For Your Own Good Understanding Michigan Estate Planning

May 17 2012Sixth Most Common Estate Planning Mistake

Assume that a will protects you in the event that you become incapacitated.  A will, by its very nature, comes into effect only at the time of your death.  The fact that you may have appointed a personal representative to handle the distribution of your assets upon your death in your will does not authorize that person to act for you during your lifetime or during any period of incapacity.  In order to appoint someone to act for you if you become incapacitated, you should execute a Durable Power of Attorney to authorize them to act for you in your financial matters, and a Designation of Patient Advocate to authorize them to make medical decisions for you in the situation where you are not able to make them for yourself (usually these Designations include language that is typically referred to as a “living will”).  Without a Durable Power of Attorney or a Designation of Patient Advocate, if you become incapacitated, a guardianship or conservatorship proceeding may be necessary to have people formally appointed by the court to make financial and medical decisions for you.

May 02 2012Fifth Most Common Estate Planning Mistake

Assume that a will avoids probate proceedings. Many people assume that if they have a will, they avoid probate proceedings with respect to their assets upon their death.  Actually, as explained above, the will only governs the distribution of those assets that you own in your name alone at your death or that are payable to your estate.  These are the assets that must go through probate proceedings.  Therefore, a will does not avoid probate; rather, it allows you to choose who will receive the assets that do go through probate.  If you do not have a will, but you have assets titled in your name alone at death, those assets still go through probate but pass according to the laws of “intestate succession.”  This generally results in your assets being distributed to your closest heirs under a scheme of distribution devised by the state legislature.  That distribution may or may not be appropriate under your particular circumstances depending upon who you leave surviving you and what your wishes are with respect to your assets.

Apr 05 2012Fourth Most Common Estate Planning Mistake

Assume that a will governs the distribution of all of your assets upon death.  If you read a will, it certainly sounds as though it governs the distribution of all of your assets upon death.  However, the will only governs the distribution of those assets that you own in your own name alone at the time of death (or death benefits that are payable to your "estate" rather than to named beneficiaries who survive you).  The will does not govern the distribution of assets that you may own jointly with others who survive, death benefits such as life insurance or retirement plans that are payable to named beneficiaries who survive you, or assets that are titled in the name of a separate trust at the time of your death.

Feb 23 2012Third Most Common Estate Planning Mistake

Hire an unqualified person to advise you regarding your estate planning matters.  Believe it or not, there are actually companies that sell estate planning services over the phone or door-to-door.  Sometimes they send out a "paralegal" to meet with you and bring information back to the home office to develop pure form documents that are not tailored to your particular needs.  Worse, their fees are often 2-3 times more expensive than the fees charged by an experienced and sophisticated estate planning attorney.  These companies often give assurances that should a problem arise, they will cover the cost of probate or other necessary amendments to the documents in the future.  However, these companies are often here today and gone tomorrow.  You are more likely to be left with empty promises.  Also, there are other individuals selling products that refer to themselves as providing "estate planning services."  These individuals are very rarely competent to draft wills, trusts, powers of attorney, designations of patient advocate, and other common estate planning documents.  You should retain an attorney who has the requisite specialization and expertise to prepare the appropriate estate planning documents.

Feb 10 2012Second Most Common Estate Planning Mistake

Rely upon advice from a friend or neighbor.  Our friends, family, and neighbors like to advise us on how we should arrange our affairs.  However, an estate plan that may be appropriate for one person is seldom appropriate for another.  We each have different assets, liabilities, personalities, and estate planning objectives.  An estate plan should be developed and tailored to achieve your particular objectives.

Jan 30 2012The Future of Estate Taxes in 2013?

What will happen at the end of this year? Most estate planners felt that it would be very unlikely for Congress to let the estate tax exemption go back to only $1,000,000 (the exemption in effect in 2001). This consensus came largely from the fact that President Obama proposed an exemption of 3.5 million dollars with a cost of living adjustment and the Republicans succeeded in moving it up to $5 million for 2011 and 2012. However, in order to avoid reverting to a $1 million exemption, Congress must pass new legislation. That is why an automatic drop to $1 million no longer seems so unlikely. We will have to wait and hope that Congress can come up with a good compromise.

Jan 27 2012First Most Common Estate Planning Mistake

Avoid the issue completely. Many people find it uncomfortable to deal with their own estate plan because of the underlying issues of death and disability.  Others simply assume that they do not need an estate plan until they reach retirement age.  However, every adult should have some estate plan to cover not only the distribution of assets upon death, but also management of assets during incapacity.  As we all know, death or incapacity can strike at any age.  If you fail to plan for those possibilities, the expense, confusion, and additional stress upon your family or others that you leave behind can be tremendous.

