Author: byrnelawoffice

Do you have a family cottage, hunting property, river property, recreational property, etc.? Have you created many memories on this property with your family? Do your children or grandchildren love the property as much as you do? If you answered yes to these questions, you probably want to find a way to preserve that property for your family after your death. I am saddened when I hear that a family heirloom property was sold, because there was not a workable plan to preserve the property. If property that is important to you or your family is sold outside of your family, it will be difficult for your family members to replace that property. 

Each family, property, and use is different. Even between family members, uses and interests differ. As part of any plan, your love of the property, your desires for the property after your death, whether the taxable value of the property will be uncapped, and the differing interests of your descendants need to be balanced and considered. A stand-alone trust, provisions inside of your existing estate plan, or an LLC can be avenues to provide for the future preservation and management of the property that is special to you. It is important that you contact an attorney that specializes in “Cottage Trusts” and has extensive experience preparing this type of plan. Based on the overlap between Cottage Trusts and the formation of LLCs, I recommend your attorney also be proficient in small business/LLC formation and maintenance. After listening and learning how your family property has been used and how you expect that the property will be used after your death, the attorney should work with you to come up with a solution that meets your desires, deals with the management of the property, the payment of expenses, the use of the property, the withdrawal of a family member, and the ultimate disposition of the property. This solution needs to be workable for your descendants. There are many models and variations that can used. You and your attorney can be as creative as necessary to make sure you are comfortable with the succession plan for your cottage or recreational property. 

If you have a family cottage, hunting property, river property, recreational property, etc. that is important to someone else in your family, they will be very glad you took steps to create a formal plan to retain the property in your family. 

The SECURE Act went into effect January 1, 2020. Before this act was passed, estate planning for clients with retirement accounts included the possibility to setup the retirement account to be paid over the lifetime of the beneficiary or beneficiaries (stretch IRA). Spouses still have the ability to roll over his or her spouse’s retirement account upon the spouse’s death, such that the surviving spouse can treat the retirement account as his or her own retirement account. After the SECURE Act, however, most retirement accounts and IRAs that name an individual as the beneficiary need to be distributed before December 31st of the year in which the 10th anniversary of the account owner’s death occurs. No distributions need to be made during those 10 years. This is true whether the account names the individual directly as a beneficiary or names a trust for which the individual is a beneficiary. 

There are special rules for children of the account owner under the age of 26, which alters and extends the “10-year rule”. To protect a young child of the account owner from cashing in the account prematurely, the account should be paid to a properly set up trust. 

Additionally, if a beneficiary is “disabled” and “chronically ill” as defined in the act, the retirement account can be paid out annually or monthly over the statutory life expectancy of the beneficiary. Since it is likely that such a beneficiary is receiving need based government assistance such as SSI and/or Medicaid, it is important for the retirement account to be paid into a properly set up Special Needs Trust that will protect the beneficiary from being disqualified from receiving his or her state aid. 

There are several other exceptions to the “10-year rule” and certain situations may still require the account to be distributed within 5 years of the account holder’s death. 

If you have a retirement account, it is very important to work with an experienced attorney who specializes in estate planning and is educated in the SECURE Act to create an estate plan and determine how your beneficiary designations should be set up that properly coordinates the retirement accounts, the SECURE Act, and your desires and needs of your family. Although the children are often named as direct beneficiaries on retirement accounts, I believe that in most situations your trust or estate should be named after your spouse. Doing so allows for distributions, trusts, and/or planning should one of your children predecease you. Naming the trust or estate as the beneficiary also ensures that there are sufficient assets to pay the debts and expenses after your death. How your beneficiary designations should be set up can be determined with your attorney in light of “the big picture”. 

If you already have an estate plan set up, it is important to have your estate plan and beneficiary designations reviewed by an attorney up to date on the SECURE Act. 

As an estate planning attorney, I want to encourage you, the reader of this article to have an estate planning attorney prepare both of the following documents for you. How young or how old you are does not affect your need for these documents. 

