Michigan Estate Planning Revocable Living Trust
What you should know
Revocable Living Trust
A revocable living trust is the core of a comprehensive estate plan. A complete estate plan includes the following:
- A Will, or a Trust with a Pour-over Will, directing what happens to your worldly goods after you die and possibly creating ongoing trusts for your beneficiaries.
- A Durable Power of Attorney to allow your agent to care for your finances while you are alive but incapacitated;
- A HIPAA release to allow your loved ones to be told information about your physical and medical conditions during your incapacity;
- An Advance Health Care Directive or Living Will outlining your preferences regarding end-of-life care
- A Health Care Power of Attorney expanding the authority of your medical decision-maker to include hospice or long-term care and disposition of remains; and
- Potential Additions – Guardianship for minor children, funeral and burial instructions, and charitable giving
We can help you avoid ALL probate costs and minimize or eliminate estate taxes through trust-based planning.
Your individualized estate plan may also include: business planning; supplemental/special needs trusts; pet trusts; stand-alone retirement trusts; gun trusts; irrevocable life insurance trusts; asset protection trusts; charitable remainder trusts.
A Trust-based plan may be the better option under the following circumstances:
- You own real estate in one or more states. A trust will avoid the cost, delay and public notices of a probate (court-supervised transfer of assets) in EACH state!
- You own multiple properties and/or rental properties. The combination of a trust, LLC and/or property insurance protects your personal assets and your family from the risk of a lawsuit over income-producing properties.
- You own a business or an interest in a business. Often a business is the largest asset in a person’s estate. Recent statistics show that over 80% of businesses fail when the owner dies. Planning can ensure your business continues, your family gets the value of your business interest and your employees continue to have a job.
- You have beneficiaries who are minor children. A trust lets you dictate the terms of their inheritance and name guardians. You decide what the funds will be used for and who will manage them on behalf of your children. We can include specific information about your values: do you want funds to incentivize continuing education, owning a business, home ownership? Do you want to encourage church attendance, travel, extended family connections, sports or creative endeavors? We can customize instructions to the people you name in your Trust-based plan.
- You have an otherwise capable family member or friend who would benefit from the protection of inheriting in trust (protection from divorce, lawsuits or creditors). A trust can specify that the inheritance is not a marital asset in case of divorce, and can protect it from being included in a lawsuit. Professionals who require liability insurance (medical professionals, people in hazardous occupations) particularly appreciate the protection they get from inheriting in trust.
- Someone in your plan has a disability or is otherwise incapable of managing his or her own assets. Inheriting money outright can disqualify a person with a disability from receiving public benefits they genuinely need. There are strict rules on the terms of a trust for a person with disabilities.
- You have a blended family and minor children. Biological parents have precedence as guardian (raising the child) and conservator (managing money for the child). Do you want your ex-spouse managing the money you leave to your son or daughter? If you want stepchildren to inherit you must explicitly provide for them.
- You have a blended family and adult children. A trust can provide that your share of your blended estate is used for your spouse during his or her lifetime, but then goes directly to your children from a prior marriage. You can plan to divide your estate equally between all the children (joint and non-joint) or you can carve out shares and provide a separate plan for each of you depending on how many kids you each have and how well your family has integrated.
- You expect your spouse to remarry and you want to protect your children’s inheritance. A trust can specify that your spouse will only receive income, or some small portion of the estate unless he or she executes a valid prenuptial agreement with the next spouse. If it’s held in a properly drafted trust, your portion of your joint assets will not be considered a marital asset during the next marriage.
- You have a gross estate of more than $24,000. Although the federal exemption is over $11 million per person, Michigan law requires probating non-trust assets over $24,000. Life insurance is included in figuring the total. If you have an estate that is over the federal exemption, you can avoid or mitigate this tax through the use of a life insurance trust (ILIT), Crummey trust or credit shelter/marital bypass trust.
- You’re in a same-sex relationship or each intend to own and manage assets separately. A trust can outline the terms of your relationship – which items you share and which you intend to hold separately.
- You want the details of your estate plan to remain private after your death. Probate requires filing the contents of your Will and all the assets managed by your Personal Representative/Executor in court, and this information becomes public knowledge. Reporters, nosy neighbors and long-lost “heirs” can peruse and order a copy of your probate documents at any time. Worse, probate requires that notice to creditors gets published in the local newspaper and that heirs (even ones you may have specifically disinherited) get direct notification of the probate and an opportunity to object. A trust keeps all your planning private.
