Oakland County MI Estate Planning Law Blog

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.

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.

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.

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.