MICHIGAN ESTATE PLANNING

Why and When Is a Trust Accounting Report Required?

2011-05-20T14:26:00.009-04:00

Clients often ask why we need to report or account to beneficiaries. This is a particularly perplexing concept when the beneficiaries are remote (i.e., 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?

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.

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^rd iteration) is one such uniform nationally recognized guideline. The Restatement (Third) of Trusts states that 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. Following on this, Michigan's new Michigan Trust Code contains provisions requiring a Trustee to report to beneficiaries.

The Trustee of a Trust is a fiduciary. 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.

Who are the beneficiaries entitled to an account or report? That is a bit less clear. It is clear that the current 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 may be entitled. The code requires 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.

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.

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.

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.

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.

Michigan Supreme Court Buys Us Another Generation on Real Property Taxes

2011-03-11T15:06:00.004-05:00

Thursday, March 10, 2011, the Michigan Supreme Court, in Klooster v. City of Charlevoix, 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 Klooster case centered on the definition of "transfer of ownership," and the meaning of one of the exceptions laid out in the act.

The 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 Klooster 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.

There 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 J ), 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.

Great 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 (e.g., 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.

It will also be interesting to see if the Legislature takes any action to change the statutory language the Court interpreted.

Trusts After 2010 Estate Tax Reform

2011-01-09T17:44:00.002-05:00

Since 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, "of course not!" 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 Estate Planning 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.

The function of a Revocable Trust Agreement 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 Will substitute, 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.

What the new Tax Law does 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 before a death occurs. Thus, Trust planning has just become more flexible and inviting in my view.

Congress Read My Blog!

2010-12-25T17:03:00.003-05:00

I am a realist. I assume only a few people read this from time to time. But Congress? I am flattered to no end. Back in February, I excoriated them, stating that their inability to deal with the Estate Tax as it existed was inexcusable and unacceptable:

"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)."

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.

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 right 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.

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.

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).

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^th 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.

Thank you Congress, and Merry Christmas to you, too!

Is Perception Reality?

2010-11-26T14:01:00.003-05:00

Recently I heard an ESPN Sports Radio show suggest that "perception is reality" 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.

Lately, 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?

"These Individuals are making promises they simply cannot keep."

The true reality is no. We cannot and – truth be told – neither can the individuals who said 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.

I 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.

Don'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.

"These tactics appear to unduly target the needs and circumstances of the elderly"

Is 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.

It is distressing that a number of individuals have been able to create a perception—one 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.

Am I on a rant? Maybe.

"It is our professional obligation to tell our clients what they need to hear—not what they want to hear."

But 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 need to hear.

The “Special Needs Trust” - Critical Planning for Family Members with Disability

2010-07-11T10:09:00.003-04:00

Wills, 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.

One 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.

The Dilemma For Parents

The 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.

A 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.

Traditional 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.

The Special Needs Trust

Most states recognize a special purpose trust, however, generally known as a Special Needs Trust. In Michigan, a properly drafted Special Needs Trust (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.

However, Congress has carefully limited these measures’ application to the true, third-party Special Needs Trust 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.

The advantage of the Special Needs Trust 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. The Special Needs Trust 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.

It 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.

Care must be taken, both in the creation of a Special Needs Trust 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.

The Traditional Third Party Special Needs Trust

There are two different Special Needs Trust recognized by the government as effective. The traditional Special Needs Trust 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.

The Payback Trust

The second variety is what I referenced earlier as an “enhanced” planning capability. The law now provides that a Special Needs Trust may be created with assets belonging to the disabled person; but with some tradeoffs. If the disabled person is under age 65, a Special Needs Trust 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.

It is important that these two types of Special Needs Trust 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.”

Our 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.

If 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 Special Needs Trust, this is a clear opportunity to put some essential planning in place and achieve peace of mind.

POLITICAL PARALYSIS ON THE FEDERAL ESTATE TAX: SHOULD YOU AMEND YOUR ESTATE PLAN?

2010-02-04T10:29:00.007-05:00

On 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. Any decision. We can at least then know what to tell clients and how to plan their estates. Congress?? Are you listening?

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).

In 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.

The 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.

Effective 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.

When 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.

Beginning 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.

What Should You Do?

If 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.

Formula Clauses in Trusts. 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.

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.

Charitable Formula Provisions. 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.

In 2010, by definition, this clause will transfer the decedent’s entire trust estate to the Charity, and nothing to other heirs!

Other Lurking Issues. 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.

One 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).

Conclusion

It 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.