Mar 04 2011New Estate and Gift Tax Legislation

In 2001, Congress passed tax legislation that increased the estate tax exemption from $1,000,000 over several years through 2010 when the estate tax was repealed for one year.  The estate tax exemption and rates changed as follows:

Year - Estate Tax Exemption, Maximum Estate Tax Rate

2001 - $1,000,000, 55%    
2002 -$1,000,000, 50%
2003 - $1,000,000, 49%
2004 - $1,500,000, 48%
2005 - $1,500,000, 47%
2006 - $2,000,000, 46%
2007 - $2,000,000, 45%
2008 - $2,000,000, 45%
2009 - $3,500,000, 45%
2010 - 0, 0%
2011 - $1,000,000, 55%

There were not enough votes in favor of the 2001 legislation to make the repeal of the estate tax permanent.  The law stayed in effect for 10 years and unless Congress took action, the estate tax would return in 2011 with the same exemption amount and rates as were in effect in 2001 ($1,000,000 exemption and a top rate of 55%).  In December, Congress finally passed the “Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010.”  Part of that Act provides for a $5,000,000 estate tax exemption per person and a top estate tax rate of 35%. 

The new law also makes the estate tax exemption “portable.”  This means that if a married person dies and does not use his or her entire exemption amount, the remaining portion can be used by the surviving spouse later in addition to the exemption of the surviving spouse.  In the future, this may avoid the necessity of spouses having to create separate trusts in order to minimize estate taxes.  In addition, under the previous 2001 Tax Act, the lifetime gift tax exemption, had remained at $1,000,000 per person.  Under the new Act, each person now has a $5,000,000 lifetime gift tax exemption. 

The 2010 Act, however, is only in effect for 2011 and 2012.  Further action by Congress will be required and is somewhat unpredictable.  For those individuals and married couples with substantial estates, the next two years may provide a good opportunity to make large gifts to children or grandchildren to take advantage of the increased gift tax exemption.  For those married couples with separate trusts to minimize estate tax, it may make sense to keep them in place for a couple of years at least until more permanent legislation provides more certainty. 
 
We recommend that you take the new Act into account for your estate plan.  If you would like your estate plan reviewed in light of the new Act, please contact our office.

Neil L. Kimball          
Neil P. Jansen         
James F. Scales         
Benjamin A. Zainea         
Amy L. VanDyke
Stephen J. Mulder
Daniel J. Kozera, Jr.

Oct 19 2010Some Movement on Estate Tax Legislation

As a result of the 2001 tax legislation, the estate tax exemption had grown from $1 million in 2001 to $3.5 million in 2009.  This year is the last year affected by the 2001 Tax Act, which resulted in a complete repeal of the estate tax for 2010.  As a result of Congress not having sufficient votes in the Senate to make the tax law permanent, the 2001 Tax Act expires at the end of this year and the estate tax returns at the beginning of next year with an exemption equal to what it was in 2001 ($1 million).  Most estate planners believed that Congress would have taken action before the end of 2009 to change the law so that the estate tax would not go away, resulting in the government losing all of the estate tax revenues from individuals dying in 2010. 

Certainly most Democrats and Republicans believe that an estate tax should not come back with an exemption of only $1 million since that would require estate tax planning to be undertaken by even young couples with life insurance, retirement plans, and a residence.  President Obama, before and after his election, indicated that he thought a $3.5 million estate tax exemption with a cost living adjustment would be appropriate. 

For many months now, nothing has really been mentioned about changes to the estate tax laws.  However, recently a group of Republican Senators introduced a Bill that would retroactively raise the estate tax exemption to $5 million and reduce the top estate and gift tax rate to 35%.  For executors of estates of individuals who died in 2010, the law would allow them to elect whether to be taxed under this new estate tax law or under the present 2010 rules because there are different tax basis rules applicable in 2010 and 2011. 

We will have to wait to see if action is actually taken and a law is adopted before the end of this year.  Most estate planners believe that there should at least be a $3.5 million estate tax exemption in place.  With an exemption of $3.5 million, and through appropriate planning, a married couple could protect as much as $7 million from estate taxes.

Aug 23 2010Is Probate Really So Bad?

Probate has a terrible reputation.  The very word conjures up images of long delays, complexity, and huge legal fees.  Some people even think the State seizes your property or at least a portion of it after you die.  Actually, probate is intended to be a structured way of making certain that your assets pass to the right people according to your Will if you have one.  If you fail to leave a Will, then the State’s laws of intestate succession determine who receives your probate assets.  Intestate succession is simply the State’s best guess at who you would want to receive your property if you fail to make that decision yourself by having a Will.  Whether or not you have a Will does not really have a bearing on whether your assets pass through probate.  If you die with assets titled in your name alone and those assets do not pass by beneficiary designation, then those assets will have to pass through probate.  If you leave a Will, you decide who receives the property through the probate process.  If you do not have a Will, then State law determines who receives the estate.

Most probate estates proceed efficiently and without a huge cost.  I usually advise people to anticipate probate to run between $3,000 and $7,000.  The largest expense is the attorney’s fees going through the process.  Certainly, to the extent you can use Trusts and appropriate beneficiary designations to avoid this expense you should do so.  However, people often confuse regular probate proceedings with situations where beneficiaries are fighting or estates stay open for long periods of time because they are large and are waiting for the IRS to agree with an estate tax return before closing the estate.  Most probate estates do not run into those problems.  Even if you avoid traditional probate proceedings through a Trust, if beneficiaries of a Trust decide to argue, you can find yourself in Probate Court with large legal fees. 

So, the next time you hear someone talking about probate, simply realize that although it is a nice expense to avoid, it is not the horrible procedure that most people envision.