Michigan Probate Lawyer Blog

     
"Michael recently did some trust work for one of my most important clients. His attention to detail was impeccable and the client found their meeting to be very educational and informative. I plan on referring clients in the future to his firm and would recommend him to anyone." Gregg E. 2/2/10To read more client testimonials click here

Dated: 8/17/10

Q: My dad, who died after my mom, recently passed away a resident of Kalamazoo County. Legally, what do I need to do?

It depends entirely on whether your dad planned for death via a Will or Trust, or not at all. If via a Will or not at all then you should consult with an attorney to discuss the probate process, which oftentimes is expensive, time consuming and can be frustrating. If instead your father implemented a Trust during his life and properly funded the Trust with his assets, then there are generally only three requirements and/or recommendations assuming you are trustee of his Trust:

  1. Turn in his Will to the probate court (a formality because no proceeding will be necessary),
  2. Publish a Notice to Creditors in this newspaper, and
  3. Notice out the trust beneficiaries with a copy of the Trust (or at least those provisions which affect the applicable beneficiaries) and information pertaining to the Trust assets along with the court in which the Trust is registered (if it is registered which it is likely not) and your name, address and telephone number (do this as quickly as you can but no later than 63 days after accepting the Trust under the new Michigan Trust Code).

Beyond those requirements, you will only generally need to collect, preserve and distribute your father’s assets according to his wishes and file accountings each year and when administration is completed. I will discuss tax filing requirements in the next installment.

Dated: 7/14/10

Q: What is the best way to hold rental real property as part of my estate plan?

The best way to hold rental real property as part of a proper estate plan is through a limited liability company. A limited liability company ("LLC") shields against both "inside" and "outside" creditors. Inside creditors are those that arise in the operations of the company, e.g. a slip and fall on the premises. Michigan premises liability law informs that the property owner is sued in such an instance. If the owner is an individual, then all assets (not otherwise exempt) of that individual are at risk from such a lawsuit. If the owner of the premises is instead an LLC, then in most instances only the assets of the LLC are at risk. Outside creditors arise in activity separate and apart from an LLC, e.g. a significant car accident for which an individual is at fault and insurance is not adequate to cover a creditor's claim. In such an instance, the judgment creditor cannot lien and foreclose against a membership interest in an LLC, whereas if the property is owned in an individual's name the opposite is true, the creditor can lien and foreclose on the property. For persons with a revocable trust, LLC interests should either be owned by the trust or assigned to transfer on death to the trust.

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Dated: 6/11/10

Q: My disabled brother, who receives Medicaid benefits, is about to receive an inheritance. Is there a type of trust that could be established and funded with these inheritance assets, but that would not disrupt my brother’s Medicaid eligibility?

Yes. In my last installation I discussed the fact that if your brother is under the age of 65 this goal could be accomplished by use of a first party special needs trust. Another option, which has no age limit, is what is known as a “pooled account trust”. This type of trust is created and managed by a non-profit association which “pools” the assets of multiple Medicaid recipients. A pooled account trust is designed to protect eligibility for Medicaid, SSI and other means tested programs. Such a trust also has the benefit of relieving family members of the burden of administering trust assets (e.g. handling tax issues) as the non-profit association will take on this responsibility. Because of the nature of the pooled account trust, the expenses to set up and maintain the trust can be minimal. In the event the assets placed in the pooled account trust are not used entirely for your disabled brother, the assets usually are retained by the Trust.

This “answer” received contribution from Attorney Benjamin J. Herbert of Willis Law, Attorneys & Counselors, whose practice concentrates, in part, in Medicaid Planning and Elder Law.

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Dated: 5/17/10

Q: My disabled brother, who receives Medicaid benefits, is about to receive an inheritance. Is there a type of trust that could be established and funded with these inheritance assets, but that would not disrupt my brother’s Medicaid eligibility?

