specify a format for the report. It does give guidelines, suggesting that the report should be thorough and detailed enough to fully apprise the recipient of the nature and status of trust assets. This means it should probably have a method for recording items of income as well as how they affect the capital or income side of the trust accounts, as well as items of loss and expenditure, for the same reasons.</p></span><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com1tag:blogger.com,1999:blog-4894788283220088015.post-79207784172939125582011-03-11T15:06:00.004-05:002011-03-14T16:58:54.003-04:00Michigan Supreme Court Buys Us Another Generation on Real Property Taxes<span xmlns=""><p><span style="font-size:18pt;"><strong>T</strong></span>hursday, March 10, 2011, the Michigan Supreme Court, in <em>Klooster v. City of Charlevoix</em>, seems to have granted us another "generation" on Michigan Real Property Taxes. In 1994, so-called "Proposal A" placed a cap on the amount of increase in Michigan Real Property taxes a municipality could apply, regardless of how much the actual market value increased, as long as there was not a "transfer of ownership." The devil is always in the detail, and the <em>Klooster</em> case centered on the definition of "transfer of ownership," and the meaning of one of the exceptions laid out in the act.<br /></p><p><span style="font-size:18pt;"><strong>T</strong></span>he Act, which allows the municipality to remove the "cap" in the tax year following a change in ownership, has a rather involved definition of transfer of ownership. It also has a long list of exceptions to the rule allowing the cap to be removed. The <em>Klooster</em> decision focuses on the so-called "joint-tenancy" exception. That exception provides that the creation or termination of a joint tenancy by one who is an original owner does not result in an uncapping event, even though it is a change of ownership. The court defines "original owner" as one who has ownership immediately following the last "uncapping" transfer. The court further explains that death of a joint owner (joint with rights of survivorship) results in a "transfer" by operation of law. So an original owner who has created a joint tenancy with another and then dies, effects a transfer of ownership, but it is within the exception and therefore not an "uncapping" transfer.<br /></p><p><span style="font-size:18pt;"><strong>T</strong></span>here has been some question about this since the exception of the act. Some of us (particularly municipalities) felt that the intent of the act was to prevent an unfair increase in taxation while the same original owners and spouses were alive and owned the property, but the when the last original owner in a generation died or transferred out of ownership, an uncapping transfer occurred. The Klooster opinion makes clear that, as a matter of Michigan law (now anyway <span style="font-family:Wingdings;">J</span> ), we were incorrect. The court carefully dissects the language of the statute and concludes that the uncapping will occur on the next transfer. In other words, my dad and mom could add me as a joint with right of survivorship owner to real property and after both of their deaths (which would be a "transfer of ownership" by operation of law), an "uncapping event" would still not occur until the next transfer (either by deed or by my death) happens. This means the cap can stay on for my lifetime, if no transfer of ownership occurs.<br /></p><p><span style="font-size:18pt;"><strong>G</strong></span>reat care must be taken in planning. Once my parents die, for example, I may want to plan for my own succession. If I add a joint tenant who does not come within one of the "not a transfer" exceptions in the statute (<span style="font-style: italic;">e.g</span>., adding children or siblings), an uncapping transfer occurs (adding a spouse or conveying to a grantor revocable trust would probably not be viewed as a subsequent uncapping event). Also, presumably, on my death, an uncapping transfer occurs. This opens much proverbial "food for thought" in real estate succession planning transactions.<br /></p><p><span style="font-size:18pt;"><strong>I</strong></span>t will also be interesting to see if the Legislature takes any action to change the statutory language the Court interpreted.</p></span><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com6tag:blogger.com,1999:blog-4894788283220088015.post-30513605468458239582011-01-09T17:44:00.002-05:002011-01-09T17:47:07.381-05:00Trusts After 2010 Estate Tax Reform<span xmlns=""><p><span style="color: rgb(247, 150, 70);font-size:18pt;" >S</span>ince the extension of the so-called "Bush Tax Cuts" by Congress on December 17, 2010, and the very favorable changes to the Federal Estate Tax, I have received numerous calls and e-mails, all asking essentially the same question: "Can I scrap my Trust?" My answer is, "<strong>of course not!</strong>" Indeed this question underscores the continued misunderstanding by clients and advisors alike about the part Trusts play in the Estate Planning Process. We too frequently view the process as only a tax-driven process. In one of my earliest Blogs here, I pointed out that <a href="http://michiganestateplanning.blogspot.com/2007/11/what-is-estate-planning.html">Estate Planning </a>is an overall process involving a number of tools, only one of which is a Trust, which covers only some portion of a well-thought out Estate Plan. So, with changes which eliminate estate taxes as a concern for the vast majority of our clients, I get very concerned that clients and their advisors will unwittingly abandon one of the more important and useful planning tools.<br /></p><p><span style="color: rgb(247, 150, 70);font-size:18pt;" >T</span>he function of a <a href="http://michiganestateplanning.blogspot.com/2009/11/tools-of-estate-planning-revocable.html">Revocable Trust Agreement</a> in the estate plan is primarily as an administrative tool to manage and distribute assets, during lifetime, during incapacity, and after death. It most often acts as a <a href="http://michiganestateplanning.blogspot.com/2009/10/tools-of-estate-planning-last-will-and.html"><em>Will</em></a><em> substitute</em>, and properly structured and maintained, can avoid the need of Probate Court proceedings. With proper drafting, a Trust can also restrict the scope of "outsiders" entitled to information on administration, and can manage assets for minors, and others who are not ready or capable of handling assets yet.<br /></p><p><span style="color: rgb(247, 150, 70);font-size:18pt;" >W</span>hat the new Tax Law <em>does</em> do is, in my view, allow us to vastly simplify the Trust planning we have customarily done to avoid taxation, making it an even more palatable and powerful tool. As I read the new law provisions, even for the relatively rare clients who may have assets exceeding $5 million, we no longer need to set up separate Trusts for spouses and divide up assets <em>before</em> a death occurs. Thus, Trust planning has just become more flexible and inviting in my view.</p></span><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com1tag:blogger.com,1999:blog-4894788283220088015.post-56575354525292548132010-12-25T17:03:00.003-05:002010-12-25T17:14:20.501-05:00Congress Read My Blog!<span xmlns=""><p>I am a realist. I assume only a few people read this from time to time. But Congress? I am flattered to no end. <a href="http://michiganestateplanning.blogspot.com/2010/02/o-n-january-1-2010-federal-estate-tax.html">Back in February</a>, I excoriated them, stating that their inability to deal with the Estate Tax as it existed was inexcusable and unacceptable:<br /></p><p><span style=";font-family:Arial;font-size:10pt;" ><em><blockquote>"This result is symptomatic of the immovable, political partisanship at all costs, out of touch with reality we call "representative" government in Washington, D.C. It is a situation that is untenable for U.S. citizens–clients and planners alike. Most of us are weary of the fighting, infighting and grandstanding behind these "representatives'" abuse of the statement "the American People want . . . . " The reality is they lost touch with what we want years ago. Today, I will settle for a decision. Any decision. We can at least then know what to tell clients and how to plan their estates. Congress? Are you listening? (thought not)."</blockquote><br /></em></span></p><p>I suggested that they needed to give us something – anything – to rely on for planning for our clients. My remarks included the sentiment that it wasn't that difficult to pick a number for the exemption equivalent; that I never could make sense of the de-coupling of the gift exclusion from the estate exclusion; and that it only would make common sense to index for inflation.<br /></p><p>On Friday, December 17, 2010, after carefully reading my blog (I am certain), Congress has actually made some law that I think is almost too good to be true. There is just too much<span style="font-style: italic; font-weight: bold;"> right</span> with the estate tax provisions of the so-called "Bush Tax Cut" extension! In 1967, for some personal reasons, my mom went all out for Christmas, getting each of her children everything on their "lists" and some additional nice surprises as well. Congress seems to have followed suit this year, with a pretty nice Christmas present for estate planners and their clients.<br /></p><p>Here are some highlights. The estate and gift tax "applicable exclusion amount" is now set at $5 million for estates of individuals dying after January 1, 2010, and has been "reunified." It will be indexed for inflation (in increments of $10,000). An additional nice surprise is the concept of "portability" has been added. Married couples may now -- rather than having to proactively plan to use each $5 million for each by creating and funding separate trusts – use each other's unused credit. The mechanics of this are not completely clear, but it looks like a much more "forgiving" solution to this problem.<br /></p><p>The "new date of death basis" rules ("stepped up basis") has been restored. The 2010 "carryover basis" rules were a nightmare. Because of years of "stepped up basis" and for other reasons, it was clear to us as practitioners that our clients were going to have poor or non-existent records of their basis in capital assets. And, Congress never made completely clear how the election was going to be made (although they did release and then withdraw a proposed form).