THE TOOLS OF ESTATE PLANNING; THE REVOCABLE LIVING TRUST

2009-11-22T12:02:00.001-05:00

In 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.

Often 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.

In 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.

The “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.

Like many legal concepts, there are some common misconceptions about Trusts:

Trusts do not save or avoid taxes. 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.

You don’t have to hire a third party Trustee. 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.

In 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).

On 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.

You don’t have to have be a millionaire for a Trust to be advised. 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.

There are certain crucial steps in setting up an Effective Trust:

Trusts must be Funded! 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.

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.

The 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).

Careful 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).

Regular Monitoring is Critical. 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.

We 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.

The Tools Of Estate Planning - The Last Will and Testament

2009-10-13T12:42:00.002-04:00

It is very common these days for third party advisors of every description (insurance advisors, accountants, church groups, foundation officers, brokers, etc.) to recommend a Will. Questions like “do you have a Will”; “have you updated your Will?” are frequently asked.

While 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.

Lets consider some fundamental points about Wills:

● Wills do not avoid Probate! 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.

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.

● Wills do not always do what you think they will do. 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. Insurance policies pay to the designated beneficiary, usually without regard to the terms of the Will. Assets that are owned jointly 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 joint bank account, or an account which designates a “pay on death” or “transfer on death” beneficiary).

● You already have “a Will.” The Michigan Legislature (as has most states) has considered how the “typical” person would want their assets distributed. The Michigan Estates and Protected Individuals Code (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).

I 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:

● 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.

● With a Will, you choose the executor (in Michigan, called a Personal Representative).

● A Will remains an effective way to nominate guardians for minor children.

● 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.

● There are special situations (e.g., in certain Medicaid circumstances) where using a Will and creating a “Testamentary Trust” may be preferred.

● 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).

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.

The Tools of Estate Planning - The Health Care Durable Power of Attorney

2009-06-16T21:57:00.007-04:00

The Michigan Statute authorizing 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.

The 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.

A 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.

The 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. The medical and legal community alike embraced the advent of the Medical Power of Attorney Statute.

Unlike 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.

In 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.

Obviously, 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.

Hospitals 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.

The Medical Power of Attorney is one of the fundamental, important tools of estate planning.

The Tools of Estate Planning - The Durable Power of Attorney

2009-04-11T12:36:00.002-04:00

This 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.

Everyone Should have a General Durable Power of Attorney

The 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.

Stuff You Probably Didn’t Want to Know. 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.”

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.

Common Law vs. Statutory Law. 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.

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?

Agency Law. 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.

Obviously, 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.

Thus, 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.

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.

What Should Your Durable Power of Attorney Say? 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:

• Financial Powers, including power to deposit, withdraw from, open and close bank and brokerage accounts, vote stock, and make dividend elections.

• Power to pay and/incur debt, and to contract, negotiate, sue and defend.

• 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).

• Tax Powers, including the power to file tax returns and make tax elections.

• Powers to deal with Social Security, Medicare, Medicaid and other governmental agencies.

• Power to deal with Qualified Retirement Plans, Pensions, and IRA’s, including power to make elections.

• Powers to deal with Insurance and Annuities (including making elections and beneficiary changes).

• Power to make adjustments to existing Estate Planning Documents.

• Power to make or continue gifts.

• Personal powers like establishing residency, making funeral arrangements, and entering into personal care contracts.

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.

Who Should Your Agent Be? 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.

The focus should not be on what the document says, but who we give the power to

The “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.

The 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.

I 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.

When Should The Power Be Effective? 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.

While there is no “right or wrong” answer to this question, I have a bias toward the power being immediately effective. 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.

My 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?

In 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.

Of 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.

I 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.

DIY Law

2009-03-07T18:44:00.005-05:00

I 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.

So 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.

In 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).

There’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.” Documents are just paper. 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.

Good 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.

I 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.

But that is not really the important question. A much more important question than how to incorporate is whether incorporation is appropriate in the first place! 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.

Two 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.

Last 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 funding the trust (getting assets properly titled) as the basis for the trust to work at all.

Last 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.” 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.

If we are doing our job correctly, we can give clients significant “value-added” to the mere acquisition or preparation of legal documents. Most lawyers 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 a free initial consultation. 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.

Estate Planning is a "Team" Activity

2008-08-15T10:54:00.004-04:00

Good Estate Planning requires a “team” of professional advisors. The skills and knowledge required to properly assist clients becomes increasingly complex year by year.

Too 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, but may create more significant problems than they originally had.

