Estate Planning 101 – Did You Know?
Rhonda Clark
1. Beneficiary Designations & Joint Assets.
Your Will and/or Trust does not control assets held jointly with another person or an asset that designates a person as a beneficiary at death.
- Have you reviewed your beneficiary designations lately?
- Do you have a contingent beneficiary named if your primary beneficiary dies?
- Do you have a contingent owner on a life insurance policy you own on the life of another person such as your spouse or child?
- Never name a person unless you want them to own the asset at your death.
- Never title assets jointly with another person unless you want the person to own the asset at your death and you are willing to risk the asset for the joint owner’s liability.
2. How Do Assets Transfer At My Death?
- Beneficiary Designated Assets – Pass to named beneficiary and avoid Probate.
- Jointly Held Assets – Pass to the joint owner and avoid Probate.
- Assets Held in Your Sole Individual Name at Death – Go through Probate and are subject to a “pour over Will” if you have a Trust. If you only have a Will, no Trust and have assets solely in your individual name at your death there must be Probate to transfer assets to beneficiaries at your death.
- Assets Titled to Trust or Beneficiary Designated to Trust – Are controlled by the Trust and pass to the named beneficiaries outside Probate.
3. Did You Fund Your Trust? What Does “Funding” Even Mean?
Simply put this means making sure your assets are either titled in the name of your trust or beneficiary designated to your Trust at your death. Signing your Trust at your lawyer’s office does not magically transfer your assets to your Trust. You have to take further action to make sure assets are either owned by your Trust now or will be owned by your Trust at death. Review your asset statements and deeds to see who owns the asset, you or Trust? Review your beneficiary designations. If you are uncertain or need help, schedule an appointment. Having a Trust only gets you halfway there. The other half is ensuring your Trust is fully funded. If not, you may have a one-way ticket to Probate along with Trust administration at your death. While there are many reasons a person may need a Trust, every person I know with a Trust wants to avoid Probate, first and foremost.
4. Do You Have Retirement Assets such as a traditional IRA or 401(k)?
Retirement assets must continue in your individual name. Retirement assets have income tax consequences. When you pay into a retirement account it goes into the retirement account income tax free. When you reach the age that you must begin taking your “required minimum distribution” you must pay income taxes on each distribution. Once you pass, your beneficiaries will pay income tax with respect to a decedent. Be careful how you designate your beneficiaries on your retirement accounts. If you have a Trust, it is generally not recommended to name your Trust as the primary beneficiary. Check with your attorney first! Make sure you have contingent beneficiary in case your primary beneficiary dies.
5. Do You Have Durable Powers of Attorney For Finances and Healthcare?
Powers of attorney (“POA”) are important tools in the estate planning toolbox. In most cases, they avoid Probate court involvement while you are alive but incompetent. Durable means a power that remains in effect if you become incompetent. POA’s are helpful planning tools should you need long-term care outside your home. As you age, and remain competent, best practice is to update your POA every 5 years or so. Although Michigan law says that POA’s remain effective no matter the age of the document, arguing with large national and multinational institutions to enforce Michigan law and respect the POA can be very costly and time consuming. POA’s are reasonably priced in comparison to an attorney’s hourly rate or court involvement.
6. Do You Have A Disabled Beneficiary?
You can protect a disabled beneficiary’s government benefits through a Special Needs Trust.
7. Are You Concerned About Your Body When You Die?
You can designate a funeral representative who is in charge of your body and funeral arrangements when you die. It must be in writing and properly witnessed and notarized. If this is a concern, talk to your attorney.
8. Review Your Fiduciaries.
Fiduciary is the fancy word for agent under your powers of attorney, patient advocate, personal representative (Will) and successor trustee (Trust). Fiduciaries have a legal obligation to act in your best interest and to consult with you to the best of their ability even if you are incompetent. Given the vast powers that fiduciaries have you should only pick persons you trust with your life and your money. The old adage goes its hard-to-get blood from a turnup. You need fiduciaries that are honest, trustworthy and capable of managing your finances or medical decisions. These may or may not be the same person. In certain situations, even the most capable people may not want the task due to family dynamics. Make sure those you name are well suited to carry out the duties required. If not, there are professional fiduciaries who can be named instead of your loved ones.