Yes. The law allows for your brother’s inheritance to be placed into what is sometimes called a “first party special needs trust” and such a trust, if properly drafted, would not disrupt your brother’s Medicaid eligibility. This is only true however if your brother is under age 65. Such a trust can be established by your brother’s parent, grandparent, or guardian or by a court. Often times seeking a court’s approval on the creation of such a trust is wise. The trust could appoint any of your brother’s loved ones (over the age of 18) as trustee, and can be administered during your brother’s lifetime to provide for his “special needs” while maintaining his eligibility for Medicaid. This type of trust is also sometimes called a “Medicaid payback” trust, because at your brother’s passing the trust must require that funds be used to repay the Medicaid program for benefits it provided during your brother’s lifetime. Any remaining funds could be paid, by way of example, to his family. Another option also exists, regardless of your brother’s age, by way of placing these inheritance assets into what is called a “pooled account trust”. I will tackle a further discussion on such trusts in a later publication.

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Dated: 4/12/10

Q: If I create a Trust and deed my home to that Trust, have I hurt myself for Medicaid eligibility purposes?

Yes. Under current Medicaid rules, a home owned in a trust is a “countable” asset, whereas a home owned outside of a trust is exempt (with a cap of $500,000 in equity). A critical aspect in creating a Trust is making certain that it is properly “funded.” This means that assets are correctly titled so that they are "owned" by your Trust, and may be distributed according to the terms of your Trust upon your passing. When an individual creates a Trust, ordinarily a new deed is drafted which transfers ownership of that individual’s home to his or her Trust. This action, as outlined above, is extremely detrimental for Medicaid purposes. The problem is solved by creating a “"ladybird" deed to the Trust, instead of an outright disposition. These deeds, purportedly named in honor of the estate plan set into effect for former First Lady Ladybird Johnson by her husband, President Lyndon Johnson, reserve for the grantor both a "life estate" and an absolute power to sell, rent, lease, mortgage or otherwise convey the home. At the grantor’s death, the home transfers to Trust, avoiding probate. During lifetime the home retains its position as an exempt asset for Medicaid purposes, and thus the ladybird deed truly becomes a tremendous vehicle for folks that are interested in both Medicaid eligibility during lifetime in addition to probate avoidance.

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Dated: 3/11/10

Q: If I am on Medicaid, will the government claim my assets after I am gone through the "estate recovery" program?

Yes, so long as Michigan’s estate recovery program is then up and running, you received benefits from our Medicaid program, and you left assets in a probate estate that are not exempt. On October 1, 2007, Michigan adopted an "estate recovery" law. Before passing the bill, Michigan was the only state in the country that did not have such a law. The law does provide opportunities to avoid its sometime otherwise harsh impact. First and foremost, it applies only to probate assets. If you die leaving no assets subject to a probate estate there will be no recovery. Typically, the best way of avoiding probate is through the establishment and proper funding of a revocable living trust during your lifetime. Next, certain &quote;income producing" assets are exempt. Finally, a home may be exempt if occupied by your spouse or child who is blind, disabled or under age 21. Certain other homestead exemptions apply. I highly recommend seeking the advice of a competent attorney if you have further questions pertaining to Michigan’s estate recovery program.

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Dated: 2/18/10

Q: My spouse is about to enter a nursing home; should we sell our home to pay for nursing care costs?

Almost always, "no". We will sometimes receive this question when a married client’s spouse is entering a nursing home for what appears to be an indefinite period of time. Depending on other assets of the couple, selling the home might be the very worst thing to do in an instance like this. Specifically, our Medicaid program (cooperative program of our federal and Michigan state government) will sometimes pay for nursing care costs when a couple or single person’s assets are minimal. However, a home, up to $500,000 in equity, is an exempt asset. Selling the home converts an exempt asset into a countable one and might very well take a couple from Medicaid eligible to ineligible. Consider a couple with a home worth $180,000, personal property, one car and no other material assets. That couple is Medicaid eligible, at least as it pertains to asset tests (there are additional criteria that must also be met). Take that same couple, but assume they have now sold their home and, after realtor fees and seller concessions given the plight of the Michigan real estate market, have recovered $150,000 in cash. That couple is no longer eligible for Medicaid and will be required to pay the private pay rate for nursing care costs (current average around $7,500/month in the Kalamazoo area). The couple has therefore arguably lost $30,000 in a fire sale to raise cash ($180,000 home less $150,000 recovery on sale), and is now forced to burn that cash at a rate of $7,500/month (on average).

