Many people considering estate planning options focus on avoiding probate. The reality is that avoiding probate is not just about how expensive it can be due to fees, expenses and the cost of hiring a lawyer. It can also lead to a disharmony in families, uncertain distribution of asset, high costs, delays in distributing assets. For people with a business in their estate, fighting over the business can reduce the business value or destroy the business altogether. For people with uneven distributions, perhaps due to a family member with special needs or circumstances, a court battle could delay or prevent that family member from receiving the intended assets and care. Blended families may see assets diverted outside the family. There are many problems to consider and each estate may be unique.
The Benefits of a Michigan Living Trust
There are many benefits to using a living trust in your estate planning. A living trust is the vehicle to own your property while you are alive. You can control the property, use it, spend it, basically it is yours it is just titled in the name of the trust. Care must be taken when setting up the trust, but once it is set up you can go on living as usual.
Avoiding Probate
Assets held by the trust avoid the probate process. Assets held in trust are not distributed by will and do not have to be put through a probate court process that may take years to complete. In a probate matter, heirs may not receive the property for months or years until the probate case has been concluded.
For a trust, the trustee may act quickly. After you pass, the trustee of the trust who acts as a manager of the trust, must act according to the terms of the trust. Restrictions on who may receive assets, when, and how much can be placed on trust assets allowing a degree of control after death. The probate court cannot determine how these assets will be distributed or to whom. A last will and testament cannot distribute or control trust assets either. A trustee may be a family member or professional institution like a bank, but will be subject to fiduciary duties and thus penalties if they do not follow the terms of the trust.
Living Trusts Allow for Privacy
In probate, the decedent's assets must be disclosed and inventoried. Values, types, etc. are listed and this is a public record. There is also a fee related to the value of the estate that is probated. For people who prefer privacy or do not want potential scammers to know what assets exist and who owns them now, a trust accomplishes this goal. This privacy may also prevent future creditors from knowing the types or amounts of assets heirs may own.
Planning for Incapacity
For some, estate planning may seem like an after thought or something that only retired or older people need to do. They'll get to it eventually they say, but they never do. In order to create enforceable estate planning documents, whether it is a will, trust, power of attorney, etc. the creator must have sufficient capacity.
If the creator is incapacitated, then any will or trust might be challenged by another family member who would benefit under the intestate laws of Michigan. Capacity may be lost due to a medical event like a heart attack or stroke, or someone might pass suddenly like in a car accident. Other issues are trickier including cases of dementia or Alzheimer's, which may develop slowly.
If fear of specific distributions or the unknown is an issue, a trust provides more flexibility to allow for distribution standards and timing. A trust also provides privacy so others cannot see who you distributed your property to among family, friends, charities, etc.
Greater Control of Assets
A trust allows provisions for not just who may receive property or the amount, but may provide when distributions may be made and for what purpose. The trust may hold property for a much longer duration like many years or for the lives of the beneficiaries, whereas probate seeks to account for and distribute the assets in full. A trust may use a professional trustee who can manage the assets for the beneficiaries. This allows the trust creator to avoid distributing potentially large amounts of money to young beneficiaries who might waste the money quickly or mismanage it. There may also be the issue of avoiding creditor demands.
Asset Protection
Trusts may also protect assets from creditors and wasted. As mentioned above, distributions to beneficiaries may not be required with a trust, so if a creditor is seeking payment, the trustee may withhold distributions from the beneficiary while dealing with their creditor issues. Protection may not always exist, but if the trust creator knows in advance that a beneficiary is likely to have creditor problems, assets may be transferred to a trust or series of trusts to protect against creditor claims for all the beneficiaries and remove assets from potential litigation.
Tax Planning
Trusts may be used for tax planning. There may be income, estate, gift, property, etc. types of taxes that are considered in estate planning. A trust may be used to hold real estate, and transfer it in such a way to avoid income taxes that could result if a direct transfer were made to a beneficiary, and then that asset were sold. There are also issues with transferring property to beneficiaries while avoiding an increase in real estate taxes that could result from a change in ownership. This may be especially important for owners of cottages or places up north that have been held for a long time and could result in dramatic tax increases if transferred improperly. Recently the estate tax has become less of a worry for many people, but income taxes can still take a large bite out of an estate's value if not properly planned for.
Blended Families and Michigan Living Trusts
For people with children from an earlier marriage and who have remarried, ensuring that your spouse is financially cared for along with your children (and possibly grandchildren), there is a lot to think about. A Michigan living trust allows for the management of assets so that a spouse can be cared for, but ensuring to the extent possible that remaining assets are distributed to the children. A direct transfer to a spouse does not ensure any transfer to the children and could be lost to creditors, a subsequent divorce if remarriage occurs, or distribution from the spouse's estate to beneficiaries who are not the children. Here a trust provides control to care for both people and can provide standards so that children are not ignored.
Business Succession
Holdings shares or interests in a closely held business may be critical to ensuring continuity upon death or incapacity. In addition to an actual succession plan, ensuring that a named person is available to step in and manage a business could be the difference between the business surviving or terminating. There may also be issues related to access to accounts, decision making, etc. In addition to management issues, planning to avoid a tax hit or possibly to plan for a benefit, may help a business to thrive after the loss of an owner or key personnel.
Legacy Planning
Trusts provide the most comprehensive way to plan out a legacy given a trust's flexibility related to timing, amounts and restrictions on distributions, specific purposes, ability to hold many different asset types, and provide detailed instructions or rules for the trustee to follow. Restrictions are generally essential to ensuring that assets may continue to grow or accumulate after the trust creator's passing, thereby ensuring that a legacy lives on within a larger plan. Compared to a will, where probate is concerned with just distributing assets, the trust allows the accomplishment of various goals of the trust creator.
Conclusion
There are many reasons to invest in a Michigan living trust to protect your legacy and avoid probate. Avoiding probate may mean more than just saving time, money and stress - it allows you to increase your planning flexibility and achieve your estate planning goals without the headaches of probate.