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Oakland County MI Estate Planning Law Blog

Patient advocates and advance directives in Michigan

One important decision you need to make today if you're at least 18 years old is who you want to appoint to make medical decisions for you if you're unable to make them for yourself. You can make your wishes known by doing two things. The first is writing out an advance directive. The second is naming a patient advocate, which is another term for a person who has a health care power of attorney for you.

The advance directive is a written set of instructions for medical professionals to follow. It includes things like whether you want life support or how you want comfort care handled. You can make this document as simple or detailed as you want, but you must make sure that you include anything that's important to you.

What to know about grantor trusts

Michigan residents and others who are looking to protect their assets may benefit from creating a trust. Assets inside of a trust are generally off-limits to creditors, and beneficiaries may be limited in how they use money or other items distributed from it. A grantor trust is a type of living trust that allows the creator to retain control of assets titled in the document's name. As the assets are still under the grantor's control, income is taxed to that person instead of to the trust.

A revocable living trust is perhaps the most common type of grantor trust, but there are other types that a person can choose from as well. For instance, it may be possible to create a grantor retained annuity trust (GRAT). Those who create a GRAT will be able to gain access to any revenue generated by assets in the trust for a certain number of years.

How 529 plans can fit into an estate plan

Making gifts to an irrevocable trust may be an effective way for an individual to reduce the size of his or her taxable estate. However, it also means giving up control of how assets are used, and it also means giving up the ability to change who benefits from those assets. This can be problematic if the beneficiary passes away or no longer needs money or other items that were placed in the trust.

It can also be problematic in the event that the person who put money into an irrevocable trust needs that money back in the future. However, it may be possible for an individual to make a gift to 529 education savings account without giving up control over how the money is used. An individual may be allowed to own the plan and change the beneficiary if necessary.

Financial powers of attorney can be abused

When Michigan residents are planning their estate, they often first think of preparing a will to pass on their assets to family members and other beneficiaries. There are other types of documents that can be important as well, including trusts, advance medical directives and financial powers of attorney. Unfortunately, the latter document can be abused if in the hands of the wrong person.

While powers of attorney traditionally become effective only in the event that the principal becomes physically or mentally incapacitated, this is not always the case. They are often designed to be used in situations where the principal is out of the country or is focusing on other matters such as running a business. When in the hands of an unscrupulous agent, they can be detrimental.

Having a will may not be enough

Michigan families that have an estate plan will almost always have a will in place. However, they often want to know whether they need a trust if they already have a will. In many cases, the answer to this question is yes.

When one passes away with a will, the estate will still need to go through probate in order for the property to be distributed to the beneficiaries. One can never quite know for sure what will happen when an estate goes through probate as the will is subject to challenges. Moreover, it takes several months to go through probate even when it is not contested.

Have you updated your estate plan since your divorce?

Getting a divorce is a life-changing event. Though many people end their marriages every year, it can create considerable upheaval in any individual's life. You may know this firsthand since you recently went through a divorce yourself. Now, you may be wondering what other areas of your life you need to address in order to mitigate any negative repercussions of ending your marriage.

One aspect that certainly needs assessing is your estate plan. You may have created your plan with your former spouse in mind, and as a result, he or she could play important parts in your plan or possibly stand in line to obtain assets after your passing. More than likely, you do not want your former spouse to remain in those positions, so it is wise to review your estate plan and make changes where applicable.

How assets in a trust are taxed

Income that is generated by a trust can either be kept in the trust or distributed to beneficiaries. In some cases, a Michigan trustee will have the ability to make distributions as he or she sees fit. However, it is also possible that the trust itself will limit the actions that a trustee is allowed to take. For instance, the document may not allow distributions to be made unless they are for educational purposes.

A trustee may also be barred from distributing money or other items to a beneficiary until that person reaches a certain age. Trustees who deviate from what they are allowed to do could be violating their fiduciary duty to the beneficiaries. They could be held personally liable for any damages a beneficiary experiences because of this breach. Trusts typically pay more in taxes compared to individuals, which is why it can be beneficial to distribute funds to beneficiaries sooner rather than later.

Beneficiaries are often notified when a family member dies

A will allows a deceased person to dictate what happens to his or her assets after passing. In Michigan and most other states, the will is verified during probate. The document can also name the executor of the estate as well as who would look after a minor child if the other parent is unable to. It is important for beneficiaries to understand that will readings generally don't take place in the 21st century.

There is no requirement to have a will reading, and they were conducted in the past because many people were unable to read what the will said on their own. Typically, anyone named as a beneficiary in a will is sent a copy of the document to review on his or her own. Those who are beneficiaries of a trust created by a pour-over will could receive a copy of that document.

Tips for using trusts to avoid estate tax

People in Michigan who are creating an estate plan may want to consider using a trust and a trust protector. The reason to use a trust in the first place is to protect the assets in case of divorce or other problems, such as a lawsuit. As an example, a living trust can be set up for an adult child with the child as the trustee and a sibling appointed as protector. If a problem arises, the child would lose access to the trust, and the protector would be in charge of it.

There are other types of trusts that can be created to protect assets as well. The function is in the name of asset protection trusts, which may be offshore or domestic. These are irrevocable trusts. Spousal lifetime asset trusts offer less protection but more control to couples and can still help protect the estate from taxes. A dynasty trust can be used to build family wealth over generations and avoid gift and estate taxes.

How an estate plan may change throughout a lifetime

All adults in Michigan should consider an estate plan, even when they are young and have few assets. At first, this may consist mainly of powers of attorney for finance and health care. These documents allow someone, often the parents, to make legal and financial decision on the person's behalf if the person is incapacitated. Assets could be passed with a simple will or using other documents, such as beneficiary designations, depending on what kind they are.

Once the person marries or enters a serious relationship, the documents may be updated to reflect that. The person may also want to buy life insurance to protect the spouse. An advance directive or living will can outline the person's wishes for medical care if incapacitated. When children come along, the person may want to increase the amount of life insurance and revise estate planning documents again. This includes the will, which can name someone as a guardian for the children.

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