Truth # 1 - You Have an Estate
everyone has an estate. Stated simply, your “estate” is a reference to everything you own and control.
Your “estate” is a fancy way of referring to all of your assets. It’s all your stuff. Your house, bank accounts, business interests, brokerage accounts, retirement funds, sneaker & sports card collection, and any other personal belongings laying around your house. Your estate also includes a new category of assets that didn’t even exist 20 years ago - Digital Assets. Even grandma now has an email account or smart-phone with pictures on it. So this means she also has digital assets that are part of her estate. Digital assets can also include things like cryptocurrency-wallets, social media accounts, digitally purchased media such as songs, movies & e-books, and cloud-based storage accounts that hold terabytes of pictures, videos and documents. You might even run a YouTube or Social Media blog that generates real income - well, these are digital assets too! The list of things that comprises your estate - digital or otherwise - can go on and on, and your cache of assets will continue to grow as technology continues to evolve.
So yes - an estate - you have one. Don’t let anyone tell you otherwise. It’s accumulating now, and it takes no less than a full lifetime to accumulate.
When you are alive and well, it’s easy for you to control and dictate the terms of your estate. After all, you are on the deed, you are on the account, you are the one with the account numbers and pins, and only you know your passwords right? Right. So the question that Estate Planning helps answer, to the world no less, is what should happen to your estate, when you lose control following death or incapacity.
Truth # 2 - You Will Die with an Estate
You, me, and everyone. We will die. Each of us will leave behind an estate, and some of us will leave behind children.
Look, life and death can be hard. We get that. Some people, literally, spend their entire lives trying to avoid having to deal with either. In almost all cases, that’s neither healthy nor helpful. Failing to plan life or death, regardless of your wealth, can have very serious consequences for you, your children & family, and the world you left behind.
Estate Planning helps answer very important questions that I’m certain you want to have a say in. Some of these questions include: (1) what happens to your estate when you die? (2) who will take care of your children if you are ever absent? and (3) who will take care of your financial affairs and medical decisions if you’re seriously injured in an accident and become hospitalized?
Estate Planning helps the world answer these questions: it provides a road map to the rest of us. It addresses how you want your estate assets distributed, it identifies who should take care of your kids, and it provides guidance on how you might want to spend your last days.
Now that we have established you will die with an estate, failure to actually PLAN your estate while alive ultimately means that it will be designed - or more accurately determined - by the government. The government’s estate plan is full of rules, red-tape, and rarely results in an outcome that you would be happy with.
Truth # 3 - You Should Design Your Own Estate Plan
Everyone already has a default estate plan - it’s just not designed by you. your default estate plan has already been chosen by the government.
People have been dying and getting sick since day 1. This is a fact of life. Over time, naturally, society’s need to answer “what happens next?” became more and more evident. So in an effort to address the important question of “what happens next?” the government, rightfully so, set forth an imperfect default estate planning system. The default system is called Probate, and it is governed by intestate succession laws. Every state has adopted their own set of Probate Court rules and intestate succession laws, but they generally resemble each other in many ways.
Although designed with good-intentions, intestate succession laws and the probate process involves inefficient courts, a complete lack of privacy, and a process that can sometimes feed imperfect information to the well-intentioned Judges tasked with making life-altering decisions about you and your family. Executing the government’s estate plan through probate also results in a process that often takes longer, costs more, and places a heavier burden on your family to access your estate. And, unless your family likes paperwork, reading complicated laws, meeting deadlines, and performing legal research, it also means they will need to hire a lawyer to help navigate them through the Probate Court process. To help make this real, going through the Probate Court process is not optional unless you take the affirmative step to decide to design your own estate plan and make your wishes clear through legally enforceable documents.
Estate Planning offers a multitude of tools that are structured to best ensure your wishes are fulfilled in a manner that best serves you and your family. It provides the world with instructions on who you want taking care of your children, who you want receiving your stuff, and how your personal affairs should be carried out in the event of your inevitable death, disability, or incapacity.
Truth # 4: Estate Planning is About Achieving Your Goals
Life can be complicated, but no matter your current situation - single, married, kids, separated or divorced, widowed, or part of a mixed family - an Estate Plan helps address four things:
Personal Protection
Family Protection
Asset Protection
Asset Management and Oversight
An Estate Plan that addresses the first three focus areas: Personal Protection, Family Protection, and Asset Protection, can be accomplished through most Will-Based Estate Plans.
For many, addressing Asset Management & Oversight is crucial to achieving your Estate Planning goals. This can only be accomplished through a Trust-Based Estate Plan.
To learn more about Personal Protection, Family Protection, Asset Protection, and Asset Management & Oversight, read on below. We’ll discuss exactly which Estate Planning documents help address these areas.