Taking any action in light of a potential Medicaid application without the advice of counsel can be extremely costly, as the above example outlines

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Dated: 1/13/10

Q: Who should I select as my agent under my medical power of attorney?

Under Michigan law this agent is referred to as a “patient advocate” (for my snowbird clients in Florida (currently shivering I should add) a “health care surrogate”). The patient advocate takes the role of making decisions related to a person’s care, custody and medical treatment if that person is no longer capable of making such decisions for his or her self. The patient advocate also may be called on to make a life or death decision by fulfilling the obligations outlined in a “Living Will”. Needless to say it is wise to place in this high position of trust that person or persons you believe will make the best medical decision for you if you can’t make it for yourself, and also is capable of directing medical staff related to end-of-life decisions. Typically our clients will appoint their spouse, and if none their adult child or children, and if none a parent or sibling to this role. It is not possible, nor would it make much sense, to appoint a paid professional to this position. I recognize that this document is generally not a lot of fun to talk about or consider, but it is critically important to a complete estate plan.

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Dated: 12/14/09

Q: What is the status of our federal estate tax?

Recently the U.S. House passed legislation that would permanently extend this year’s estate tax rates and exemptions, but it is possible the Senate may not act on the bill before January 1 of next year. This year’s exemption amount is $3.5 million, which means that a U.S. citizen may pass away owning up to that amount in assets without his or her estate having to file an estate tax return or pay any estate tax. The bill passed in the House would extend that exemption moving forward on a permanent basis. If the Senate does not act on the bill, then the current law would result in there being no estate tax at all in 2010 (meaning to say an unlimited exemption in 2010) but then a return of a much smaller $1 million dollar exemption in 2011. I think it prudent under current law to plan based on what we know, versus what we might guess or expect to occur, and I would highly recommend seeking competent counsel to assist with decision-making related to estate tax planning.

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Dated: 2/11/09

Q: What are the estate tax and gift tax law changes for 2009?

A: Estate Tax

The estate tax exemption amount increased again in 2009, this time to $3.5 million. This means that a U.S. citizen can pass away owning up to $3.5 million in assets and suffer no estate tax. President Obama and Congress appear poised to re-write our estate tax laws in 2009. Until (or unless) they do, in 2011 the exemption amount for estate tax purposes will drop to $1 million. In that year, then, any U.S. citizen with an estate in excess of $1 million will be subject to estate tax. Please note that the exclusion amounts (e.g. $3.5 million this year and $1 million in 2011) include the face value of life insurance in most instances.

A: Gift Tax

People still routinely ask me if they may give away $10,000 per year to their kids. The answers, for gift tax purposes, are "yes" and "more".  An individual may give away up to $13,000 in 2009 ($26,000 if married) to any other person without the necessity of filing a gift tax return and without any cost for gift tax purposes. The laws which allow an individual to give, in any year, an unlimited amount to an educational institution or a medical services provider for the benefit of someone else did not change in 2009.

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Dated: 3/17/09

Q: Does a Trust provide protection from creditors?