Durable Power of Attorney: This document allows you to name someone to act on your behalf regarding your business affairs during your life. If you get in a car accident, have a stroke, or for any other reason are unable to make your own business decisions, you will need someone to manage your money and assets, including writing checks for you, paying your bills, cashing checks, filing your tax returns, dealing with your utility service providers, credit card companies, etc. If you have a spouse, he or she, can only act on your behalf if you have properly named your spouse in a Durable Power of Attorney. 

This power can be granted immediately to the named person or this power can be granted to the named person only when you are unable act for yourself. 

A person that becomes unable to handle his or her own business affairs that has a valid Durable Power of Attorney avoids the need for the probate court to be petitioned for the appointment of a conservator. The attorney fees and court costs for conservatorship proceedings are much more expensive than the attorney fees for the drafting and preparation of a Durable Power of Attorney. The Conservator, even if your spouse, is required to file annual accountings with the probate court each year and typically will be required to obtain permission from the court before using your money for any reason. 

Please keep in mind that your power of attorney is only effective as long as you are alive. You will still need an estate planning attorney to prepare a will and/or trust for you to name someone to handle your business affairs after your death. 

Designation of Patient Advocate: It is very important for you to name an individual to make your medical decisions should you be unable to do so, including withholding or withdrawing life support (if you so desire). Only the person you properly appoint can act on your behalf. If you have a spouse, he or she can only make medical decisions on your behalf if your spouse is properly named in a Designation of Patient Advocate. 

A person that becomes unable to make his or her own medical decisions that has a valid Designation of Patient Advocate avoids the need for the probate court to be petitioned for the appointment of a guardian. The attorney fees and court costs for guardianship proceedings are much more expensive than the attorney fees for the drafting and preparation of a Designation of Patient Advocate. 

The following are the top 5 estate planning mistakes that I see in my practice. 

1. No Prepared Estate Plan. It is very important for you to have a Will or a Will and a Trust prepared for you. Your estate plan should name a guardian upon your death for any minor child, name who will manage your assets and money for your child(ren), state the age that your child(ren) will receive their share of the assets, designate who receives your property, and instruct how and when your assets are to be distributed. If you do not have a Last Will and Testament or a Living Trust, your estate will be distributed pursuant to the Michigan Compiled Laws passed by our state legislature, which is unlikely to be the same as you would have chosen. 

If upon your death you have minor children and do not have a valid Will, the probate court will need to appoint a guardian for the care of the minor child. If you do not have a valid Will and/or Trust, the probate court will also need to appoint a conservator to manage the assets for each of your minor children. The court may not pick the person you would have chosen, your child will be in limbo until the court makes this appointment, the guardian and conservator will need to file annual reports with the court, and the conservator will need to obtain approval from the court to spend money for the child. The balance of the child’s share will be distributed to him or her upon the child’s 18th birthday, regardless of whether the child is financially responsible or not. 

An estate plan should include the preparation of a Durable Power of Attorney and Designation of Patient Advocate, which names someone to act for you should you become unable to make your own business or medical decisions. Properly granting those powers to someone will avoid the need to petition the probate court for the appointment of a conservator or guardian. The attorney fees and court costs for conservatorship proceedings are much more expensive than the attorney fees for the drafting and preparation of a Durable Power of Attorney and Designation of Patient Advocate. A Conservator, even if the spouse, is required to file annual accountings with the probate court each year and typically will be required to obtain permission from the court before using your money to meet your needs. 

2. Estate Plan was not Drafted by an Experienced Estate Planning Attorney. The best way to insure your desires regarding your minor children and property are met is to have an attorney experienced, trained, and specializing in estate planning prepare your estate plan for you. Many forms/kits are confusing and not completed properly. If the provisions in your Will or Trust are not clear, your desires may not be effectuated. Additionally, your estate may incur extra attorney fees, delays, and may require a court hearing to interpret the document. An experienced attorney specializing in estate planning 

will assure that the documents are executed properly so that the Will or Trust will be honored as your set of instructions. 