Personal Protection
God forbid you are involved in a serious accident, are in a coma, or begin suffering from dementia. You are not gone, but you are disabled or incapacitated. You need a plan that designates someone to legally act on your behalf. Who will make immediate medical decisions on your behalf? How will anyone access your bank accounts to pay your rent or mortgage? How will anyone be able to make long term care plans for you upon recovery?
This is where a (1) Durable Power of Attorney, and (2) Patient Advocate come into play.
A Durable Power of Attorney is a legally binding document that gives someone else you designate, called an agent, the legal authority to manage your personal and financial affairs. For example, you can authorize your agent to do one or more of the following: sign your checks, make deposits for you, pay your bills, contract for medical or professional services, sell your stuff, purchase insurance, and do the tasks necessary to manage your everyday affairs. In addition to situations where you might be disabled or incapacitated, a Durable Power of Attorney can help when you are out of town on business or vacation.
Without a durable power of attorney to act on your behalf, your loved ones will have to resort to filing a petition with the courts to become appointed as your agent. As with the Patient Advocate (described below), anyone appointed by the courts might not have your best interests in mind so it is better to choose your agent while you are healthy and able.
Without a Durable Power of Attorney, no one will be to do anything on your behalf without first filing a petition in court to act as your agent. Ultimately, through an annoying and costly process, a judge, who might have just been fed imperfect information, will determine who should make your decisions. Not only might you have a poor decision maker serving as your financial agent in your time of most need, they will be doing so with absolutely no guidance and instructions on how you want things handled.
Let’s get back to the hospital. How should the doctor’s proceed with treatment? After all, there are a few options, and you are’t awake to make them. That’s where a Patient Advocate designation is for. A Patient Advocate grants your designated “advocate” the power to make decisions regarding your medical, health and custody in times like these. Patient Advocates are also sometimes called a Healthcare Power of Attorney or Advanced Medical Directive. Your advocate will have the legal authority to make medical and health decisions on your behalf, within the scope of authority you pre-authorize, at times when you cannot make them (i.e. when incapacitated after an accident, in a coma, or possibly in the long term if you are permanently disabled). Failure to prepare a Patient Advocate can result in a hospital requiring your loved ones to petition the courts to have a Judge appoint someone to make those decisions on your behalf. That person, who you did not name because you didn’t have a Patient Advocate, might not have your best interest in mind.
Let’s now assume the worst now. Machines are keeping you alive, do you want your family making the decision over whether or not to pull the plug? More importantly, do you want your family agonizing over the idea that they need to make the decision for whether or not to pull the plug? Certainly not. That decision is personal to everyone, and it’s not something you want anyone to have to decide and live with. Families often struggle and argue over such decisions, and the ones left making the final call will be left questioning their decision for the rest of their lives. That’s not what you want for you and your family, and it’s certainly not what your family deserves. Fortunately, you can make this decision in your Patient Advocate designation. No need for anyone else to make the decision, and no need for your family to guess or feel guilty for the rest of their lives. This underscores the importance of having a Patient Advocate drafted as part of your Estate Plan while you are still able and healthy.
Family Protection
Heaven forbid you and your partner are involved in a serious accident that leaves you both hospitalized. Who will stand in as your kids’ guardian, even if for a temporary absence? Who will enroll them in school and make their medical decisions? If you don’t decide for them, they could be picked up by police and taken to a social worker. You’ve seen it happen in movies because it’s true! Again, the decision of who takes care of your kids, if you don’t decide for them in a signed writing, will ultimately be left to a Judge who knows little to nothing about your family. The factors that you might use in assessing who is best to raise your kids might not be the same as a Judge. Certainly, a relative who looks good on paper might not be the best candidate for who you want to raise your kids. You might evaluate your options based on a multitude of things such as personal values, discipline methods, education level, ambition, and of course, finances. Ultimately, a Judge might not take all of those factors into consideration. Moreover, their decisions are being made on imperfect information that is being provided to them by people who might not have your child’s best interest in heart. Under Michigan law, “any person interested in the welfare of a minor” may petition for guardianship of your children in the event you and your spouse are not around. How will a Judge know who’s best for the job if you never left them any instructions? This problem can be addressed by leaving instructions in your estate plan so that should the situation arise (whether for a temporary or permanent guardianship), you’ll have something in place that a Judge can rely on. It would be tough to argue that someone would know how to best serves the needs and welfare of a child than their parents.
Making sure your family is protected is also a function of having a valid Power of Attorney, as discussed above. To ensure your family can provide for their own needs, they may need access to funds, bank accounts, and other assets. Without a valid Power of Attorney and trusted agent to serve on your behalf, your family will be left scrambling in court. This can lead to missed deadlines, asset deterioration, missed mortgage payments, and other waste that puts your family in a very tough - but other avoidable through estate planning - situation.