<br /></p><p>The new law is retroactive to January 1, 2010. Amazingly (yes, I am a cynic), Congress also recognized the practical aspects of their waiting until the proverbial "11<sup>th</sup> hour," to address these much needed provisions. For those persons who died between January 1, 2010 and the date of the new law, the executor or administrator may elect to use the new law, or to use the 2010 provisions. And normal filing deadlines for things like tax returns and disclaimers has been extended to 9 months after the December 17, 2010 enactment date.<br /></p><p>Thank you Congress, and Merry Christmas to you, too!</p></span><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com1tag:blogger.com,1999:blog-4894788283220088015.post-76509392532563487292010-11-26T14:01:00.003-05:002010-11-26T14:04:37.342-05:00Is Perception Reality?<span xmlns=''><p><span style='font-family:Arial'><span style='font-size:18pt'><strong>R</strong></span>ecently I heard an ESPN Sports Radio show suggest that "<em>perception is reality</em>" to high school athletes looking at which university to commit to play for. The phrase has stuck with me lately, much like that song you just can't get out of your head.<br /></span></p><p><br /> </p><p><span style='font-family:Arial'><span style='font-size:18pt'><strong>L</strong></span>ately, it seems like we have gotten an inordinate number of client inquiries and telephone calls from people who ask us to do things for them that are simply not legally or practically possible. They have heard it – at seminars, from radio advertisements and programs, and from various "on-air" personalities and want to know if we can do that for them?<br /></span></p><p><br /> </p><p style='text-align: center'><span style='color:#f79646; font-family:Arial; font-size:14pt'><strong>"These Individuals are making promises they simply cannot keep."<br /></strong></span></p><p><br /> </p><p><span style='font-family:Arial'><span style='font-size:18pt'><strong>T</strong></span>he <em>true reality</em> is no. We cannot and – truth be told – neither can the individuals who <em>said</em> they can. These advertisers and sometimes self-created luminaries are making promises they simply cannot keep. They are broadcasting false or at best deceptive information. But because of the power of the airways, and of repetition, they have created the perception that they are "experts." Therefore, what they say must be factual.<br /></span></p><p><br /> </p><p><span style='font-family:Arial'><span style='font-size:18pt'><strong>I </strong></span>am not naïve. The phrase attributed (rightly or wrongly) to P.T. Barnum – "a sucker is born every minute," is certainly no more the case today than in the past. Nor should it come as any surprise that there are many out there willing to embrace that thought and take whatever monetary advantage they can. The world has always had such players and always will. But what is disconcerting to me is some of my fellow professionals have resorted to these methods to create and sustain business.<br /></span></p><p><br /> </p><p><span style='font-family:Arial'><span style='font-size:18pt'><strong>D</strong></span>on't get me wrong. I have no quarrel with seminars (indeed, I conduct them myself on a regular basis). What I object to is that they are not being used as truly educational seminars, but in many cases are being used to "scare" or "high-pressure" attendees into signing up for follow-up sessions or worse, signing so-called legal and/or financial documents at the time of the seminar. Nor do I have a problem with tasteful and accurate advertising. But what we are seeing is the result of a program of consistent but inaccurate statements on radio, television and print media that purports to address the needs of many customers. And while these tactics are not limited to the elderly, they seem to target and attract their particular needs and circumstances.<br /></span></p><p><br /> </p><p style='text-align: center'><span style='font-family:Arial; font-size:14pt'><strong><span style='color:#f79646'>"These tactics appear to unduly target the needs and circumstances of the elderly"</span><br /> </strong></span></p><p><br /> </p><p><span style='font-family:Arial'><span style='font-size:18pt'><strong>I</strong></span>s this phenomenon just perception on my part? I don't think so. Over the past couple years, I have reviewed documents presented in a printed form in a notebook with fill-in-the-blanks provisions, which my new client has told me was done at or immediately following the seminar. I have also reviewed, on a number of occasions, legal documents drafted by an attorney the client has never met (and who, from all indications, had no idea about either what he was doing, or at the very least, the circumstances and needs of the clients). Instead, the consulting, meeting, and document execution was being done by third parties (who—more often than not—were also selling financial products). And time and again, we have clients come into our office who have been told that the "cookie-cutter" documents they bring us to review have provided them some legal protection or accomplished some goal which they clearly and simply do not do! Regrettably, the documents have often been prepared, presented and executed by staff members other than the lawyer who puts his or her name behind them and upon whose perceived expertise has drawn the client in the first place.<br /></span></p><p><br /> </p><p><span style='font-family:Arial'><span style='font-size:18pt'><strong>I</strong></span>t is distressing that a number of individuals have been able to create a <em>perception—o</em>ne of expertise and one of false solution—for their own personal economic gain. It is an illustration of that lately incessant "song in my head:" Perception is Reality.<br /></span></p><p><span style='font-family:Arial'><span style='font-size:18pt'><strong>A</strong></span>m I on a rant? Maybe.<br /></span></p><p><br /> </p><p style='text-align: center'><span style='font-family:Arial; font-size:14pt'><strong><span style='color:#f79646'>"It is our professional obligation to tell our clients what they <em>need</em> to hear—not what they <em>want</em> to hear."</span><br /> </strong></span></p><p><br /> </p><p><span style='font-family:Arial'><span style='font-size:18pt'><strong>B</strong></span>ut perception is not reality. It is crucial that good, factual, common sense solutions be explained and applied to the legal problems and challenges presented in Estate Planning and in "Elder law" Planning. It is fair, in my view, for professional to charge a fee and benefit economically for their professional advice. It is, after all, what they do for a living. But we are professionals. That means we have an obligation to give more than "cookie cutter" documents and false hope to our clients. It means we must do our homework. It means we must spend personal, one-on-one time with our clients. It means, sometimes, that we must practice proverbial "tough love," and tell our clients, not what they want to hear, but what they <em>need</em> to hear.</span></p></span><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com0tag:blogger.com,1999:blog-4894788283220088015.post-33078211239559129632010-07-11T10:09:00.003-04:002010-07-11T10:17:41.121-04:00The “Special Needs Trust” - Critical Planning for Family Members with Disability<span style="font-family:arial;"><span style="font-size:180%;">W</span>ills, Trusts, Durable Powers of Attorney, and Health Care Patient Advocate Designations are all basic tools used in the Estate Planning process. There are also some special purpose tools which are important to consider in any good planning process.<br /><br /><span style="font-size:180%;">O</span>ne of the areas we always cover in the initial client meeting is whether there are any family members who have a disabling condition. While we are generally exploring the immediate family, it is worth noting that the considerations important to this area can also be important to more remote family members such as parents, grandchildren, siblings and their children.<br /><br /><span style="font-weight: bold;">The Dilemma For Parents</span><br /><br /><span style="font-size:180%;"></span><blockquote style="font-weight: bold;"><span style="font-size:100%;">T</span>he classic dilemma for parents of a disabled child is that under our current system of governmental support, the child may not own significant assets; yet caring parents know that one they are no longer their to take care of their child’s needs, there may be nobody else who can do that. </blockquote><span style="font-size:180%;">A</span> traditional approach to such planning was to “disinherit” the child and leave his or her portion of the estate to someone else (usually siblings) with the tacit agreement for that person to hold the assets and use them for the child’s benefits. Leaving assets to the disabled child (even in trust) can have devastating impact on that child’s established benefit program (including among other programs, SSI, State Programs, and the all-important Medicaid), by disqualifying them from those benefits.<br /><br /><span style="font-size:180%;">T</span>raditional trust planning simply doesn’t work (even with a so-called “spendthrift” trust), because these all-important programs are often referred to in legal terms as “necessary services” and traditional trust law allows providers of such “necessary services” to reach even well-drafted spendthrift trusts.<br /><br /><span style="font-weight: bold;">The Special Needs Trust</span><br /><br /><span style="font-size:180%;">M</span>ost states recognize a special purpose trust, however, generally known as a <span style="font-style: italic;">Special Needs Trust</span>. In Michigan, a properly drafted <span style="font-style: italic;">Special Needs Trust</span> (know as a Michigan Discretionary Trust under Michigan case law) cannot be reached by creditors: even the Michigan Department of Human Services, which administers Medicaid and SSI for Michigan residents. In recent years, estate planners working in the relatively new field of “Elder Law,” have used these trusts in their quest to assist elder residents of Long Term Care facilities to qualify for Medicaid, while protecting their assets. There has been a rather long history of government measures tightening the rules on these trusts so that their use has become much more limited.