Estate Planning fequently asked questions, FAQ

Our Grand Rapids MI clients trust us for our dependable advice and effective solutions to estate planning problems. Below are some common estate planning questions and answers:


What is an "estate"?

An "estate" is the property owned by a person at the time of death. Your estate may include real estate, bank accounts, investments, and also include life insurance benefits, annuities, retirement plans, and intangible assets. Individuals often forget to include life insurance in their estates. Including life insurance in the estate can create a substantially larger estate, sometimes creating a federal estate tax obligation upon death.

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What is estate planning?

The purpose of estate planning is to first determine and educate yourself as to what exactly is your estate and to know how your various assets will pass upon your death. Then an estate plan is designed to provide tools to dispose of a person‘s property upon death based upon their wishes and desires, so that the State does not dictate and control how the estate is distributed. Estate planning takes into account the laws of wills, trusts, taxes, and real estate in order to come up with a plan that accomplishes the goals of the client. The basic tools of estate planning that are used to accomplish these goals are gifts, wills, and trusts.

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What is probate?

Probate is the legal process by which title passes upon death when there is no other way to pass title. For example, a joint asset (such as real estate or bank accounts) passes to the surviving joint owner. Thus, Probate is not necessary. Also life insurance, annuities, or some retirement benefits pass direct to a named beneficiary, and thus Probate is not necessary. However, solely owned assets must be probated in order to have a Personal Representative sign over title or ownership to the person entitled to receive that asset.

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What is a will?

A will directs how a person‘s probated estate is distributed upon death. A will does not come into effect unless there is a probate estate. A will does not affect property that passes directly by joint ownership or by beneficiary designation. A will also allows you to control who is appointed as personal representative, trustee, or guardian for minor children. A will only comes into play upon death; as opposed to a durable power of attorney, which allows for management of property in the case of disability during the lifetime of the client. A will does not avoid probate; it guarantees it.

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Does a Will avoid Probate?

No, in fact a will does not come into play unless there is an estate that must be probated. Therefore even with a Will, Probate may still be necessary. The factors that control whether or not probate is necessary have to do with how title is held and/or how the asset is transferred upon death. The will only directs how the assets subject to Probate are distributed and to whom. However having a Will gives you control over who manages your estate for you, who is appointed as guardian of your children, and how your assets are to be disposed of upon your death.

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Does a Will avoid taxes?

No, a will by itself does not avoid taxes, however, other than a modest inventory fee, there are no taxes on an estate unless the value of the estate exceeds the taxable exemption, which currently is $2,000,000 for 2007/2008, $3,500,000 for 2009, (no tax in 2010) and $1,000,000 2011 and beyond. (These amounts are subject to change so watch for changes in the Federal Law). Certain types of trusts can be used to save taxes, where appropriate.

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Why then, is a Will important?

Wills are the most common way for people to state their preferences about how their estates should be handled after their deaths. Many people use their Wills to distribute their property differently than how the State would require the property to be distributed if a person died without a Will.

A Will also allows the person drafting the Will to have some control after death, by naming the Personal Representative. While most people do not like to contemplate their mortality, many people find that great peace of mind results from putting their affairs in order. A Will is an important document to have as part of your estate plan. It is never entirely possible to predict whether or not probate of your estate will be needed, as the circumstances of your death may require a probated estate, such as to pursue a personal injury claim as a result of a wrongful death claim; in the event of an inheritance or other gift not yet received at the time of death; or in the case of an overlooked asset that required probate in order to transfer ownership. Since we can never know for sure if probate will be required, it is always critical in having a complete estate plan to have a Will prepared in the event of such contingency.

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What happens if I do not have a will?

Michigan law specifies who will inherit your property if you do not have a will or trust. The probate court will appoint a personal representative (or "executor") to act on your behalf to distribute your property in accordance with the rules defined by EPIC. If you have a will, you have control over who you name to act upon your behalf to distribute your property. However, not all of your property may need to be distributed through probate proceedings.

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How is a will used to distribute my property?

Once a will is "admitted" to probate court, the court accepts the document as your last will and testament, and appoints the personal representative you have named to act on behalf of your estate. In Michigan, if your Will is not contested, the process to admit your will takes place fairly quickly and without a formal court hearing. The personal representative is then empowered by the court to carry out the instructions in your will. The Personal Representative that you have named is issued Letters of Authority that then allow him or her to transfer title and ownership of the probated asset to the beneficiary named in your will.

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Does a living trust avoid estate tax?

A trust by itself does not protect assets from taxes. However, under certain circumstances, a properly drafted trust can save taxes, and trusts are especially useful for a married couple where their combined estate exceeds the allowable exemption. These are called credit shelter trusts.