3. Improper Use of Joint Tenants and/or Owners. There are many reasons NOT to name a child as a joint tenant on your accounts or real estate. Below are just a few. If a child is listed on an account and the child gets in a car accident, is sued, divorced, or owes money, then the creditors and/or former spouse of that child may be entitled to all of your money in that account. If not done properly, adding a child as a joint owner on real estate could make it difficult to sell that real property. If a child who is a joint tenant predeceases you, you may inadvertently disinherit his or her children. A child named as a joint account owner could misuse, misappropriate, or “borrow” your money either during your life or after. 

If you want a child to be able to help you with your financial affairs, a properly drafted estate plan can allow him or her to do so without the negative aspects of adding the child to your accounts. 

4. Beneficiary Designations are not Coordinated with Estate Plan. It is important for the beneficiary designations on your life insurance, retirement accounts, transfer on death (TOD) or payable on death (POD) accounts to be coordinated with your estate plan. If not properly coordinated, your assets may not be distributed as you desire and/or your personal representative/trustee may experience difficulties in administering your estate/trust after your death. For example, if you have a Last Will and Testament, it is important for your accounts to be distributed to your probate estate after your death (or after the second of you and any spouse to die). If you have a Living Trust, your non-retirement assets should be owned by or transferred to your trust upon your death. 

5. Failure to Review and Update Estate Plan. Your circumstances and family continue to change and so should your estate plan. Children may have been born or adopted. You may have gotten married, divorced, and/or remarried. Your new spouse may have his or her own children. The people you desire to act as the guardians for your children may have changed as your children grow and relationships change. Your children may now be adults or have moved away. Those you have named in your estate planning documents may no longer be able to so act. You may now desire others to act on your behalf or desire for someone else to receive your assets upon your death. 

To avoid this mistake, please pull out your estate plan documents and read them again to determine if changes are necessary. If changes are necessary, call your attorney and get your document(s) changed right away to make sure your current desires will be known and put into effect. 

The good news is that you can correct each of the above mistakes while you are alive and competent, by contacting an attorney specializing in estate planning. 

It is important for all adults to have a Last Will and Testament drafted by an Estate Planning Attorney. Depending on a person’s needs and desires, a Living Trust may also need to be drafted for the person. 

For an individual with at least one minor child, a Will can appoint the guardian who will care for the minor child. A Will or Trust will also 1) name the person or entity to manage the individual’s assets and money (Personal Representative or Successor Trustee) after the individual’s incapacity or death; 2) state to whom the Personal Representative or Trustee can make distributions (the beneficiaries – children, grandchildren, friends, etc.); and 3) the age that the beneficiary/child of the deceased individual will receive control over his or her share of the assets. If a person with a minor child does not have a valid Will and/or Trust, a probate court judge will appoint a guardian for the care of the minor child and a conservator to manage the assets for the minor child. There will be uncertainty for the minor child and the potential guardians until the court makes this appointment. Additionally, the court may not pick the person that the deceased individual would have chosen. The court appointed guardian and conservator will each need to file annual reports with the court and the conservator will need to obtain approval from the court to spend money for the child. The balance of the child’s share will be distributed to the child upon the child’s 18th birthday, regardless of whether the child is financially responsible or not. 

Having an attorney who is experienced, trained, and specializes in estate planning prepare a person’s estate plan, is the best way to insure that person’s post death desires are given effect. 

When does a Probate Estate need to be opened?

Anytime a person dies and has assets in his or her name. If the deceased person properly executed a Last Will and Testament, the property will be distributed pursuant to the instructions in the Will. If the person did not have a Will, a probate estate is still opened, however the default laws of the State of Michigan will determine how the property is distributed.

Who should start the Probate process?