<br /><br /><span style="font-size:180%;">H</span>owever, Congress has carefully limited these measures’ application to the true, third-party <span style="font-style: italic;">Special Needs Trust</span> for the developmentally disabled community. In this context they remain completely viable and are still (in most cases) the most effective planning tool to provide for disabled children. Indeed, in one of the more sweeping congressional acts, the legislative history not only specifically addressed the continuing viability of these trusts for disabled children, but actually enhance their use by creating another favorable exception.<br /><br /><span style="font-size:180%;">T</span>he advantage of the <span style="font-style: italic;">Special Needs Trust</span> is that parents can leave substantial assets, in Trust, for the benefit of their child without exposing them to the risks of the above-mentioned, more traditional approach. There were always the concerns that the sibling would die, become disabled themselves, have legal problems (such as bankruptcy or divorce), all of which would put the assets intended for the disabled child at risk. In a word, there was a lack of certainty. <span style="font-style: italic;">The Special Needs Trust </span>provides that certainty, by assuring that the sibling can be “in charge of” the assets without owning them. It can provide also for succession of management.<br /><br /><span style="font-size:180%;">I</span>t is important to understand the legal implications of this trust. “Disinheriting” a child is a very emotional hurdle. But good planning doesn’t really disinherit - at least not morally. Rather, it ensures that the child will continue to receive (often essential) governmental benefits, while the “inheritance” intended for them is preserved, to be used for those very things the parents are doing for their child while they are still living.<br /><br /><span style="font-size:180%;">C</span>are must be taken, both in the creation of a <span style="font-style: italic;">Special Needs Trust</span> and in its administration. The primary important point is that the Trust language establish the intent of the grantor(s) that the asset not belong to the child, but that it be used for very specific and limited purposes for the benefit of the child. Once activated, the Trustee must understand the rules, in order not to jeopardize the status of the Trust. An “active” special needs trust will be scrutinized by the Michigan Attorney General’s office, so it is critical that it be drafted by someone with knowledge and experience in this area. And, because of this requirement (relatively recent), we currently generally structure these trust as “stand-alone” documents rather than as part of a general family trust document.<br /><br /><span style="font-weight: bold;font-size:100%;" >T</span><span style="font-weight: bold;">he Traditional Third Party Special Needs Trust</span><br /><br /><span style="font-size:180%;">T</span>here are two different <span style="font-style: italic;">Special Needs Trust</span> recognized by the government as effective. The traditional <span style="font-style: italic;">Special Needs Trust</span> is a “third-party” trust. In other words, it is created by a person or persons who have no legal responsibility to provide for the beneficiary and is established in such a way that the beneficiary has no legal right of withdrawal for any reason. Distributions from the trust are solely at the discretion of the Trustee. It is critically important that such trusts never be “tainted” with assets that in any way or at any time “belong” to the disabled person (thus, benefit payments and inherited assets should not be used to fund the trust). There may be ways to use such assets creatively and that should be discussed with an expert.<br /><br /><span style="font-weight: bold;">The Payback Trust</span><br /><br /><span style="font-size:180%;">T</span>he second variety is what I referenced earlier as an “enhanced” planning capability. The law now provides that a <span style="font-style: italic;">Special Needs Trust</span> may be created with assets belonging to the disabled person; but with some tradeoffs. If the disabled person is under age 65, a <span style="font-style: italic;">Special Needs Trust </span>may be funded with their own assets, as long as the trust provides for a “payback” provision. After the death of the disabled person (or on termination of the trust in some cases for other reasons) this “payback trust” must pay the governmental provider back for its expenditures, first, before distributing assets to other heirs. The benefit of a “payback trust” is that it allows the disabled person to qualify (or remain qualified) for governmental benefits without any interruption. In the meantime, the assets within the trust can be managed and used for the benefit of the disabled child during their lifetime.<br /><br /><span style="font-size:180%;">I</span>t is important that these two types of <span style="font-style: italic;">Special Needs Trust</span> be distinguished and where applicable done separately (it is not unusual to have both types in place for clients where it is appropriate). We have effectively established “payback trusts” to hold the proceeds of law suits. We have also had good success with our local Probate Court jurisdictions in converting Conservatorship and Guardianship assets into “payback trusts.”<br /><br /><span style="font-size:180%;">O</span>ur standard trust documents contain a “catchall” provision that provides that any time a distribution is to be made to a person with a disabling condition, it may be paid to the trustee of an existing Special Needs Trust or held as a Special Needs Trust for that person.<br /><br /><span style="font-size:180%;">I</span>f you have a family member with a disabling condition, have had concerns about their ultimate welfare, and have not consulted with an Estate Planning Professional about a <span style="font-style: italic;">Special Needs Trust</span>, this is a clear opportunity to put some essential planning in place and achieve peace of mind.</span><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com0tag:blogger.com,1999:blog-4894788283220088015.post-53324913441859842732010-02-04T10:29:00.007-05:002010-02-11T10:36:01.784-05:00POLITICAL PARALYSIS ON THE FEDERAL ESTATE TAX: SHOULD YOU AMEND YOUR ESTATE PLAN?<span style="font-size:180%;">O</span>n January 1, 2010, the Federal Estate Tax, as we have known it for nearly 30 years, was repealed. But what that means to us as clients and planners is completely unclear. This result is symptomatic of the immovable, poliltical partisanship at all costs, ouit of touch with reality we call "representative" government in Washington, D. C. It is a situation that is untenable for U.S. citizens--clients and planners alike. Most of us are weary of the fighting, infighting and grandstanding behind these "representatives'" abuse of the statement "the American People want . . . " The reality is they lost touch with what we want years ago. Today, I will settle for a decision. <span style="font-style: italic; font-weight: bold;">Any</span> decision. We can at least then know what to tell clients and how to plan their estates. Congress?? Are you listening?<o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="country-region"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="State"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="City"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="place"></o:smarttagtype><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:applybreakingrules/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:usefelayout/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if !mso]><object classid="clsid:38481807-CA0E-42D2-BF39-B33AF135CC4D" id="ieooui"></object> <style> st1\:*{behavior:url(#ieooui) } </style> <![endif]--><style> <!-- /* Font Definitions */ @font-face {font-family:SimSun; panose-1:2 1 6 0 3 1 1 1 1 1; mso-font-alt:宋体; mso-font-charset:134; mso-generic-font-family:auto; mso-font-pitch:variable; mso-font-signature:3 135135232 16 0 262145 0;} @font-face {font-family:"\@SimSun"; panose-1:2 1 6 0 3 1 1 1 1 1; mso-font-charset:134; mso-generic-font-family:auto; mso-font-pitch:variable; mso-font-signature:3 135135232 16 0 262145 0;} /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:SimSun;} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --></style><span style=";font-family:Arial;font-size:12pt;" ></span><br /><br /><blockquote style="font-weight: bold;">This result is symptomatic of the immovable, political partisanship at all costs, out of touch with reality we call “representative” government in Washington, D.C. It is a situation that is untenable for U.S. citizens–clients and planners alike. Most of us are weary of the fighting, infighting and grandstanding behind these “representatives'” abuse of the statement “the American People want . . . . “ The reality is they lost touch with what we want years ago. Today, I will settle for a decision. Any decision. We can at least then know what to tell clients and how to plan their estates. Congress? Are you listening? (thought not).</blockquote><span style="font-size:180%;">I</span>n 1981, Congress enacted the basic structure of the Federal Estate and Gift Tax we have worked with since then. A couple of years later, they “tweaked” the law, adding, among other items, a Generation Skipping Transfer Tax. The Estate Tax was imposed on the value an individual transferred on death. The Gift Tax was imposed on transfers during an individual’s lifetime. The Generation Skipping Tax (GSTT) was imposed--in addition to Estate and Gift Taxes–on transfer to generations further removed than an individual’s own children. This tax scheme contained a couple important exceptions. First, whenever assets are transferred between spouses, there is no tax on that transfer. This has been named the “Marital Deduction.” Mechanically this is a “deduction” on Estate and Gift Tax Returns, but in my view it is inaptly named. It really is a deferral–not a deduction. Because it is a deferral, it can be a trap for the unwary. If relied upon, a married couple might lose an entire exemption.<br /><br /><span style="font-size:180%;">T</span>he second is the charitable deduction. This says that you get a dollar for dollar deduction from Estate and/or Gift Tax on every dollar transferred to charity. This can be a powerful planning tool. But there is a trap waiting for some who have used it in their trusts. I’ll address that below.