There 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.

When 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.

It is equally important that the “team” be able to work together. Like a sports team, “chemistry” is an important factor. Egos must be put aside for the best interests of our clients. 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 advocate for the client in a non-confrontational manner, by using all available resources, including the expertise of the other professional advisors involved.

I 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.

When 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.

How Do I Choose An Estate Planner?

2008-01-11T13:53:00.003-05:00

There 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. One of my fears is that it is so daunting that it prevents people who really need to plan from seeking appropriate help.

“Free 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, sorting out the accurate from inaccurate information is the challenge.

I 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.

Experience is also important. Clients should “interview” a prospective advisor before engaging their services. 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.

In 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.

Thanks for reading

How Do I Start?

2007-11-06T17:18:00.002-05:00

When I started advising clients in the early 80's, talking to families of “average” means about trusts was unique, at least in my practice and community. There was a prevalent train of thought that trusts for the very wealthy, or at least only for clients who were concerned about estate and inheritance taxes. It was often felt that all trusts were unduly complex and always required professional administration. And this train of thought was, more often than not, fostered by professional advisors.

Today, it is more common for clients and advisors alike to hold a more “sophisticated” view of this process, having often read or heard about revocable living trusts, powers of attorney, and such, and their supposed virtues.

Whatever the preconceived ideas a client arrives with, they are too often influenced by misconception and often, misinformation. Having conducted a fair number of “informational seminars” over the years, I have often said to prospective clients that “I don’t really care how you get started, as long as you get started.” Of course, from a purely selfish point of view, I would like it if all clients started the process with me. But in reality, there is a certain amount of value to my suggestion to just start somewhere.

However, I am concerned about the proliferation of self-proclaimed “estate planners” out there. Like any worthwhile endeavor, to do something well involves doing the hard work to master the subject, usually combined with a degree of professional training, staying current, and experience. It is equally important that the Estate Planning Professional know the areas where s/he is qualified and those which should be referred to other more qualified (by training and experience) professionals. Unfortunately, there is no “UL” listing for “Estate Planners.” It is not a “regulated industry” (at least not in Michigan) and so you need not have any credentials to call yourself an “Estate planner.” It is also a multi-disciplinary “industry.” Lawyers, Accountants, Financial Planners, Life Insurance professionals, Trust Officers, and other similar professionals are involved in the Estate Planning process. Any one or more of them may serve as the coordinator of your planning.

I am also concerned about the easy availability of information (whether accurate or misinformation and whether or not properly interpreted), from the internet, the media, and in bookstores. I worry about the infomercial approach to estate planning. I’ll be the first to acknowledge that I make my living “selling” my services as an Estate Planning Attorney. While I do produce legal documents to be used in the estate plan, I do not sell forms, or a kit, or a “one-size-fits-all” approach. Rather, I sell my experience and expertise in counseling clients about the proper tools and techniques for their particular circumstances.

So how do I answer the question, “How do I start?” Somewhere - by all means, just start. But hopefully that means that you seek out a qualified professional for assistance. I’ll comment on how I believe you should find and determine just who is a “qualified professional” next time.

Thanks for reading . . .

What is "Estate Planning"

2007-11-01T13:38:00.001-04:00

Clients often think "estate planning" is either broader or narrower than it is. Estate planning is not financial planning (although financial planning is certainly a part of it). Nor does executing a Will complete the estate planning process. Indeed, the word "plan" is instructional. A good estate plan is a kind of "blueprint" for an overall plan for family issues, dealing with incapacity, succession planning (particularly where family businesses are involved) and distribution of assets upon death. Thought must be given to each possible event when putting together the plan.

Estate planners have often referred to their job as "what if" planning. It is our job to consider all of the "what ifs" that might occur -- questions like: What if an heir, or designated agent, executor or trustee dies prior to your death? What if you die and your children have not yet reached the age of majority? What if after you make the plan, you experience incapacity and circumstances or the laws change in a way that negatively impacts the plan?

A good estate plan consists of a number of tools which when combined properly allow your designated successor(s) to effectively and efficiently carry out your wishes. Wills, Trusts, Durable Powers of Attorney, Business Entities, Joint Ownership, Beneficiary Designations are all tools which, when properly known and understood can achieve a highly successful result. Conversely, just possessing one or more of the tools and using them incorrectly, can create worse problems than doing nothing might have.

Over the next months, I'll share some thoughts on the use of some of these tools, as well as current ideas, techniques, and pitfalls of estate planning.

Thanks for reading . . . . . . .

Andy