Probating a deceased person’s estate appoints a personal representative (formerly referred to as the “Executor”) who is given the legal authority to commence probate, write checks, pay bills, and manage the assets of the deceased individual. The Last Will and Testament will nominate who the deceased person wanted to act as the Personal Representative. If the deceased person has no Will, then the court will appoint a relative of the deceased person to act as the Personal Representative. The person to act as Personal Representative should contact an attorney specializing in estate planning and/or probate administration to schedule a conference. Unless there is a specific reason that necessitates meeting sooner, it is usually best to schedule that conference to occur a week or two after the death of the deceased person.

Is probate complicated?

There are certain procedures and documents that need to be filed. Failure to properly administer the estate could result in the Personal Representative being personally liable. A good estate planning or probate attorney will make it easy for you.

What if the deceased person had a trust? Can I simply distribute the assets to those named in the trust?

No. Michigan Law requires that the Trustee take certain actions. If not administered properly, the Trustee can be personally liable. Once the trust is properly administered, all proper debts and expenses paid, the assets in the trust can be distributed to those listed in the trust. A good estate planning or probate attorney will make it easy for you!

Who should start the trust administration process?

The trustee named to act after the death of the Settlor (person setting up the trust) should contact an attorney specializing in estate planning and/or probate administration to start the process. That attorney can help you properly complete that process. An attorney is an integral part of properly and efficiently administering the trust.

 

Do you have children that are 18 years of age or older? Are your children married? Do your children now have their own minor children? People 60 and older are significantly more likely to have an estate plan than those in their 20’s, 30’s, and 40’s. This is because the energy and finances for younger generations are consumed with starting a career, buying a house, getting married, raising children, etc. Additionally, young people frankly do not spend much time thinking about the possibility that they could ever need any of the following. Do your kids have the following?

 

Durable Power of Attorney: This document allows your child to name someone to act on your child’s behalf regarding business affairs during the child’s life. If your child is in an accident, has a medical emergency, or for any other reason is unable to make business decisions, someone will need to be legally named to manage your child’s money and assets, including writing checks, paying bills, cashing checks, dealing with utility service providers, dealing with creditors, etc. A person’s spouse can only act on behalf of the person if named in a Durable Power of Attorney.

Designation of Patient Advocate: It is very important for your adult child to name an individual to make medical decisions should your child be unable to do so, including withholding or withdrawing life support (if so desired). Only the person properly appointed can act on your child’s behalf. You are no longer able to make those decisions. Your child’s spouse can only make medical decisions if the spouse is named in a Designation of Patient Advocate.

A person that becomes unable to make business or medical decisions who has a valid Durable Power of Attorney and Designation of Patient Advocate avoids the need for the probate court to be petitioned for the appointment of a conservator and guardianship. A conservator is required to file annual accountings with the probate court each year and typically will be required to obtain permission from the court before using money to meet that person’s needs. The guardian must file annual reports as well.

Will or Living Trust: A Last Will and Testament (Will) and/or Living Trust is a set of instructions that names who will manage a deceased person’s assets. If the person has at least one young child, the Will names who be the guardian of the child(ren), how the money will be managed and who will manage and distribute the assets for the child(ren), and at what age a child will no longer need someone else to manage the money for the child. Unless named in a properly executed Will, the probate court will appoint the guardian for the care of the minor child and a conservator to manage the assets for the minor child. The court may not pick the guardian that the deceased person would have chosen, the minor child(ren) will be in limbo until the court makes this appointment, the guardian and conservator will need to file annual reports with the court, and the conservator will need to obtain approval from the court to spend money for the child. The balance of the child’s

share will be distributed to him or her upon the child’s 18th birthday, regardless of whether the child is financially responsible or not. A carefully drafted Will and/or Trust can provide for a private management of the assets and the assets can be held in trust and managed for the child at an age older than 18.