<br /><br /><span style="font-size:180%;">E</span>ffective in 1986, the maximum value an individual could transfer, during lifetime or at death, was $600,000 (we generally refer to this as an “exemption”). In the late 1990's the amount was incrementally increased from the original $600,000 to $1million. The $1million would have been reached in 2006.<br /><br /><span style="font-size:180%;">W</span>hen the “changing of the guard” from a Democrat-controlled Congress and Presidency to all-Republican control was completed in 2000, Congress passed the current law, which accelerated the incremental increases significantly, and eliminated the Estate Tax and the GSTT on January 1, 2010. Inexplicably, the Gift Tax remains in force, with a $1million dollar lifetime exemption. The big problem with this, however, is that the law that became effective in 2000, expires by its own terms on December 31, 2010.<br /><br /><span style="font-size:180%;">B</span>eginning January 1, 2011, unless Congress acts to change this, the maximum exemption will return to $1 million. In the meantime, we are in a proverbial “no man’s land” regarding planning.<br /><br /><span style="font-weight: bold;">What Should You Do</span>?<br /><br /><span style="font-size:180%;">I</span>f you have not done so already, you need to review your plans with your advisors, in light of this situation. In our practice, we have tried for a number of years, during this period of seemingly phrenetic change, to draft for flexibility. If your documents have not been recently reviewed and do not contain certain language providing for some of this flexibility, you, your spouse, or your children may be in for a rude surprise.<br /><br /><span style="font-weight: bold;">Formula Clauses in Trusts</span>. This is an area which may catch some by surprise. The traditional trust (often referred to as a Credit-Shelter, Bypass, or A-B Trust) technique provides that on death, the maximum amount allowed to pass free of tax (historically, the amount of the exemption) is to be set aside in a trust which allows for limited use and benefit – but not transfer to the spouse and therefore not owned by the spouse. This is done to “bypass” the marital deduction and use all of the exemption (thus, the term “Bypass Trust”). If you are counting on a certain amount or certain specific assets transferring to the spouse, but have only this formula clause in the Trust document, under the 2010 rules, the entir amount of the decedent's trust estate will be held in the Bypass Trust, no matter how large the estate.<br /><br /><blockquote style="font-weight: bold;">If you are counting on a certain amount or certain specific assets transferring to the spouse, but have only this formula clause in the Trust document, under 2010 rules, the entire amount of decedent’s trust estate will be held in the Bypass Trust, no matter how large the estate.</blockquote><br /><span style="font-weight: bold;">Charitable Formula Provisions</span>. Some Trusts provide that the exempt amount will pass to children or other heirs and balance to a Charity. When there was an established amount and the estate size was modestly over the exemption amount, that probably worked to satisfy a client’s objectives. As the exemption increases or is eliminated, this may not work any more. In 2010, by defiinition, this clause will transfer the decedent's entire trust estate to the Charity and nothing to other heirs.<br /><br /><blockquote style="font-weight: bold;">In 2010, by definition, this clause will transfer the decedent’s entire trust estate to the Charity, and nothing to other heirs!</blockquote><br /><span style="font-weight: bold;">Other Lurking Issues</span>. Under the current law, the concept of “stepped up” basis is no longer effective. When a capital asset is transferred by gift during lifetime, the transferee “receives” the transferor’s basis (and eventual capital gain on disposition). Under old rules, when a capital asset was transferred “by reason of death,” the transferor’s basis was adusted so the transferee would have a brand new, fair market value, basis on receipt. The new rule, effective January 1, 2010, treats such assets whether inherited by reason of death or received by lifetime gift, the same. The transferor’s basis now “carries over” to the new owner. There is no longer an adjustment to fair market value. This may well have significant consequences and should be considered in planning.<br /><br /><span style="font-size:180%;">O</span>ne item of good news here is that the law retained an election by the executor or trustee to step up some of the assets under the old rule. There are rules and time frames, and an administrator will now have to be diligent about it. The amount which may be elected is substantial ($1.3 million).<br /><br /><span style="font-weight: bold;">Conclusion</span><br /><br /><span style="font-size:180%;">I</span>t is uncertain where we are going with this and whether Congress will act this year–or not at all. It is certain that if you have not done so, you need to review existing plans and adjust where necessary. Earlier, I alluded to drafting for flexibility. There are “disclaimer” techniques and a technique using something called a Power of Appointment which may be very useful in these uncertain times. Your advisor should know about these techniques.<div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com0tag:blogger.com,1999:blog-4894788283220088015.post-60166318573779744112009-11-22T12:02:00.001-05:002009-11-22T12:06:26.139-05:00THE TOOLS OF ESTATE PLANNING; THE REVOCABLE LIVING TRUST<span style="font-family: arial;"><span style="font-size:180%;">I</span>n prior months we have discussed a number of the “Tools” which comprise a well rounded Estate Plan. While I have opined that the Durable Power of Attorney is perhaps the all-important “hub” of a good plan, the Revocable Living Trust is–perhaps–equally important.<br /><br /><span style="font-size:180%;">O</span>ften referred to as a “Will-substitute,” the Revocable Trust functions, like a Will, to distribute assets to heirs (known as “beneficiaries”) after death. However, it is the additional things that can be done with a Trust that make it “shine” in the Estate Planning arena. A Trust allows the maker (known as a “grantor”) to provide for ongoing management of assets and controlled distributions for beneficiaries who may be minors, incapacitated, or simply not ready for unfettered receipt of assets in the mind of the grantor. And, during the continued lifetime of the grantor, the Trust can be an important asset management tool in the event of the grantor’s own incapacity.<br /><br /><span style="font-size:180%;">I</span>n most states, a Trust is not subject to the same “formalities of execution” that a Will must have. Trusts are generally governed by contract law (with some modification by modern state Trust Codes), which can allow for more flexibility in drafting for the wishes of the grantor.<br /><br /><span style="font-size:180%;">T</span>he “magic” of the a Trust is that it is recognized as a “legal person” and therefore, “lives on” after the death of the Grantor. This means that there is essentially uninterrupted management and control of assets within the Trust and (usually) no need for court-supervised administration of the estate.<br /><br /><span style="font-size:180%;">L</span>ike many legal concepts, there are some common misconceptions about Trusts:<br /><br /><span style="font-weight: bold;font-size:100%;" >Tr</span><span style="font-weight: bold;">usts do not save or avoid taxes</span>. Trusts, themselves are simply tools. Avoidance or reduction of taxes requires active planning, and often involves the use of Trusts. Many times over my 25 years of practice, I have seen persons relying on the existence of a Trust as a tax savings, only to be rudely surprised after it was too late.<br /><span style="font-weight: bold;font-size:180%;" ><br /><span style="font-size:100%;">Y</span></span><span style="font-weight: bold;">ou don’t have to hire a third party Trustee</span>. There often seems to be this vague notion that you must put all your assets in a box, take it down to the bank or brokerage, and entrust it to some third party who then tells you how and when you can use them. This is followed by a similar vague thought about the expense involved.<br /><br /><span style="font-size:180%;">I</span>n reality, you may–and usually should (and the substantial majority of my clients do) be your own Trustee. Indeed, most of these Trusts are known as “Grantor-Revocable Trusts” (which has a technical tax meaning). Michigan’s Trust Code actually provides that the grantor of such a Trust remains and is treated as the owner of the Trust assets in all respects. There is no independent tax reporting or filing under a grantor-revocable Trust. Nor is there any duty to “account” (it just wouldn’t make sense to require you to account to yourself).<br /><br /><span style="font-size:180%;">O</span>n the death or incapacity of the grantor, a successor trustee can be a family member or close personal friend or advisor. With married couples, we usually appoint spouses as co-trustees, with the surviving spouse continuing in that role. This doesn’t mean there is never a time when a third party Trustee might be advised. There are professional trustees who are well versed in trust and asset management and set up to fulfill the formal requirements of trust administration. Most often this arises after the grantor’s death.<br /><br /><span style="font-weight: bold;font-size:100%;" >Y</span><span style="font-weight: bold;">ou don’t have to have be a millionaire for a Trust to be advised</span>. I would like to have $10 for every time in my career that I have heard a client (and sometimes a colleague) say the estate wasn’t large enough for the estate tax and therefore a trust wasn’t necessary. This misconception goes hand-in-hand with the notion that Trusts somehow eliminate or reduce taxes. The primary function of a Trust is orderly, managed, asset distribution without the need of Probate. Any client who owns a home, has life insurance and some other assets is at least a candidate for a Revocable Living Trust.<br /><br /><span style="font-size:180%;">T</span>here are certain crucial steps in setting up an Effective Trust:<br /><br /><span style="font-weight: bold;">Trusts must be Funded</span>! One critical error we see regarding Trusts is that they often fail to be funded. I like to describe a Trust as a box. The document itself is the box.