Estate Planning In Michigan

Archive for October, 2008

The Problem With Michigan Trust Mills

A financial planner friend of mine had me review an estate plan of a couple the other day.  This couple had their estate plan done by one of the many “trust mills” in Michigan.

By trust mill, i mean a set up where they only meet their attorney once (if at all), and there is little to no customization done for an individuals estate plan.  In other words, it is just a fill in the blank estate plan.

Typically, people are put into one of these “estate plans” by unreputable financial professionals who will tell potential clients that they can have a trust based estate plan with unlimited revisions for a set price.  One way they do this is offer an “Estate Planning Seminar” where they will have an example trust in a pretty binder, then tell everyone they can have their plan done for a set fee, say $2250.  This epitomizes a one-size fits all approach to estate planning, that doesn’t take into account the actual needs of the client.  Typically, salesman use this trust as a loss leader to sell clients annuities.

As an estate planning attorney who actually values his clients, there is no way i would be able to quote a fee with out knowing exactly what the clients goals are and how complex it will be to meet those goals.

Back to the couple I met with.  In addition to the usual problems with trust mill prepared plans, they also had three very important issues that I raised with them.

First, as a married couple, their residence was funded into the trust.  In Michigan, we have what is called tenancy-in-the-entireties, which is a special designation created by the state for real property.  This status gives married couples added benefits against creditors, predators, the IRS, and lawsuits.  Well, someone, either the financial professional or attorney, told the clients to fund the residence into the trust, thereby destroying the added protection the couple had as married couples.

Second, the couple both had what is called “springing” powers of attorney.  This is a counseling question to determine the type of financial power of attorney to use.  After counseling the clients, they realized that they were in the wrong type of financial power of attorney.  Luckily, they have not yet had to rely on it.

Third, their healthcare directives were out of date and not valid.  This attorney who prepared their documents promised to stay in touch every year to review their estate plan (which is supposed to be free, including amendments).  Well the attorney never did.  So, I pointed out the changes necessary to bring the healthcare directives up to date.  Our firm has a systematized membership program called Foundations that clients can opt into that will maintain their plan through the years.

The good news, the couple was able to see the mistakes and correct them before they had to rely on the faulty documents.  The bad news, the couple is going back to the original attorney to have the documents corrected, since they have free changes for life.

You get what you pay for…

Scam Targeting the Elderly in Michigan

An attorney colleague in Michigan just made us estate planners aware of the following scam that is targeting the elderly.

We have encountered a scam targeted at seniors. A lady in her late 70s was persuaded by a salesman to sign up as a local representative of a satellite television company, apparently under the suggestion that she could sell

(recommend) the service to her friends and receive commissions. She was offered and did sign an agreement to serve in this capacity, and in so doing authorized a charge of $7,500 to her credit card.

At this point I will not name the company on the contract or the satellite provider, but all of us should be on the lookout for this kind of scam.

It’s unfortunate that this type of thing happens to our seniors.

Michigan QPRT | Gifting Your House to Your Children

With the economy and real estate values falling to record lows in Michigan, there is a an opportunity to make use of a nifty estate planning technique.  Clients can put assets that have dropped in value into a trust now so that the appreciation occurs outside of your estate for tax purposes.

A real world application of one of these strategies involves using a Qualified Personal Residence Trust otherwise known as a QPRT (as an aside, us estate planners have acronyms for everything, RTL, CRT, CRLT, GRAT, GRUT, etc.).

The way it works is like this: you transfer your home into a QPRT now, with bargain basement values.  This locks in a lower-gift tax amount for the move from your possesion to the trust.  As an added benefit, if interest rates move higher, the discount can be even greater.  After 10 years, the home can then pass to your beneficiaries, typically children.  Now they own the home, outside your estate, free of any Federal Estate Taxes.  If however, after 10 years, you still live in the home, you willp ay your children fair-market rent to your kids.

The WSJ just had a piece about this strategy in more detail here.

If you have any questions, feel free to contact me.