Would you be willing to pay for all or part of the attorney fees to make sure your child has these documents. Would you consider encouraging your children to meet with an Estate Planning Attorney to have the following drafted for them? I hope that your child would never have a use for these documents, but no one knows what

We sat down with David M. Byrne, Attorney at Law, who is a member of the Fremont Area Community Foundation’s Professional Advisory Committee to talk about how businesses should be set up.

 

 

Why would someone need an LLC or Corporation?

DAVE: It is important to protect your personal assets from the debts and liabilities of your business (Limited Liability). If your entity is not set up correctly, all of your personal assets would be available to pay the debts and liabilities of the business. In order to get the limited liability of an LLC or Corporation, there are many hoops that need to be jumped through. It is important to document and act in a way that is clear that your business is separate from your individual and your personal assets. I pay close attention to the details and teach you what you need to do to minimalize the chance that your personal assets could be lost. If there are multiple owners, a properly set up LLC or Corporation will protect you from the liabilities of/or caused by the other owners.

What does “Limited Liability” mean?

DAVE: Limited Liability means that if the LLC is properly set up, the members of the LLC and the assets owned by them are not subject to the debts and liabilities of the LLC.

What is an LLC?

DAVE: An LLC or Limited Liability Company is a separate legal entity that acts like a partnership or sole proprietorship, but still provides limited liability. An LLC is taxed as “flow through” entity

What is a Corporation?

DAVE: A corporation is a formal entity that provides limited liability to its shareholders, (the owners of the corporation) and is run by a board of directors.

Can a person file their own LLC or Corporation?

DAVE: Although you can file your own articles of organization or articles of incorporation and your business may be recognized by the State of Michigan, your personal assets are probably still vulnerable to the debts and liabilities of your business. By the time you find out that your business was not set up properly, it will be too late! You could lose your personal assets (those outside of the business) to pay the liabilities of your business.

What about a business with multiple owners?

DAVE: I recommend that the LLC or Corporation with multiple owners carefully define the roles of the individual members, the powers of each member, and what happens when one owner dies or becomes disabled such that he or she can no longer participate in the business, or desires to withdraw.

What if I am selling or buying from a family member?

DAVE: To make sure that your desires are carried out and also to reduce or eliminate any confusion, misunderstandings, or hard feelings between you and your family members, including those not involved in the sale or purchase of the business, it is important that you have an experienced business law attorney prepare the proper documents to protect you and your investment.

I am starting my business soon, how long does it take?

DAVE: I understand that it is important to get your legal entity in place quickly. I have a very streamlined process to complete the actions necessary for you to operate as the new entity and to open a bank account within 7-10 days after your first conference with me. I will have a second meeting with you within approximately 1 month from the initial meeting to have you sign the documents which are necessary to protect your personal assets from the business’ liability.

Anything else our reader’s should know?

DAVE: While the reader is meeting with an attorney to set up or update their LLC/Corporation, I would recommend that they also review and update their estate plan.

David M. Byrne has renewed his Probate and Estate Planning Program Certificate from the Institute of Continuing Legal Education and the Probate and Estate Planning Section of the State Bar of Michigan. David has completed over 150 courses of continuing legal education in the areas of probate, estate planning, Medicaid, tax, and business.

David graduated Cum Laude with a Bachelor of Arts from Hope College in Holland Michigan, with a major in Political Science and a minor in Mathematics. He received his Juris Doctor from the University of Michigan Law School with an emphasis in Tax and Estate Planning. David has been practicing in Fremont since 1993, specializing in Estate Planning, Small Business, Probate, and Real Estate. David’s office is located at 28 West Main Street; Suite E in downtown Fremont.

In honor of National Estate Planning Awareness Week, we sat down with David M. Byrne, Attorney at Law who has practiced in Estate Planning for 31 years.

 

FACF: In your 31 years of practice, you have probably seen it all when it comes to estate planning.

DAVE: I have observed the good, the bad, and some horror stories.

FACF: What factors contribute to the different results?