<br /><br /><blockquote style="font-weight: bold;">We can make a pretty nice box, with lots of proverbial bells and whistles. But by itself, it is still just a box–an empty box.</blockquote><br /><span style="font-size:180%;">T</span>he trust will only cover assets that are titled in the trust, or are designated to automatically pay into the trust at some point (often on death). Other assets will still be subject to probate (or may, whether intended or not, pass directly to a beneficiary or joint owner).<br /><br /><span style="font-size:180%;">C</span>areful attention must be paid to each type of asset in this process. There are even some assets which in most circumstances, should probably not be put into a Trust (most notably, many retirement plan assets).<br /><br /><span style="font-weight: bold;font-size:100%;" >R</span><span style="font-weight: bold;">egular Monitoring is Critical</span>. Another factor contributing to the failure of Trusts in Estate Planning is the failure to periodically and consistently review the plan. This relates not just to the document itself, but to the process of funding. The one true constant in our lives is change. I am consistently impressed with how often clients change their asset mix. CD’s become due. Accounts are changed to “better” investments. Products are exchanged and rolled over. And banks seem to change names so often these days that often the paint isn’t even dry on the new signs between name changes. All these factors contribute to the crucial need to undertake periodic review. While I am hesitant to set a “rule of thumb,” if it has been more than two years between reviews, that is too long! The reality of the situation is that your own particular circumstances will dictate the frequency.<br /><br /><span style="font-size:180%;">W</span>e recommend Revocable Living Trusts for the majority or our Estate Planning clients, not because it is a “favored product,” but because it truly fits the needs and goals of most clients in our experience. In upcoming posts, I will address some variations of Trust Agreements that may be recommended for clients with particular circumstances.</span><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com1tag:blogger.com,1999:blog-4894788283220088015.post-61053309629753851452009-10-13T12:42:00.002-04:002009-10-13T12:51:53.908-04:00The Tools Of Estate Planning - The Last Will and Testament<span style="font-family: arial;"><span style="font-size:180%;">I</span>t is very common these days for third party advisors of every description (insurance advisors, accountants, church groups, foundation officers, brokers, <span style="font-style: italic;">etc</span>.) to recommend a Will. Questions like “<span style="font-style: italic;">do you have a Will</span>”; “<span style="font-style: italic;">have you updated your Will</span>?” are frequently asked.</span><br /><br /><span style="font-family: arial;"><span style="font-size:180%;">W</span>hile I agree that a Will is an important fundamental “tool” in the Estate Planning tool bag, I take a more contrary view. Misconceptions about Wills are the most common of all misunderstandings in this arena. I continue to be impressed, in this “information age” at how much misinformation or just misunderstanding exists about Wills.</span><br /><br /><span style="font-family: arial;"><span style="font-size:180%;">L</span>ets consider some fundamental points about Wills:</span><br /><br /><span style="font-family: arial;">● <span style="font-weight: bold;">Wills do not avoid Probate</span>! Indeed, a Will is simply as set of written instructions to the Probate Court (or more correctly, to the “executor”), on how the Probate Process should be handled.<br /></span><blockquote style="font-weight: bold;"><span style="font-family: arial;">Clients are often dumbfounded when they learn that even with the Will they spent so much time (and often money) to have done the estate still must be probated.</span></blockquote><span style="font-family: arial;">● <span style="font-weight: bold;">Wills do not always do what you think they will do</span>. A Will only governs assets which are subject to probate. Too often, over the years, I have had to explain to a client that, even though mom or dad’s Will clearly divides their asset equally among all the children, the division legally will not happen that way. While there are certainly circumstance in which this is intentionally done, it is often a matter of misunderstanding by the client making the Will about how the law works. <span style="font-style: italic;">Insurance policies</span> pay to the designated beneficiary, usually without regard to the terms of the Will. Assets that are <span style="font-style: italic;">owned jointly</span> with one or more other persons often go to the joint owner, outside of probate and again, without regard to the terms of the Will (this is often the case in a <span style="font-style: italic;">joint bank account</span>, or an account which designates a “<span style="font-style: italic;">pay on death</span>” or “<span style="font-style: italic;">transfer on death</span>” beneficiary).</span><br /><br /><span style="font-family: arial;">● <span style="font-weight: bold;">You already have “a Will.”</span> The Michigan Legislature (as has most states) has considered how the “typical” person would want their assets distributed. The <a href="http://www.legislature.mi.gov/%28S%28ih4bbgr13hqur555u1mafmyp%29%29/mileg.aspx?page=getObject&objectName=mcl-Act-386-of-1998&highlight=Estates">Michigan Estates and Protected Individuals Code</a> (EPIC) directs the distribution of assets of a person who died without a Will (a term or condition known as “intestacy”). My problem with that is that I have not met that “typical” person in my 25 years of helping clients with their Estate Planning. The statue simply makes some assumptions which are often not reflective of clients’ desires. Ironically, in other cases, clients go through a significant amount of angst and effort to create a Will that does not differ substantially from this statutory scheme (in other words, they spend time and money on a Will which really doesn’t accomplish much for them).</span><br /><br /><span style="font-family: arial;"><span style="font-size:180%;">I</span> am not saying a Will is a “bad” thing, or that you should not have one. We always recommend a Will as part of the overall Estate Plan. There are some very important functions of a Will:</span><br /><br /><span style="font-family: arial;">● A Will gives you the opportunity to direct the Probate Process the way you want it to be done -- if there is a need for Probate for some reason.</span><br /><br /><span style="font-family: arial;">● With a Will, you choose the executor (in Michigan, called a <span style="font-style: italic;">Personal Representative</span>).</span><br /><br /><span style="font-family: arial;">● A Will remains an effective way to nominate guardians for minor children.</span><br /><br /><span style="font-family: arial;">● In situations where there is a taxable estate or income tax issues, the IRS (and state treasury) will look to the language in the Will for the handling and apportioning of taxes.</span><br /><br /><span style="font-family: arial;">● There are special situations (<span style="font-style: italic;">e.g</span>., in certain <span style="font-style: italic;">Medicaid</span> circumstances) where using a Will and creating a “Testamentary Trust” may be preferred.</span><br /><br /><span style="font-family: arial;">● A Will can be used as a “catch all” and a curative document to “repair” situations that do not occur as planned (for example, we recommend a “pour-over” Will whenever a client creates a revocable living trust).</span><br /><br /><span style="font-family: arial;">In summary, while there are instances in which a Will is appropriate as the tool of disposition in an Estate Plan, there are commonly better methods and the Will becomes an important supporting and backup tool as part of the overall Plan.</span><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com1tag:blogger.com,1999:blog-4894788283220088015.post-56657254951165345012009-06-16T21:57:00.007-04:002009-10-13T13:03:10.265-04:00The Tools of Estate Planning - The Health Care Durable Power of Attorney<div><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="font-size:x-large;">T</span>he <a href="http://www.legislature.mi.gov/%28S%28azzg34451dzyvg45aiuqmd55%29%29/mileg.aspx?page=getobject&objectname=mcl-386-1998-V-5&query=on&highlight=Patient%20AND%20Advocate">Michigan Statute authorizing</a> these specialized powers of attorney denominate them as “Healthcare Designations of Patient Advocate.” The previous blog addressed Durable Powers of Attorney, the rationale behind them and the common law and statutory law authorizing them. The Designation of Patient Advocate is a special form of a Durable Power of Attorney which restricts itself to medical and health care issues. For purposes of this blog, I will refer to them as Medical or Health Care Powers of Attorney.</span></div><div><span class="Apple-style-span" style="font-family:verdana;"><br /></span></div><div><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="font-size:x-large;">T</span>he Medical Power of Attorney is often confused with another similar planning tool, the “Living Will Declaration.” The Living Will Declaration is a self-activating instruction to the Medical Community to take certain, often life-ending, actions. Unlike the Living Will Declaration, which is a direct instruction to the medical community, a Medical Power of Attorney appoints a person as your agent (just like a General Durable Power of Attorney), to act on your behalf in the process of making medical and health care decisions. These powers can range from daily care decisions to the ultimate end of life decision.</span></div><div><span class="Apple-style-span" style="font-family:verdana;"><br /></span></div><div><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="font-size:x-large;">A</span> well-drafted Medical Power of Attorney will not only specifically itemize the powers granted, but it will designate the person who has that authority. There is a specific itemized list of powers which may be granted by statute and it is wise drafting to include those statutory powers in the document.