Fixed Fees

The Washington Post had an article about legal fees today.  The premise of the article was that many in-house counsel is requesting outside counsel to work on a more fixed fee basis, instead of an hourly fee basis.  My firm has been operating almost 90% on a fixed fee basis when we work with clients.  It feels good to be ahead of the game on this front.  You can read the post here.

Warren Buffet; Buying American

Warren Buffet had an interesting op-ed piece in the New York Times today.  You can read it here.  Basically, he is saying that the time to buy American stocks is now.  He is buying them in his personal fund.

So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

It’s good to hear from one of the richest men in the world that our economy will not totattly self destruct and that there may be a light at the end of the tunnel.

19 Year Old Passes Away From Heart Condition While Playing Basketball

I didn’t know the individual, but I work out and play basketball at the same gym.  Makes you realize how fragile life is.  A 19 year old passed away while playing basketball at Lifetime Gym in Commerce, MI.  He had a rare heart disease.

You can read the link to the article in the Detroit News here.

Planning For Your Future is a Team Effort

Planning for clients at our firm is not done with a lone ranger approach.  We recommend to our clients that they should have a team of professionals to ensure that they meet their estate planning and financial goals.  So who should be your teammates?

As you go through your life, you may have an accountant, a banker, a financial planner, an insurance agent, as well as your family. Each of these people have a role to play in helping you make your estate planning decisions.

Your accountant or CPA will be aware of your tax situation and many of your decisions involving estate planning include issues of estate taxes. If you have a business, your accountant will be familiar with its structure and profitability, enabling you to make plans for exiting your business, either by selling it or leaving it to a family member. If living trusts are set up as part of the estate plan, your accountant will need to prepare the trust tax returns. If you give gifts to family members and others during your lifetime, your accountant may need to file gift tax returns, depending on the size of the gifts.

Your banker is familiar with the amount in your bank accounts, in whose name they are in, and whether any of the accounts have “pay on death” designations. All of this information is important when talking to your lawyer about your assets and which assets are part of your estate.

Your financial planner is the person who is informed about the rest of your monetary assets – your stocks, bonds, retirement accounts, and your children’s college funds. These assets, plus your bank accounts, are the core of the wealth that you wish to transfer to your family and loved ones.  Your financial planner needs to know what your plan will be and he/she will be the one changing the names on the accounts to your living trust or to your heirs.

Finally, if you have a spouse or children that you are supporting, then life insurance should be part of your estate plan. Life insurance provides immediate cash after you die, cash that will replace your income. If your spouse can work, and your children are grown up, then you may not need life insurance. But, if you do have life insurance, your insurance agent can be helpful in updating your beneficiary designations after you create your estate plan.

Our firm understands that each of these professionals plays an important role for your estate planning needs.  If any of these roles are not filled we can get you connected with a professional that will fit well on your team

Do-It-Yourself Wills; Simple Wills The Estate Planning Myth

With all the Suze Ormans, Nolo, LegalZooms out there you might not think it makes a difference, but a will made with software is not the same as a will created by a lawyer.

The idea that the two are similar couldn’t be more wrong. An estate planning lawyer will know the law and possible risks that software can not predict.

Banish this myth from your mind.

In this day and age there is no such thing as a simple will. No one’s life is simple.  A theme at our law firm is that “You Family is Worth It.”  Your family is worth doing the planning the right way.

Estate Planning | Your Family is Worth It

To give your family the assurance they deserve, that the fate of your estate is truly in order, an estate planning lawyer is a necessity.

EDIE the Estimator helps you with your FDIC

EDIE the Estimator

The FDIC has came out with a webpage that hels you calculate your FDIC coverage for you deposit accounts.  In this turbulent time, this type of information is key.  In addition to consulting EDIE, it is probably a good time to contact you financial adivsor, financial professional to make sure you have  a plan to weather this storm that is sending investment portfolios south.

To use EDIE, go here.

Debate Night| Obama & McCain Plus Death & Taxes

McCain & Obama Debate | Federal Estate Taxes

With the looming McCain Obama debate tonight.   I thought it would be helpful to recap what each campaign is proposing for the federal estate tax.  Luckily, the Wall Street Journal had an interesting article on this very topic today.  You can read the WSJ article here.