DAVE: “Estate planning” is exactly what the name says: planning for what happens to a person’s property upon death (the person’s estate). Estate planning should also properly name a person to make business/financial actions and medical decisions on behalf of a person. If a person has a minor or disabled child, it is important to name guardians to care for the child(ren) should the parent die or become unable to do so. To put it simply, a successful result from estate planning is if a person’s desires actually occur regarding who will act for the person financially and medically when needed for the person, who will become the guardian of minor/disabled children, and how the person’s property is distributed as of death.

FACF: What is an estate planning bad result or horror story?

DAVE: A bad estate planning result is when the person’s desires are not met when the person becomes unable to handle the person’s own business or medical affairs and/or upon the person’s death. I have witnessed matters and relationships become very contentious after a person’s incompetency or death, which may result in unnecessary and costly legal proceedings. Those become the horror stories. Relationships are permanently destroyed, and estates are financially depleted by legal proceedings.

FACF: How does a person end up with a successful result and avoid a bad result or even worse a horror story.

DAVE: The key word in Estate Planning is “plan”. To “plan” as a verb is defined as: “to decide on and arrange in advance”. As a noun, a “plan” is “a detailed proposal for doing or achieving something.” We all have heard the saying: “failing to plan is planning to fail”. If a person doesn’t plan for the person’s disability or death, then the person’s desires are not likely to be met. The best way for a person to plan for that person’s estate, the guardianship of any minor/disabled children, and for when the person is unable to act, is for the person to work with an attorney experienced and specializing in Estate Planning. This attorney can walk the person through a series of questions to make sure the person has thought about the various scenarios and resulting desires for whatever happens in the future. If there are concerns regarding how family members and/or beneficiaries will act, the attorney can draft to limit or remove any potential issues. The attorney will then draft and review with the client the necessary documents to ensure that the client’s desires will be met when the person is unable to act or dies. These documents include Will and/or Living Trust, Durable Power of Attorney, Patient Advocate, etc. A well drafted estate plan that carefully details what the desires of a person are and direct the necessary actions to effectuate same is the best way to make sure that person’s desires are put into effect.

FACF: And the horror stories?

DAVE: I have lots of examples, a few of which are as follows:
People with minor children or disabled children usually have very specific people in mind to be the guardian, if the person is unable to. Unless properly named in a Last Will and Testament, the probate judge will have to select a guardian for the child and the judge is limited by Michigan statute. Several family members may believe that they are the best to care for the child. So instead of stability and the family all working together in a time of crises, there is uncertainty and legal proceedings to determine who the guardian will be. Additionally, the court will need to appoint a conservator to manage any monies for a minor child, annual accountings need to be filed with the probate court, the court will need to approve expenditures spent for that minor child, and the child will receive the remaining monies upon attaining the age of 18.

If a person can no longer act financially or medically and does not have a Durable Power of Attorney and Designation of Patient Advocate, the court will need to appoint someone to make those decisions. This may not be the person desired to make these decisions. Annual accountings need to be filed with and approved by the probate court.

If a person names all of their children as an owner and/or beneficiary on bank accounts, real estate, cars, retirement accounts, life insurance accounts, etc. there are all sorts of issues. Creditors of a child/beneficiary can take assets to satisfy the child/beneficiary’s debt. The person may be limited from managing, making decisions regarding, or selling the person’s own property. I was involved in a case where the person added as a joint tenant to a person’s property refused to allow the actual owner to sell the property or transfer the property to someone else. There is no one person who can act to administer the “estate”. There is no money to pay the bills of the property and estate. Each joint owner will need to individually contribute to each expense. Each joint owner needs to agree to all sales, transactions, payments, etc. This creates lots of problems and also expensive legal proceedings.

If only one child/beneficiary is named as the owner/beneficiary, the child/beneficiary may not follow the desires of the deceased person. There is no requirement for the child/beneficiary to account for the child/beneficiary’s actions. This results in strained relationships and very possible litigation.

FACF: That is all very interesting and helpful information. Thanks Dave for sharing with us.