- You’re concerned about incapacity and having someone else manage your assets while you’re unable. A trust names the person you want to manage your assets during incapacity, avoiding the need for a court-supervised conservator. You can even specify either a single person you trust to have the “take the keys” conversation with you, or name a panel of people you trust.
- You have a history of charitable giving or want to include charities in your plan. We can interpret the confusing array of charitable vehicles and help you decide (in concert with your CPA or financial advisor) which best suits your needs: a donor-advised fund, foundation, charitable remainder trust, charitable lead trust or other charitable bequest.
- You have a valuable or high risk niche hobby or interest. The IRS has special rules governing art valued at or near $50,000, the handling and transfer of some firearms is federally regulated (you or your heirs could be subject to a $250,000 fine and time in prison for not knowing and following these rules), and the Department of Agriculture and other state-specific laws govern whether and how you can provide for the ongoing support and care for pets or livestock. We’re prepared to guide you through the options to plan for your unique interests.
TRUSTS FOR HEIRS
Trusts for heirs, also known as ongoing trusts for beneficiaries, are typically created within your Revocable Living Trust. When it is time for your estate to be distributed to your loved ones, then their inheritance is put into an ongoing trust for their benefit. This provides numerous advantages for your loved ones, such as protection from divorce, creditors, and provides a framework for how the inheritance is used. You can choose to specify that the money is only to be used for education, and if a degree is obtained, then they can use the money for another purpose. You can say that each year your loved one gets $1,000 to take a weekend trip to the beach with their family. You can also just leave it to their discretion.
STAND-ALONE RETIREMENT TRUST
Naming the right beneficiary on your IRA is critical. Many people want to continue the tax-deferred grown for as long as possible, paying the least amount in income taxes. This is called “stretching out” the account. Unfortunately, the IRS doesn’t like “stretching out” the period before they get their share. New rules have changed the “stretch” rules, so a Stand-Alone Retirement trusts are becoming more necessary.
Naming a Stand-Alone Retirement trust as beneficiary will give you more control over, and protection for, these tax-deferred accounts.
This revocable trust provides for your animals. You can name a guardian for them, and provide that guardian with instructions and money to take care of your furbabies. Typically, it is part of a larger estate plan that includes a Revocable Living Trust, Power of Attorney, and Health Care documents for yourself.
Owning and managing guns through a gun trust can help ensure a smooth transfer to future generations, avoid accidental felonies, and, in some cases, can speed up the application process for items such as a suppressor.
ASSET PROTECTION TRUSTS
Asset Protection Trusts may be recommended if you have a high liability profession, such as a doctor. Schedule a consultation to learn more about the various ways to protect assets from creditors.
We find that clients appreciate the freedom a flat fee structure gives us to communicate as much as needed to get the work done properly without worrying about traditional hourly billing. It also allows us to customize without incurring additional costs. A Will-based plan is $800-$1,500 for an individual and $1,000-$2,000 for a married couple. A Trust-based plan is $2,500-$6,000 for an individual and $3,000-$7,000 for a married couple. If your plan includes asset protection, tax planning, specialized life insurance trusts or IRA trusts, your fees will be adjusted accordingly.
Some things that may influence the cost of your plan are:
- Special Needs Trust planning for incapacitated heirs or heirs on public assistance.
- Business Transfer planning including drafting or reviewing a Buy-Sell or other corporate transfer documents and/or establishing or updating an LLC or corporation.
- Gun Trust for firearms regulated by the federal government, including suppressors.
- Tax shelter trusts: Life Insurance (ILIT), Credit Shelter, or Retirement Asset Trusts.
- Medicaid or other incapacity planning to facilitate government assistance for you or your loved ones. May include an Income Cap Trust or Supplemental Needs Trust.
- Trusts for Minors.
- Ongoing trusts for adult beneficiaries: divorce or creditor protection or custom provisions for distribution (blended family, remarriage, income-only).
- Asset Protection. Specialized planning for professionals in higher risk occupations who may require sheltering assets from malpractice or creditor’s claims.
- Charitable Planning. Establishing a Foundation, Donor Advised Fund, Charitable Remainder Trust or other entity to achieve philanthropic and financial goals.