What Is Estate Planning?
When most people think of Estate Planning in Michigan, they think of a Last Will and Testament or a Living Trust. However, Estate Planning is more complicated than just drafting a legal document. Estate Planning includes naming the people you want to receive your property after your death, naming people you trust to handle your estate in case you become incapacitated, creating steps to ensure your wishes are carried out as simply as possible, and much more.
What Is An Estate?
Your estate includes everything you own, including your home, vehicles, bank accounts, investments, personal property, etc. To ensure your wishes are carried out, you must leave instructions stating who is receiving the property and when they will receive it.
What Should An Estate Plan Accomplish?
Your Estate Plan should:
- Determine who gets your assets after your death and when they should receive them
- Designate a person you trust to distribute your assets to your loved ones after you pass
- Appoint a financial power of attorney to handle your finances if you become incapacitated before you die
- Outline your medical wishes and appoint someone to carry them out in case you become incapacitated and can’t communicate your medical decisions on your own
- Create arrangements for disability insurance to replace your income if you cannot work due to an illness or injury
- Secure life insurance to provide for your family when you die
- Create instructions or a plan for your business if you retire, become disabled, incapacitated, or die
- Name a guardian for your minor children
- Create a plan for a family member with special needs to not disqualify them from government benefits
- Protect loved ones who can be irresponsible with money, who may need protection from creditors, or who may need protection in the event of divorce
- Minimize taxes and unnecessary legal fees.
- Align assets with your estate plan which may include funding assets into a Trust and completing beneficiary designations.
How Often Should You Update Your Estate Plan?
Your Estate Plan should constantly evolve and not be a one-time event. Therefore, you should review your estate plan every couple of years and update it if necessary, as your life and financial circumstances change over time.
Who Is Estate Planning For?
Estate Planning is for people of all ages and walks of life, not just the elderly, retirees, or the ultra-wealthy. Although people in these groups tend to think about Estate Planning more, accidents and illnesses happen to everyone, and you need to be prepared. Estate Planning is more impactful for families with limited assets because losing assets due to improper Estate Planning can damage their everyday lives.
What Happens Without An Estate Plan?
Many individuals don’t prioritize Estate Planning because they think they don’t own enough, aren’t old enough, don’t know where to begin, don’t want to think about it, or think they’ll have time to do it later. Unfortunately, this delay can be detrimental to families when they have to pick up the pieces of their loved one’s estate and attempt to navigate the complicated and expensive probate process.
Without An Estate Plan, The State Has Its Own Plan For You
In The Event Of Disability
If only your name is on your assets and you cannot conduct business due to being mentally or physically incapacitated, then only an individual appointed by the court can take over your affairs. The court will control how your assets are used through a guardian or conservator. This process can become time-consuming and expensive. In addition, the process is in the public record, and it may be complicated to end even if you recover from your disability.
In The Event Of Death
If you pass away without an Estate Plan in place, any assets you owned solely in your name without a listed beneficiary will be distributed according to Michigan’s intestacy laws. In most cases, the estate will be administered by the probate court, which takes place in the county where the decedent lived. If you are married with children, both your surviving spouse and children will receive a share of the estate, even if your children are from a prior marriage. If you have minor children and both parents pass away, the court will appoint a guardian, and it may be someone you do not want.
Given the consequences of not having a proper estate plan in place, wouldn’t you rather have the power to make these types of decisions before it is too late? You can keep your family affairs private and out of the court, control who receives their share of the estate and when, and appoint a guardian for minor children.
Does A Will-Based Estate Plan Avoid Probate?
A Will does not avoid Probate Court. It’s your ticket to probate. Your Will only provides directions to the probate court for how you would like your estate to be distributed. Probate usually takes six months to complete but may last longer depending on how large the estate is. The probate process is public, so creditors or excluded heirs may file a claim against the estate. The court controls the whole process, so it is best to avoid probate by creating a proper estate plan.
Not all of your assets will have to pass through probate. Any accounts or property held jointly do not pass through probate, and neither do assets with a listed beneficiary. Other assets that avoid probate are life insurance, retirement accounts, and 401(k)s. There can be problems with joint ownership for Estate Planning if the account or title are not set up properly. Because of this, probate avoidance is not always guaranteed. If there is no valid beneficiary named, the estate will have to go through probate. If a minor is named, the court would likely require a guardian to manage their share until they legally become an adult.
Does A Trust-Based Estate Plan Avoid Probate?
For the above reasons, a Revocable Living Trust, also known as a Living Trust, with a pour-over Will is preferred for many families. Creating and funding a Living Trust can avoid probate court after death, plan for incapacity during your life, and provide privacy for your family. The pour-over Will is used if you did not fund any assets into your Trust during your life, and it will place the assets into your Trust after death. Since the Trust is revocable, you may change its instructions at any time.
A Trust can live on past your death, unlike probate, which must end at some point. Your assets can stay in your Trust and continue to be managed by your successor Trustee until your beneficiaries reach the required age listed in your Trust. The Trust can also live on to provide for a loved one with special needs, provide for future generations, and protect assets from creditors or irresponsible spending.
A more robust Estate Plan that includes a Living Trust and pour-over Will is not necessarily more expensive than a smaller estate plan. A Trust is more likely to avoid court involvement after death and plan for any incapacity that may occur during your lifetime.
When Should You Start Estate Planning?
No one likes to think about their death or incapacity, which is why many families are surprised when it occurs. This is why it is important not to put off Estate Planning and put something in place now. Keep in mind that you can always change your plan later. Knowing that your estate plan is prepared to protect your family gives you and your family peace of mind. Planning for your estate is one of the best things you can do for your loved ones. You may have some questions on how to begin Estate Planning. To learn more, read this article we wroted entitled “The Step-by-Step Guide To Estate Planning in Michigan”.
Do You Need An Estate Planning Attorney?
Trying to create your Estate Plan on your own to save money may seem like a good decision now, but it may cost your family more later and create unintended consequences. An experienced Estate Planning Attorney can provide guidance and properly prepare your documents to be sure it meets your needs.