</span></div><div><span class="Apple-style-span" style="font-family:verdana;"><br /></span></div><div><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="font-size:x-large;">T</span>he Medical Power of Attorney statute was passed by the Michigan Legislature in late 1990. Prior to that time, the status of the Power of Attorney in making healthcare decisions was questionable. Michigan had some very unclear statutory treatment of the meaning of “death” and how and when life could be terminated. <i><b><blockquote><span class="Apple-style-span" style="color: rgb(255, 0, 0);"><span class="Apple-style-span" style="font-size:x-large;"> The medical and legal community alike embraced the advent of the Medical Power of Attorney Statute.</span></span></blockquote></b></i></span></div><div><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="font-size:x-large;">U</span>nlike a general durable power of attorney, the Michigan Medical Power of Attorney statute requires the written determination by two medical professionals that the patient is unable to meaningfully participate in their own health care decision making process, before the agent is authorized to act.</span></div><div><span class="Apple-style-span" style="font-family:verdana;"><br /></span></div><div><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="font-size:x-large;">I</span>n April of 2004, certain provisions in the Health Care Portability and Accountability Act (HIPAA) which critically effect these Medical Powers of Attorney became active. HIPAA, among (many) other things, provides that a Medical Provider cannot reveal “Protected Health Information” (PHI) to anyone without the prior, written authorization of the patient.</span></div><div><span class="Apple-style-span" style="font-family:verdana;"><br /></span></div><div><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="font-size:x-large;">O</span>bviously, when the patient is not competent, this is not possible. The HIPAA regulations provide for a delegation, in writing, by the patient (obviously prior to their becoming incompetent). It is critical that a Medical Power of Attorney contain HIPAA - compliant provisions.</span></div><div><span class="Apple-style-span" style="font-family:verdana;"><br /></span></div><div><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="font-size:x-large;">H</span>ospitals and Legislators offer a “fill-in-the-blank” form of Health Care Designation. In my view, while better than nothing, they leave much to be desired and do not cover with sufficient detail, the important provisions which should be in these documents.</span></div><div><span class="Apple-style-span" style="font-family:verdana;"><br /></span></div><div><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="font-size:x-large;">T</span>he Medical Power of Attorney is one of the fundamental, important tools of estate planning.</span></div><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com3tag:blogger.com,1999:blog-4894788283220088015.post-19905793056009200142009-04-11T12:36:00.002-04:002009-04-11T12:44:47.195-04:00The Tools of Estate Planning - The Durable Power of Attorney<div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-size: x-large;">T</span>his is the first in a series of Blogs on Estate Planning Tools. Estate Planning is a process. The documents we lawyers prepare for clients are the “tools” used to ensure that the process works. Some are basic tools that every client needs as part of their plan. Some are more sophisticated and reflect the clients’ needs, desires, and special circumstances.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-weight: bold;"><span class="Apple-style-span" style="font-style: italic;"><blockquote>Everyone Should have a General Durable Power of Attorney</blockquote></span></span></span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-size: x-large;">T</span>he General Durable Power of Attorney is one of the basic tools that should be in every estate plan. This document, correctly drafted, will give the client the flexibility needed to respond to almost any variation in circumstances, whether specifically addressed in the estate plan or not. The Power of Attorney will allow surrogate decision makers to act in your best interest and in furtherance of your estate plan, even when you cannot.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-weight: bold;">Stuff You Probably Didn’t Want to Know</span>. There are some fundamental components that must be included in a good Durable Power of Attorney document. To well understand these components, it is useful to have a basic familiarity with the law which is the foundation of the Durable Power of Attorney. As you read on, hopefully you will remember the adage, “do not shoot the messenger.”</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;">My father the engineer was fond of saying that the best, most trouble-free, and lasting designs were based on simplicity. Unfortunately, what could perhaps be the simplest of all estate planning concepts is necessarily complicated by the law which governs it.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-weight: bold;">Common Law vs. Statutory Law</span>. Since before the United States was settled, our ancestors have relied on something known as “Common Law.” Common law developed based on a series of court decisions over many years, starting with English courts, and carrying over into most of the United States.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;">When the legislature (congress at the federal level) of a state thinks common law is insufficient to cover certain issues, or needs to be changed, it enacts written laws, known as “statutes.” One of the quirks of statutory law is that when it changes or goes against traditional common law, our courts interpret it very narrowly. Why am I telling you this? What does this have to do with Estate Planning and Durable Powers of Attorney?</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-weight: bold;">Agency Law</span>. The common law of Agency governs Durable Powers of Attorney. They are very similar to an employment document (employment law is also originally based on Agency law).When you grant someone a Power of Attorney, they become your Agent (and you are known as the Principal). Under the common law rules, Agency was automatically terminated when the Principal become incapacitated.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-size: x-large;">O</span>bviously, as an Estate Planning tool, that type of instrument is of very limited usefulness. Recognizing this limitation, the Michigan Legislature (as have the legislatures of every other state), enacted a statutory provision which allowed a Durable Power of Attorney to provide in its terms that it would continue to be effective, even in the event of the incapacity of the principal. As noted above, this goes against (or is “in derogation of) traditional common law rules of Agency. And because of the quirk of narrow interpretation noted above, this means that unless the Durable Power of Attorney specifically and precisely enumerates detailed powers granted to the Agent, the courts (and more importantly, third parties your agent may be dealing with) are likely to consider it useless.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-size: x-large;">T</span>hus, our legal system requires us to take what could be a very simple document (what is more clear than “my Agent may do anything that I could do”?) and make it a necessarily long and complex document with many, detailed, enumerated powers.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-weight: bold;"><span class="Apple-style-span" style="font-style: italic;"><blockquote>If you have an existing Durable Power of Attorney that is only a page or two, it is likely not going to be as effective as it could or should be.</blockquote></span></span></span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-weight: bold;">What Should Your Durable Power of Attorney Say</span>? A well written Durable Power of Attorney Document will have a number of detailed provisions generally dealing with the “business” of everyday life. It will generally be necessary for the document to cover at least the following areas:</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;">•</span><span class="Apple-tab-span" style="white-space:pre"><span class="Apple-style-span" style="font-family: arial;"> </span></span><span class="Apple-style-span" style="font-family: arial;">Financial Powers, including power to deposit, withdraw from, open and close bank and brokerage accounts, vote stock, and make dividend elections.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;">•</span><span class="Apple-tab-span" style="white-space:pre"><span class="Apple-style-span" style="font-family: arial;"> </span></span><span class="Apple-style-span" style="font-family: arial;">Power to pay and/incur debt, and to contract, negotiate, sue and defend.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;">•</span><span class="Apple-tab-span" style="white-space:pre"><span class="Apple-style-span" style="font-family: arial;"> </span></span><span class="Apple-style-span" style="font-family: arial;">Power to engage in Real Estate transactions (this will require that the Power of Attorney be in recordable form, so it can be recorded in the county register of deeds office if necessary).</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;">•</span><span class="Apple-tab-span" style="white-space:pre"><span class="Apple-style-span" style="font-family: arial;"> </span></span><span class="Apple-style-span" style="font-family: arial;">Tax Powers, including the power to file tax returns and make tax elections.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;">•</span><span class="Apple-tab-span" style="white-space:pre"><span class="Apple-style-span" style="font-family: arial;"> </span></span><span class="Apple-style-span" style="font-family: arial;">Powers to deal with Social Security, Medicare, Medicaid and other governmental agencies.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;">•</span><span class="Apple-tab-span" style="white-space:pre"><span class="Apple-style-span" style="font-family: arial;"> </span></span><span class="Apple-style-span" style="font-family: arial;">Power to deal with Qualified Retirement Plans, Pensions, and IRA’s, including power to make elections.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;">•</span><span class="Apple-tab-span" style="white-space:pre"><span class="Apple-style-span" style="font-family: arial;"> </span></span><span class="Apple-style-span" style="font-family: arial;">Powers to deal with Insurance and Annuities (including making elections and beneficiary changes).