A: Under Michigan law, generally "No." Michigan does not recognize the so-called "self-settled" asset protection Trust. This means to say that placing your own assets into Trust will not protect them from your own creditors. This type of protection is, however, afforded by certain Trusts established under the laws of other countries, and certain states of this country (buyer beware as it relates to states that have enacted laws recognizing self-settled asset protection Trusts because they have yet to endure significant challenge). All of this said, it is recognized and allowable in Michigan to establish a Trust for the benefit of someone else (your children for instance) and protect the assets of that Trust from their creditors. This is generally accomplished through what is called a "Spendthrift" provision included in a Trust document or through the establishing of a purely discretionary Trust which provides the Trustee discretion both to distribute assets to a beneficiary and also the discretion not to distribute those assets to the same beneficiary. Asset protection planning should always be approached with a careful legal professional.

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Dated: 4/6/09

Q: Is it possible to leave an inheritance to a "special needs child" without disrupting his or her eligibility for Medicaid or Supplemental Security Income?

A: Yes. Too often I hear of families that were not aware of what is sometimes described as a "Special Needs Trust" and therefore have failed to include their special needs child in their Estate Plan for fear that that child would be removed from governmental programs upon receipt of an inheritance. This is terribly unfortunate because such children might have the greatest need for assets but are being left without. A Trust established for the benefit of a special needs child with someone else's funds that is purely discretionary by its terms (meaning to say that the beneficiary may not require, in any instance, the Trustee to distribute assets to him or her) will generally maintain that child's eligibility for both Medicaid and SSI so long as properly administered. Creating a Special Needs Trust allows, for instance, a parent to include their special needs child in their Estate Plan while maintaining that child's eligibility for Medicaid or SSI.

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Dated: 5/19/09

Q: I am about to receive an inheritance that I don't want what do I do?

A:  We sometimes hear this question at our law firm, Willis Law, Attorneys & Counselors.  Folks will want someone other than themselves (often times a child, parent or sibling) to receive the inheritance they are about to receive.  When one doesn't want to receive an inheritance they have at least two options available to them.  First, an inheritance to be received under a Will or through a probate proceeding may be granted to someone else through an agreement signed by all parties with a material interest in the Will or probate proceeding.  Alternatively, a person may elect to "disclaim" the interest to which they are entitled.  A disclaimer must properly follow a number of rules for it to comply with both state law and the Internal Revenue Code.  Among those rules is one that indicates the disclaiming party may not elect to whom the property will transfer so it is clearly wise to be certain of who the property will transfer to before disclaiming.  Another rule outlines that the disclaimer must occur within nine (9) months of the time one became entitled to the inheritance they do not wish to receive.  In all events then acting quickly with sound counsel is the right approach to refusing an inheritance. 

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Dated: 6/15/09

Q: Should I give my children copies of my estate planning documents?

A:  It depends.  If adult children are appointed as agents under your financial power of attorney or medical power of attorney (Designation of Patient Advocate in Michigan), then it would usually make sense for those adult children to retain copies of those specific documents.  It should be noted, however, that a document ancillary to the Designation of Patient Advocate titled "HIPAA Waiver" or "Authorization to Release Medical Records" is effective when signed so be aware that a copy of that document in your child's hands may be used by your child to attain your medical records even if you are or were not disabled.  As an alternate way of accessing their Medical Power of Attorney document, our firm enrolls most clients in a national database to ensure immediate access to those important documents is always no more than a phone call, fax or email away. 

Most of my clients do not provide a copy of their Trust or Will document to their children for privacy reasons and a general sense that their children need to know about those documents "when they need to know". 

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Dated: 7/10/09

Q: I am the personal representative of my father's estate do I need to communicate all details of the assets of the estate with my siblings (we all share equally in the estate)?

A:  To comply with the law yes, there are requirements that you communicate in reasonable detail information pertaining to the estate to your siblings on a timely basis.  The law requires you to provide your siblings with a copy of an Inventory within 91 days of your appointment as personal representative, and with an accounting of estate activity on an annual basis.  That said, those are the bare minimums.  The most frequent reason our firm is hired to enforce the rights of a beneficiary in an estate or trust administration relates to a communication failure.  It is when beneficiaries stop receiving information that they start assuming a problem and oftentimes hire a lawyer to enforce their rights.  I urge the personal representatives we work with to meet and communicate frequently with their beneficiaries to ensure they are fully informed of the activity of the estate.  If the personal representative thinks there is a possibility they are handling something a beneficiary would like information pertaining to error on the side of caution and communicate!