Asset Protection
Your Estate took an entire lifetime to accumulate. From financial assets to cherished family memories and heirlooms, it’s all there for the taking after you pass. So, literally, who will stand in to protect you and your Estate when you die? Think about that.
Who will marshal your things, pay off your debts, and distribute any remaining assets to those you value and love? Unless you designate a personal representative, the person in charge of your estate will be chosen by a pre-determined pecking order under Michigan state law.
Who will inherit your assets and carry on your legacy? If you don’t pick who gets what, then the government chooses for you based on intestate succession laws. Assets might end up in the hands of certain relatives that you didn’t want them to go to. Even worse, family arguments over who gets what is probably certain. This can lead to irreparable divides between family members that can last entire lifetimes (perhaps generations!).
Finally, if you want a friend to inherit something of yours, forget-about-it! Friends are not part of the intestate succession formula, they get nothing, even if everyone knows that you wanted to give them something. Ultimately, it will be up to your legal heirs to do the right thing (which, when money and assets and emotions are involved, doesn’t always play out as anticipated).
This is where a Last Will & Testament comes into play.
Your Last Will & Testament, which is just a fancy word for a “Will,” is a place for you to:
Choose a personal representative who is honest, responsible, knows the family, and will ensure your wishes are followed.
Choose guardians for your children who share your values, are willing to take on the responsibility, and can financially afford to provide for your children.
Choose who gets what from your estate assets. Aside from some obvious choices like leaving you house and bank accounts to your spouse and children, if you know a particular friend or family member values your basketball card collection more than anyone else, this is your chance to tell the world that they should get it. Again, if you don’t tell the world in a Last Will & Testament, then odds are that they won’t get it.
Asset Management & Oversight
For all of its benefits, a Will does have its limitations. In addition to having to deal with the Probate Court process, there is no way to manage the assets distributed under a Last Will & Testament. Once the assets are distributed, that’s pretty much the end of the story. For example, if you were to pass away leaving all of your assets to your only child, then as soon as that child reaches the age of 18 (or if they are already 18) they would be entitled to full access of those assets, immediately. No strings or conditions attached. They just get it. So that means if you have $100,000 in your bank account, they will get immediate access to all $100,000 to do as they see fit. You know your kids better than anyone, but not very many would disagree that most 18 year old kids haven’t mastered the art of financial responsibility just yet. Last I heard one could buy a really really nice Tesla for under $100,000. Using the same scenario, but let’s say your child has a special needs issue and receives certain government benefits that help him/her with different aspects of his/her life. The immediate receipt of a large windfall may affect their eligibility of those government benefits, causing not only loss of the benefit, but the necessity to reapply for those benefits down the line. Another common scenario arises when a child has debt or a judgement lien against them. As soon as they get unfiltered access to you estate’s money, real estate and other assets, they could all be subject to collection by a creditor. That’s not good. In any case, there are a hundred different scenarios we could go through that highlight the issues of giving a child, or anyone for that matter, access to all of your estate assets at one time.
This is where a Revocable Living Trust comes into play.
A Revocable Living Trust allows its creators (you and/or your spouse for example) to figuratively put everything you own in a big box. While living, you own the box, control the box, benefit from the assets in the box, and put anything in, or take anything out of, the box. The box is there for your benefit. Most importantly, when you pass away, you still get to control the rules of the box. So instead of giving your kids everything when they turn 18 (as would be the case with a Will), you can design a more elaborate and forward thinking plan for the box. For example, if you only want your kids to get 25% of the box when they turn 18, with the remaining given to them over the course of the next 15 years, you have that flexibility.
Moreover, you also choose the person is in charge of the box after you pass on. This person with this power is called a Trustee, and they manage the box on your behalf and in accordance with your rules. Of course, you also get to choose who else benefits from the box after you pass away, called Beneficiaries. Now, let’s start calling the box for what it actually is - a Trust.
In addition to avoiding probate court and providing you with the ability to control distributions, a revocable living trust can also provide asset protection so that it does not get into the hands of your beneficiaries creditors. Say for example your trust contains $500,000 and your beneficiary kid has a $200,000 debt or judgement lien against them. At first glance, one would think that the trust can and will have to pay off the debt. This is especially true because the money is there for your kids benefit as a beneficiary. But no. If the trust is set up a certain way, with language that makes it clear you (from your grave by way of your Trustee) continue to control how the money is spent (rather than your kid), then the creditor cannot reach their hand into the trust money, nor can they make your kid pull the money out of the trust.
In sum, a Revocable Living Trust provides many benefits, some of which include:
Oversight over assets
Management over assets
Extra layer of security, such as an extra set of eyes (i.e. the Trustee) to vet stuff out so that your beneficiaries are less likely to buy into bad investments and business deals
Protection from creditors for beneficiaries
Peace of mind knowing that your legacy is being used in accordance with your wishes