</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;">•</span><span class="Apple-tab-span" style="white-space:pre"><span class="Apple-style-span" style="font-family: arial;"> </span></span><span class="Apple-style-span" style="font-family: arial;">Power to make adjustments to existing Estate Planning Documents.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;">•</span><span class="Apple-tab-span" style="white-space:pre"><span class="Apple-style-span" style="font-family: arial;"> </span></span><span class="Apple-style-span" style="font-family: arial;">Power to make or continue gifts.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;">•</span><span class="Apple-tab-span" style="white-space:pre"><span class="Apple-style-span" style="font-family: arial;"> </span></span><span class="Apple-style-span" style="font-family: arial;">Personal powers like establishing residency, making funeral arrangements, and entering into personal care contracts.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;">The foregoing is by no means an exhaustive list, but is meant to illustrate the level of detail that is necessary in order for these documents to be useful as intended.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-weight: bold;">Who Should Your Agent Be</span>? Considering some of the powers enumerated above might cause you to ask whether you really want to give an Agent such broad and far-reaching powers.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-tab-span" style="white-space:pre"><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-weight: bold;"><span class="Apple-style-span" style="font-style: italic;"></span></span></span></span><blockquote><span class="Apple-tab-span" style="white-space:pre"><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-weight: bold;"><span class="Apple-style-span" style="font-style: italic;">T</span></span></span></span><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-weight: bold;"><span class="Apple-style-span" style="font-style: italic;">he focus should not be on what the document says, but who we give the power to</span></span></span></blockquote><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-weight: bold;"><span class="Apple-style-span" style="font-style: italic;"></span></span>.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-size: x-large;">T</span>he “tool” analogy really does work here. If I want to build a house, I hire a skilled, experienced builder. In the hands of an unskilled or careless person a sophisticated power tool with very sharp blades can cut off limbs and do serious injury in an instant. In the hands of a skilled user who exercises common sense, that same tool makes the process better and easier. And, as a matter of fact, in the hands of an unqualified person, a crude hand tool can still do plenty of damage.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-size: x-large;">T</span>he question you should be focusing on is whether the person being give any power is trustworthy, dependable, and capable of exercising good judgment. If that is the case, I believe we want to give them the most capable tool to accomplish the assignment they have been given.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-size: x-large;">I</span> am not saying, necessarily, that the person you appoint must be a lawyer, accountant, or financial person. Those persons can be hired. They need to be able to use good judgment and common sense in the process. Indeed, in most cases, I believe a trusted family member is best solution for this.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-weight: bold;">When Should The Power Be Effective</span>? A Durable Power of Attorney may be immediately effective, or may be drafted to become effective only upon a finding of incapacity (sometimes referred to as a “Springing” power). Clients sometimes express a concern over a power being immediately effective and believe that they would prefer the “springing” power.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-size: x-large;">W</span>hile there is no “right or wrong” answer to this question,<span class="Apple-style-span" style="font-style: italic;"> I have a bias toward the power being immediately effective</span>. My view is based on the same reasoning used in the “sharp power tool” analogy above. If the person you have chosen is trustworthy and capable of good judgment, you shouldn’t need to worry about abuse of the power. If they aren’t, you should be very seriously questioning appointing them under any circumstances.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-size: x-large;">M</span>y bias stems from a practical viewpoint. If we make the power “springing,” it must be conditioned upon an event -- typically, “incapacity,” How is incapacity defined? Who makes that determination? How do we prove that to third parties?</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-size: x-large;">I</span>n my view, by making the Durable Power of Attorney conditioned on an event, we set up “road blocks” to its practical usefulness. We find ourselves having to figuratively “jump through hoops” to validate it. It seems to me that such “roadblocks” defeat one of its most useful purposes: flexibility and ease of use by the Agent, when that use is most needed.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-size: x-large;">O</span>f course, there will always be exceptional circumstances and none of the conditions are insurmountable. It is possible to create a definition and designate a decision-maker. But on balance, I would prefer the ease of use of an immediately effective document.</span></div><div><span class="Apple-style-span" style="font-family: arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family: arial;"><span class="Apple-style-span" style="font-size: x-large;">I </span>believe the Durable Power of Attorney is the single most important Estate Planning Tool for most clients’ Estate Planning Need. While others are equally advisable (as upcoming Blog entries will illustrate), if I could only choose one Estate Planning component, the Durable Power of Attorney would be the one.</span></div><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com3tag:blogger.com,1999:blog-4894788283220088015.post-70905052797309210312009-03-07T18:44:00.005-05:002009-03-25T17:34:45.798-04:00DIY Law<div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size:x-large;">I </span>have spent a lot of time thinking about how to best approach this subject. No matter how I do, or what I say, it is likely to sound like a self-protection, “rant” by someone who is looking over his shoulder at the up-and-coming competition.</span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size:x-large;">S</span>o let me start by saying that I am not in the least concerned about “competitors.” I have been blessed with my share of loyal clients and valuable and respected relationships with trusted advisors who refer to me. I am confident that by doing my best to focus on quality, personal service to my clients, I will continue to have sufficient work load. My purpose here is to express the real concern that I have for the welfare of all the clients out there--whether mine or not.</span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size:x-large;">I</span>n the past several years, I have acquired some new clients who have brought to me Business setups and Estate Planning documents which were acquired on one or more of the “legal.com” sites that seem to be ubiquitous lately. These sites purport to provide a complete package of the documents clients need to create their own Will, or incorporate their business, at a fraction of the cost of using experienced professional advisors. They universally disclaim any suggestion that they are lawyers or are giving any legal advice (though they are quick to note that they are set up by lawyers).</span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size:x-large;">T</span>here’s the rub. It is fallacy to think that the primary function of lawyers is to provide legal documents. That great American President, Abraham Lincoln is famed for saying “a lawyer’s time and advice are his stock and trade.” <span class="Apple-style-span" style="font-style: italic;"><span class="Apple-style-span" style="font-weight: bold;">Documents are just paper</span></span>. Even lawyers use third party sources and form banks. The real value we give to clients is our experience, analysis of their circumstances and needs -- in short, our advice.</span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size:x-large;">G</span>ood lawyers do not charge clients for documents themselves. What we charge for is our time and our counseling which comes from knowledge of the law, experience, continuing education in our specialties, and counseling and advice. The problem with documents in and of themselves is that they are dangerous. Unless they are knowledgeably applied to the particular needs and circumstances of the client, they can either create in the client a false sense of security, or alternatively create disastrous consequences.</span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size:x-large;">I </span>have visited some of these sites. And I have seen a number of their products. Some of them are nothing more than scams. Others provide some pretty adequate packages of documents.</span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size:x-large;">B</span>ut that is not really the important question. <span class="Apple-style-span" style="font-style: italic;"><span class="Apple-style-span" style="font-weight: bold;">A much more important question than how to incorporate is whether incorporation is appropriate in the first place</span></span>! Most states offer multiple business form choices and the form that works well for one person may not be right for the next (even in identical businesses). Determining a client’s goals and appropriate business enterprise setup can only be property done by a face-to-face, detailed discussion between counsel and client.</span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size:x-large;">T</span>wo years ago, I took in, incidentally (by advising someone who was considering doing business with them), a new client who had a Limited Liability Company set up by a “dot.com” provider. The documents were so hopelessly intermixed with corporation terminology that they were essentially untenable documents. It probably cost this client more in fees to clean up the mess than it would have to have me do the job in the first place.