For Your Own Good Understanding Michigan Estate Planning

Sep 04 2009Adult Children Need Estate Plans Too

It often does not occur to parents that when their children turn age 18, they are no longer minors under Michigan law. Once a child reaches 18, he or she has legal independence of parents and the ability to enter into contracts and execute other documents including estate planning documents. Although most 18 year olds have not yet accumulated substantial assets, they should execute certain estate planning documents.

Your children should have a general Durable Power of Attorney to authorize one or more individuals to handle financial transactions for them. Although this document can be written so that it is effective when it is signed, it is most needed if a child becomes incapacitated as a result of an accident or illness. Under those circumstances and without a Durable Power of Attorney, financial transactions may have to wait until a conservator has been appointed through a probate court proceeding. These proceedings certainly come at a time when it is difficult on the family and a General Durable Power of Attorney will almost always avoid the necessity of a probate court conservatorship proceeding.

Similarly, your adult children should have a Designation of Patient Advocate in which they name an individual to make medical decisions if their physicians determine that they can no longer make informed decisions about their own medical care. The Patient Advocate then can make those medical decisions for the child under those circumstances. Without this document, a probate court guardianship proceeding may be necessary. The Designation of Patient Advocate can also include a “living will” statement that indicates what treatment your son or daughter may or may not want under particular circumstances. In light of the recent case involving Terri Schiavo, all adults should consider executing one of these documents to make their wishes clear and help avoid disputes over their medical care.

Finally, your children should consider having a Will or even a Trust, depending upon their financial circumstances, to specify how they would want their assets distributed in the event of death.

Parents who are sending their children off to college or to military service often forget that although their children may be financially dependent upon them, they are legally independent and need to address these issues to avoid a great deal of confusion, expense and emotional turmoil. Estate planning is one of the many tasks that your children should address as they reach adulthood.

Sep 01 2009Recently Divorced? Don’t Forget Your Beneficiary Designations

If you update your Will, Trust, or other estate planning documents, don’t forget about your beneficiary designations for life insurance and retirement plan benefits.  Life insurance and retirement benefits will be paid directly to the beneficiaries you name through the insurance company or retirement plan administrator.  These are contractual arrangements separate and apart from your Will or Trust provisions.  While your Will may sound like it covers everything you own, the Will only governs assets that are subject to probate proceedings.  A Trust Agreement covers the distribution of only those assets that are in the Trust or payable to the Trust.

Updating your beneficiary designations periodically is an important part of a good overall estate plan.  In fact, a critical time to update your beneficiary designations is following a divorce.  While a Divorce Judgment may terminate your ex-spouse’s interest in the insurance policy, unless you update the beneficiary designation, the insurance company may end up paying the life insurance proceeds to your estate (which means probate proceedings), even if you have named your children as the secondary beneficiaries.  The beneficiary designation typically indicates that if the primary beneficiary predeceases you, then the benefits are paid to the secondary beneficiary (your children for example).  However, in the case of a divorce, the primary beneficiary (your ex-spouse) has not predeceased you.  Rather, he or she no longer qualifies as a beneficiary.  As a result, the insurance company is free to pay the insurance proceeds to your probate estate rather than to your children directly.  If you update your beneficiary designations after a divorce, then you can avoid this problem.

The problem is even worse if you fail to update the beneficiary of a 401(k) retirement plan.  Under federal law, if you name your spouse as the primary beneficiary and then you are divorced, unless you update your beneficiary designations for your 401(k), the plan administrator will pay those proceeds to your ex-spouse.  Unlike life insurance, a 401(k) plan is subject to federal law which takes precedence over state law.  Therefore, even though your spouse may have already received half of your retirement plan through the divorce, he or she may, through your lack of attention to detail, receive the other half upon your death.  Again, this can be avoided by updating your beneficiary designations promptly following a divorce.

Aug 31 2009Incentive Trusts

A revocable Trust is a common estate planning vehicle that can provide for children or other beneficiaries after your death.  In some family situations, however, children or other beneficiaries may have shown very little financial ability or even a desire to seek employment.  In those situations, the Trust can be customized to provide certain incentives for those beneficiaries.  An example would be a Trust that upon the parent’s death sets aside a share for the son.  The Trustee is instructed to invest the assets of the share and provide the son with distributions of Trust income and principal but only to the extent that the son produces proof to the Trustee that he has earned income through employment.  The Trust provides an incentive to the son to get a job and earn money.  Upon the son showing proof of earnings to the Trustee, the Trustee would make a matching distribution, for every dollar the son earns he receives a dollar from the Trust.  If the son doesn’t work, then he receives no distributions from the Trust.  The Trust could also provide the Trustee with discretion to make distributions to the son under certain circumstances such as the son actually being unable to work due to disability or because the son is not working because he is the primary caregiver for children of his own.  A Trust can be drafted in many different ways and creatively to provide incentives to beneficiaries to act more responsibly.