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If I don‘t have a will, will the State of Michigan get everything?

No, without a will, property subject to probate will be distributed to a person‘s next of kin in accordance with a statutory priority list. The statutory list often times is different than how a person may desire for distribution of their property. However, the State of Michigan will not obtain your property unless you have no surviving family or legal heirs, or they cannot be located.

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Do I need to have a will or an estate plan if all of my property is owned jointly?

It is not recommended to have your property jointly held simply to avoid probate. There can be negative legal implications of joint ownership. For example: (1) transfers to a joint tenant can result in federal and state gift tax; (2) joint tenancy does not avoid probate, it just postpones it until the death of the survivor; (3) joint tenancy may not take advantage of the estate tax exemptions available to both tenants; (4) jointly owned property is subject to the judgment creditors of all joint tenants; (5) joint tenancy will result in the complete transfer of ownership to the surviving owner, even if that was not intended by a deceased owner; (6) joint ownership can affect qualification for public assistance programs such as Medicaid; (7) all owners must agree to sell jointly-owned real estate; (8) all owners have equal access to a jointly-owned asset, even if it is a bank, stock or other cash account.

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Do I need an estate plan even if I don‘t have a lot of assets?

There are many other factors that create a need for estate planning, other than owning a large estate. Everyone has his or her own objectives, but owning a large amount of property is usually not the primary reason to plan.

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Are Living trusts the only way to avoid Probate?

There are several ways to avoid probate, and a living trust is only one of them. Other methods include use of a Lady Bird Deed and beneficiary designations on assets such as life insurance, IRA‘s, 401-K and annuities.

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Is avoiding Probate the most important reason to have an estate plan?

No, in Michigan we have a simplified Probate procedure available that is not as burdensome as it used to be, and is quite effective when compared to other states. The There may be advantages of going through Probate. You have to weigh the advantages and disadvantages as they pertain to your individual circumstances.

Am I too young to plan?

If you have a spouse or a child, or if you prefer your estate to go to someone other than your legal heirs upon your death, you would benefit from an estate plan.

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Who will take care of my children if I cannot?

One of the most important objectives for any person with minor children is to establish a plan to care for the children. At a minimum, this will generally include nominating a person to be the guardian of the children and designating assets for their care. Our lawyers can handle this sensitive plan for you.

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Who should be the guardian of my children?

The guardian is a person nominated to have the physical care and custody of minor children. Several factors should be considered before appointing a guardian, including their age, physical location, relationship to the family, moral values, financial stability, and any other factor that may affect their capacity to care for minor children on a long-term basis. If possible, appoint someone who will cause the least amount of disruption to the normal lives of the children. Successor guardians may also be appointed in case a first choice is not able to act. Nominating a suitable guardian is a challenging decision for most parents.

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Who should handle money intended for the benefit of my children?

The person who handles money for children will be their conservator or trustee. This person may or may not also be the guardian. Many people choose to separate the duties of guardian and trustee or conservator. This may avoid placing too much responsibility in the hands of one person, and may also serve to ensure the appropriate use of the money intended for the children.

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Who should be the beneficiary of my life insurance for my children?

Children may be named as beneficiaries, but the proceeds will be paid directly to them if they are over the age of 18. This can have disastrous consequences. Most parents do not agree that their 18–year old son or daughter should have thousands of dollars to spend with no one to help them manage it. Nevertheless, this may be exactly what happens if life insurance is not viewed in relation to an overall estate plan. Therefore, most parents elect to establish a trust for the benefit of their children, and nominate a trustee to manage the funds that are placed in the trust. The trustee can be designated as the beneficiary of life insurance proceeds. The trustee is then bound by law to manage the funds for the benefit of the children. The funds can be used for any of the children‘s needs, including education and health care, until they reach an age specified in the trust document.

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What happens if I don‘t name a guardian in my will?

If you do not nominate a guardian, then the probate court will appoint one for the children based upon their "best interests" as that term is defined by statute. The person appointed may not be the person you would have chosen. Nominating a guardian is crucial to the avoid delay and confusion that may result from court proceedings for appointment of a guardian.

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Can I delegate short term care of my children to another person?

Yes. By a properly executed power of attorney, a parent of a minor may delegate to another person, for a period not exceeding 6 months, any of the parent‘s powers regarding care, custody, or property of the minor child. This type of power of attorney is frequently used while parents are on vacation or extended job assignments.

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For more information about the estate planning attorneys at Tanis Schultz, or if you have questions about will, trust or estate planning, please contact our office or call us directly at 616.608.7149.