</span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size:x-large;">L</span>ast year, I had an new estate planning client come in with a D-I-Y Revocable Trust. The clients had formed many ideas of how the trust concept worked that not only were incorrect, but were hopelessly intermingled with probate concepts. The irony is that the primary function of the Revocable Trust Agreement is to avoid Probate! The old saying, “the devil is in the details” is never more well illustrated that in the revocable trust context. These sites do not explain to the client the importance of <span class="Apple-style-span" style="font-style: italic;">funding</span> the trust (getting assets properly titled) as the basis for the trust to work at all.</span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size:x-large;">L</span>ast week (prompting this writing), an Estate Planning client gave me information about a business entity she owned. Curious, I did a quick on-line check at our state offices and discovered not only that the entity she thought she had was inactive, but the “dot.com” she hired to set it up had set up two other entities for her. I cannot think of a reason why she needed the two other entities. I do not know all the circumstances under which the two entities were set up, or what communications she had with the “dot.com.” <span class="Apple-style-span" style="font-style: italic;">What I can say with certainty, though, is that she didn’t know and was conducting business under an entity name that probably did not do for her what she assumed it was</span>.</span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size:x-large;">I</span>f we are doing our job correctly, we can give clients significant “value-added” to the mere acquisition or preparation of legal documents. <span class="Apple-style-span" style="font-style: italic;">Most lawyers</span> today are willing to give prospective clients a reasonable amount of time (perhaps an hour) to discuss the process and document involved in their legal services, in the form of <span class="Apple-style-span" style="font-style: italic;">a free initial consultation</span>. Why not take advantage of that? If you are not sure who to go see, you can get some help from my earlier article here, on how to choose and attorney.</span></div><div><br /></div></div><div><br /></div><div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com0tag:blogger.com,1999:blog-4894788283220088015.post-86084400788061099212008-08-15T10:54:00.004-04:002009-10-13T13:05:16.657-04:00Estate Planning is a "Team" Activity<span style="font-size:130%;">G</span>ood Estate Planning requires a “team” of professional advisors. The skills and knowledge required to properly assist clients becomes increasingly complex year by year.<br /><br /><span style="font-size:130%;">T</span>oo often, I have been involved in, or observed, "planning" that was done in a one-dimensional manner. That is, an advisor has taken steps for the client, but with a myopic view. For example, if, an attorney advises or drafts Estate Planning documents, without appreciating the tax, financial or insurance consequences of such actions on behalf of a client, the end result can not only fail to accomplish the clients' goals, <span style="font-style: italic;">but may create more significant problems than they originally had</span>.<br /><br /><span style="font-size:130%;">T</span>here are too many variables involved in a proper Estate Plan for one professional advisor (or one discipline) to be expert on all of them. Estate Planning today involves knowledge of multiple areas including State and Federal laws regarding insurance, financial planning and reporting, challenging investment issues in periods of economic uncertainty, health, management and custodial issues, and changing rules regarding Probate and Trust administration. It is important for clients to align themselves not only with a good Estate Planning attorney, but with competent and talented financial advisors, and in the majority of cases good independent tax advisors. My own tendencies favor Certified Public Accountants (“CPA”), but I recognize that quality and competency in any professional field is ultimately more important that the little letters that follow the advisor’s name.<br /><br /><span style="font-size:130%;">W</span>hen a new client comes to my office for Estate Planning, part of the initial meeting involves learning about their other advisors. I want to be sure that those advisors are all on the same proverbial “page,” before we complete the Estate Plan.<br /><br /><span style="font-size:130%;">I</span>t is equally important that the “team” be able to work together. Like a sports team, “chemistry” is an important factor. <span style="font-style: italic;">Egos must be put aside for the best interests of our clients.</span> In my profession, particularly, we have that “never let them see you sweat” mentality. The law school experience (at least back in the early 1980's) emphasized the lawyers advocacy role and conditioned us to argue and advocate. But in the real world, we must <span style="font-style: italic;">advocate</span> for the client in a non-confrontational manner, by using all available resources, including the expertise of the other professional advisors involved.<br /><br /><span style="font-size:130%;">I </span>don’t care who the team “leader” is. In my experience, that varies with the particular dynamics of the associations. Some clients expect me to be the leader. That’s fine. Other clients have come to me over the years on the recommendation of their CPA, Insurance or Financial Advisor. In many cases, those advisors continue to be the pivotal “player” on the team. That works for me. My view is that if we all focus on what is best for the client, the team will mesh and client goals will be met.<br /><br /><span style="font-size:130%;">W</span>hen contemplating an Estate Plan, a client should look to an Estate Planning advisor who works well with other professionals as a team to create the best Estate Planning environment, and thus, the best Estate Plan for them.<div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com0tag:blogger.com,1999:blog-4894788283220088015.post-73140355454901851892008-01-11T13:53:00.003-05:002009-02-16T23:19:13.185-05:00How Do I Choose An Estate Planner?<span style="font-size:130%;">T</span>here is no “Good Housekeeping Seal of Approval” or “UL” rating for Attorneys, Insurance and Financial advisors. And, to make matters more confusing, in Michigan, anybody can call themselves an “Estate Planner” with no formal training or credentials, whatsoever. This makes choosing a good planner a daunting task. <span style="font-style: italic;">One of my fears is that it is so daunting that it prevents people who really need to plan from seeking appropriate help</span>.<br /><br />“<span style="font-size:130%;">F</span>ree Seminars,” and Radio and Television commercials touting websites and services abound today. Too often, these are offered by practitioners who are not qualified. There is a substantial amount of misinformation out there. While some of these services may well be legitimate, <span style="font-style: italic;">sorting out the accurate from inaccurate information is the challenge</span>.<br /><br /><span style="font-size:130%;">I </span>encourage clients to look for certain “credentials.” Not that credentials, by themselves, qualify a person to adequately advice about good Estate Planning, but it helps “winnow” out those who are clearly not qualified. And, credentials presuppose a certain amount of formal education, training, and sometimes experience in the discipline of Estate Planning. If a planner is an active member of their local Estate Planning Council (which is affiliated with the National Association of Estate Planning Councils), they will have to have one or more designated credentials related to Estate Planning. They are also likely to be up to date on current issues and techniques. I have found this to be a good starting source to find qualified individuals. Having a designation as a CLU, CFP or LUTC for life insurance and financial professionals generally means they have had a certain amount of training in the estate planning area. Advanced degrees (for lawyers and accountants) such as a Masters Degree in Taxation, or a Master of Laws in Taxation or Estate Planning are also a measure of qualification.<br /><br /><span style="font-size:130%;">E</span>xperience is also important. <span style="font-style: italic;">Clients should “interview” a prospective advisor before engaging their services</span>. Most of us are glad to talk to clients for a reasonable period of time at no charge, in order to discuss our qualifications, how we work and how we can help a client. Fair questions are: How long has the individual been engaged in Estate Planning? What percentage of his or her business involves Estate Planning? How many plans or Estate Planning clients does he or she serve each year? How often do they attend professional Continuing Education programs in Estate Planning to stay current (The Michigan Bar Association has a great continuing legal education program which offers a lot to lawyers to stay up to date. Some of us “older” attorneys are not required to have any continuing education -- but we should attend anyway)? Do they have representative clients who would be willing to serve as a reference (note that this may be difficult, because of client confidentiality concerns)? How much and how do they charge for their services? And it wouldn’t hurt to ask that Estate Planning Council member if they attend regularly.<br /><br /><span style="font-size:130%;">I</span>n the end, it is important that you--the client--be ultimately comfortable with your advisor. It may be that he or she is imminently well-qualified in terms of knowledge, experience, and credentials. But if you cannot build a comfortable and trusting relationship, the experience will not be satisfying. I always advise clients to find advisors who they trust and feel comfortable with and stay with those advisors.<br /><br />Thanks for reading<div class="blogger-post-footer">Copyright 2007 Andy Richards</div>Michigan Estate Planninghttp://www.blogger.com/profile/15071299069772908099noreply@blogger.com0