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Dated: 8/13/09

Q: How does President Obama's health care reform bill affect the end of life decisions one might make in a Living Will?

A:  President Obama's proposed health care reform bill appears to encourage "end of life" counseling for seniors. End of life decisions of course become significantly more acute when one can no longer make decisions for him or her self. Michigan law allows an individual to draft a "Living Will" which informs a patient advocate (usually a loved one) on how someone wishes to be treated in an end of life situation and will outline one's desires related to measures that might be taken (or not) related to one's life. Without these wishes being clearly articulated, other persons will make a decision for the patient. President Obama's health care reform bill includes a provision that would include the federal government in discussions related to those decisions. It is clear that spending the time to meet with competent counsel to outline wishes related to end of life is significantly more important in light of this current proposal.

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Dated: 9/16/09

Q: In order to avoid probate, should I deed my home into joint ownership with my child?

A:  No. As a general rule, planning to avoid probate through joint ownership of assets has at least three primary pitfalls. First, for tax purposes, a gift will have been made and this will almost certainly require the filing of a gift tax return. In addition, the transfer will result in your child acquiring your capital gains tax basis in half of the property, which means that on a later sale a capital gains tax will be required to be paid. Next, putting a home in joint ownership with a child makes your home susceptible to your child’s creditors, including but not limited to a divorced judgment creditor or a bankruptcy trustee. Finally, joint planning often has unintended consequences when there is an untimely order of death (e.g., when a child predeceases his or her parents). All of these pitfalls may be avoided through the proper drafting and implementation of a revocable living trust which also has the primary effect of avoiding probate when properly funded.

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Dated: 10/5/09

Q: Why put my trust in a Trust?

A:  A Trust, as opposed to a simple Will, provides a number of benefits.  First, a Trust avoids the probate process for all assets properly funded into the Trust.  Experience shows that probate is costly, time consuming and cumbersome and therefore avoiding probate is often near the top of our clients' estate planning wish list.  Next, a Trust may protect assets from the creditors of its beneficiaries, whether they be the result of an accident, divorce or bankruptcy.  This type of protection is unavailable in a simple Will (although a testamentary Trust created via a Will can do the same thing although with the negative requirement of probate).  Finally, a Trust is a private document.  If you are at all concerned about the privacy of your estate plan, your assets and their disposition then a simple Will is not for you - it is a public document once filed.  A Trust, on the other hand, is only generally distributed to its trustees and beneficiaries.  These are just some of the reasons why many folks put their trust in a Trust.  Please seek counsel with a reputable attorney with further questions pertaining to Trusts.

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Dated: 11/12/09

Q: Can one of my children contest my Will or Trust?

A:  We, unfortunately, live in the most litigious society in the world.  America is beautiful in many respects, but the volume of lawsuits amongst her citizens is an ugly thing indeed.  A child may contest a Will or a Trust if he or she believes they were treated unfairly, or if they just want to cause pain and discomfort for the beneficiaries.  That said, generally a claim against a Will or Trust to prove it invalid, in whole or in part, must be able to prove that the creator of the Will or Trust made a mistake, was the victim of fraud, did not have requisite mental capacity or suffered from an improper influence at the time of execution of the document in question.  Having competent legal counsel prepare and assist in the execution of a Will or Trust significantly reduces the potential for such a claim to be successful.  As officers of the courts, attorneys have a fiduciary duty to ensure that their clients are properly executing a document.  Such a duty, when exercised properly, reduces the risks associated with a potential claim.  Involving counsel doesn't remove the possibility of a claim, but it certainly should provide the creator of a Will or Trust with peace of mind related to this issue.

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