The way the current law works is that in 2008, the Federal Exemption is up to $2million.  Meaning there is no Federal Estate Tax for any estates under $2million.  In 2009, the number jumps up to $3.5million.  In 2010, there is an unlimited exemption.  Then 2011 and beyond, the exemption is at $1million.

Each canidate has discussed his views on where they would like the tax to go.  Here is an important quote from the WSJ article linked above.

Sen. McCain proposes raising the exemption “as soon as possible” to $5 million and cutting the top tax rate to only 15%, says Douglas Holtz-Eakin, senior policy adviser. Sen. Obama wants to keep the exemption at $3.5 million and the top rate at 45%.

Portability. Both candidates agree the exemption amount should be easily portable. “Families should not be required to undertake complex and unnecessary financial planning or be penalized for failing to take advantage of sophisticated financial strategies,” says Jason Furman, economic policy director for the Obama campaign. The Democrats’ nominee “believes we should eliminate the estate tax for 99.7% of families — and this is part of his plan to accomplish that goal,” says Mr. Furman.

Sen. McCain also favors portability. The Republican nominee “opposes situations where taxpayers may have unfavorable tax consequences” simply because they couldn’t afford — or didn’t know — “to seek sophisticated tax planning advice,” says Mr. Holtz-Eakin. “All of the costs and effort involved in such planning would be unnecessary or greatly reduced if there was portability of the estate-tax exemption. Such a proposal also meets another of John McCain’s goals of simplifying our complex tax code whenever we can.”

Under current law this year, a married couple could leave a total of $4 million to their children without federal estate tax. “But because the exemptions aren’t portable, quite a bit of planning is necessary to achieve this result,” says John M. Olivieri, a tax partner at the law firm of White & Case LLP in New York City.

Suppose a husband and wife each has $2 million. The husband dies and leaves everything to his wife. Although there’s no federal estate tax because of the marital exemption, the wife now has a $4 million estate but only a $2 million exemption, Mr. Olivieri says. Consequently, if she dies this year and leaves her $4 million to her children, “her estate will be hit with a federal estate tax of about $900,000,” based on this year’s rate structure, Mr. Olivieri says. “A similar problem arises if the entire $4 million is owned by the husband and the wife dies first.”

To avoid the problem, “many married couples expend considerable time, effort, and money to avoid wasting their combined federal exemptions,” says Mr. Olivieri. “But if the exemptions were portable, none of this would be necessary.” However, even if the exemption does become portable for federal estate-tax purposes, Mr. Olivieri points out that many people may need to take special estate-planning steps anyway because of state-tax issues.

Although many tax advisers do expect major estate-tax changes next year, no matter who wins the presidency, don’t count on them just yet. Even though the two candidates agree on portability, nobody knows how quickly such a change might happen, what the effective date might be and how the fine print of legislative language would read.

But “my sense is that portability would have bipartisan congressional support,” says Blanche Lark Christerson, managing director at Deutsche Bank Private Wealth Management in New York. “It also could simplify people’s planning and be a good thing.”

However, many people still might benefit from setting up trusts and taking other steps anyway, Ms. Christerson says. That includes many people who live in states that have “decoupled,” or separated, from the federal estate-tax system. “Also, bear in mind that even if there were no potential tax consequences and apparent need for a trust, you still might want one” for other reasons, such as protecting assets from creditors or other factors.

Valuations. This is a key issue when calculating capital-gains taxes on the sale of inherited assets. Here’s an example: Suppose your cousin dies and leaves you stock he originally purchased decades ago for $100,000 and the value of that stock has grown to $500,000 as of the date of his death. Your tax basis typically would be $500,000 — or, under certain circumstances, the value six months after the date of death. That means you don’t have to figure out what your cousin originally paid for that stock. This system is scheduled to continue through next year and undergo major changes in 2010. Critics say those changes would create additional complexity and impose unfair recordkeeping burdens on taxpayers. Advisers to both candidates have said the candidates want to retain the current system.