Top Five Questions about Estate Plans Answered

Planning for the future can feel overwhelming, but it's essential to protect your assets and loved ones. Many people have questions about estate planning: What is it? Why do I need it? What happens if I don't have one? This post answers the top five questions about estate plans, including what documents are involved, like wills and trusts, and how to ensure your wishes are carried out.

1. What is an Estate Plan and Why do I need one?

An estate plan determines how your assets will be preserved, managed and distributed after death. It also ensures that if you become incapacitated because of serious illness or injury your family and friends will be able to make critical financial and medical decisions for you. Most importantly, with an estate plan you can avoid placing unnecessary burdens on your family.

A do-it-yourself approach using on-line forms can defeat the purposes of making an estate plan that fits your specific needs, particularly if there may be issues of competency or potential misunderstandings about how property is to be distributed. Everyone’s goal for an estate plan is different but most all plans include planning for incapacity, avoiding probate administration and providing for an efficient distribution of property upon death. Estate plans also prevent conflict about who will be in charge of the distribution of your property and how distributions will be made.

2. What Happens If I Do Not Have an Estate Plan?

If you die without an estate plan, the probate court may have to supervise the administration of your estate, either formally or informally, depending on probate procedures and Michigan law. The probate court may also have to decide who will distribute your property and how it will be distributed based on Michigan law which may not be according to your intentions. In addition, an estate plan can be created to avoid the time and expense of probate administration which can take many months to complete. An estate plan is a cost-effective way to ensure that a person of your choosing will distribute your property according to your intentions.

If you do not have an estate plan your family members may also be burdened with making critical life sustaining medical treatment decisions and end of life care decisions on your behalf without knowing your wishes for these types of decisions. An estate plan includes documents to address incapacity during your lifetime.

3. What is Included in an Estate Plan?

• Last Will and Testament. Having a Will can be an important part of an estate plan. However, a Will needs to be probated after death through the probate court and becomes a public document. As long as privacy is not a major concern and you have well thought out beneficiary designations on your financial, bank and retirement accounts, a Will may be an appropriate document to include in an estate plan.
  
  
• Revocable Living Trust. A Revocable Living Trust offers greater control over how your assets are managed and distributed, both during your lifetime and after death. A Trust offers the ability to transfer assets in and out of the Trust and to amend or even revoke the Trust during your lifetime. It is also a private document that avoids probate administration. Typically, a Trust provides a distribution plan that outlines a person's wishes concerning who will receive their assets, how the assets will be distributed and over what period of time. For example, if parents have minor children and both become deceased, a Revocable Living Trust can instruct a successor trustee to manage the Trust assets and to distribute all or portions of trust property when a child reaches a specified age or allow for distributions over time for specified purposes such as a child’s health care, education and support.

• A Joint Revocable Living Trust is a trust document that two persons establish to hold title to assets which they typically own together as a married couple. While both spouses are alive and competent, they both have full control of the trust assets and can change the trust at any time. If one spouse becomes incapacitated, the other spouse continues to control the trust assets and can use the assets for both couples’ care. If both persons become incapacitated, then an appointed successor trustee steps in to ensure the couple is properly cared for with trust assets. When both spouses are deceased, then the trust becomes irrevocable and the appointed successor trustee carries out the instructions for distribution of the trust property after death.

• Durable Power of Attorney for Property and Financial Matters. This is another essential document for a basic estate plan. In the Durable Power of Attorney document, a person appoints a trusted person, usually a spouse or family member, to make financial and property decisions on the person’s behalf. The Durable Power of Attorney can be effective immediately at the time of signing the document or can be made effective in the event the person becomes incapacitated and unable to manage their day-to-day affairs.
  
  
• Patient Advocate Designation/Durable Power of Attorney for Health Care. A Patient Advocate Designation, sometimes referred to as a Durable Power of Attorney for Health Care, is another essential document for a basic estate plan. In a Patient Advocate Designation, a person designates a trusted person, usually a spouse or family member, to make health care decisions in the event they are incapacitated and unable to make decisions on their own behalf. Most importantly, the Patient Advocate document allows a person to include written instructions for life sustaining treatment and end-of-life care.

4. Does an Estate Plan include Designating Beneficiaries on Accounts?

Although a Will or Living trust is an essential part of an estate plan, a significant portion of personal wealth for many people is contained in financial assets such as life insurance policies, annuities, tax-favored retirement accounts–like IRAs, 401(k)s, and education accounts. These accounts have provisions that enable a person to designate beneficiaries who will receive the contents of their account after death without the need of going through probate administration.

Designating beneficiary designations on financial accounts is crucial for an estate plan however it is important to understand both the advantages and disadvantages of beneficiary designations. For example, a disadvantage may involve listing a minor child as a beneficiary on financial accounts. Many financial institutions typically do not distribute account assets directly to minor children at the time of the account holder’s death so it may be necessary to establish a conservatorship for the child with the probate court. The processes can be expensive and time-consuming, with the assets eventually being released to the child upon reaching 18 years of age, even if the child is not financially responsible. As an alternative, consideration should be given to designating a Living Trust as a beneficiary on financial accounts for the transfer of assets directly to the Trust at the account holder's death with distributions made according to the instructions of the Trust.

5. What is a Lady Bird Deed and Can It Be Included in an Estate Plan?

A lady bird deed, also called an enhanced life estate deed, is a popular estate planning tool that avoids probate and accomplishes other estate planning objectives. It is a special method of automatically transferring your home and other real property after death. Whether it is a good option for your estate planning depends entirely on your circumstances.

A lady bird deed can be considered as a deed with a designated beneficiary with the added benefit of allowing you, as the person transferring the property (the grantor), to retain total control over the property during your lifetime with the ability to sell or transfer the property in any manner that you want and retain the proceeds from any sale. However, if at the time of your death, you still own the property and it is titled in your name, the property automatically passes directly to the person, persons or trust designated as a beneficiary in the lady bird deed. Lady bird deed transfers can be used by individuals or married couples as a cost-effective estate planning tool for transfer of their home or other real estate. Before you decide that a lady bird transfer is right for you, it is important to consult with an estate planning attorney with real estate experience. A lady bird deed can be designed in several different ways, depending on your circumstances.

Schedule a Free Consultation with an Estate Planning Attorney

At Ager Law Office, Bill Ager helps individuals and families with all aspects of estate planning, including Wills, Living Trusts, Durable Powers of Attorney for Property and Financial Matters, Patient Advocate Designations and Enhanced Life Estate Deeds (Lady Bird deeds). From his Ann Arbor office, Bill Ager serves clients throughout Washtenaw County. To schedule a free consultation for an understanding of the cost of an estate plan specifically tailored to your needs, or for updating your existing plan, call (734) 649-0784, send an email to bill@agerlawoffice.com, or use the online contact form on this website.