Estate Planning law in Michigan - what you need to know

Wills

A will is a document that disposes of your property when you die. It can be as detailed or as simple as you would like it to be. At a bare minimum, the will should appoint an executor (also called a personal representative) who pays the debts of the estate, and helps dispose of the will maker’s real property, personal property, and assets.

Trusts

Trusts are a method of controlling your money and property while you are still alive, and which continue to operate when you are dead. Trusts can also be simple or complicated, depending on your instructions and intentions. A trust must at a bare minimum have a trustee, identify a beneficiary (who can receive things while you are alive, or at your death), and identify assets of the trust. Trusts have the advantage over wills in that property belonging to the trust does not have to pass through probate, and so remain private.

Probate
Probate is a process that happens at your death, if there are estate assets that are titled to you alone. Probate can be an expensive and lengthy process, but it can be avoided completely if if no assets are titled to you alone at the time you die, by using a trust. Probate is also an open process – it becomes part of public records. Avoiding probate will make sure your personal matters remain private.

Having no will
Having no will is also an option for you, but is is not recommended.
If you die without a will, Michigan will write a will for you, through "laws of intestacy." Currently, Michigan is not very generous to your heirs should you die with no will. At a minimum, a will should be clearly written to show how you’d like your property distributed at your death. Otherwise, the law of Michigan steps in and distributes your property as it outlined in the laws of intestacy.


Living Will
A living will is a document that discusses how you want your body to be treated before and after your death. This includes whether to use heroic means to sustain life, whether to donate your organs, and the method of disposing of your body when you die. The living will is also used if you become incompetent, to show that you had already decided certain matters while you were competent.


Power of Attorney
A durable power of attorney contains your instructions to someone – your agent--  to  act on your behalf when you’re not able in certain situations. This is distinct from a health care power of attorney, or a living will.

Taxes
Certain transfers of your property could be subject to taxes when you die. This is known as the “death tax.” With proper planning you can arrange your estate so that only the minimum amount of tax will be paid.

Spendthrift Trusts in Michigan

Q: What's the legality of spendthrift trusts in Michigan?

            A spendthrift trust is a way to protect assets from creditors. Generally, a trust is established by someone – the settlor - for the benefit of someone else – a beneficiary. The trustee is the person who oversees the trust assets for the beneficiary according to the instructions in the trust by the settlor when it was made.

The “spendthrift” provision of the trust means that the beneficiary has no control over distribution, and trustee can’t make a distribution to a beneficiary unless certain conditions are met. When spendthrift trusts first began to be used, they were looked on as being necessary only for a beneficiary who had some disadvantage – like incompetence, or incapacity. However courts quickly expanded that original definition to allow the settlor’s intent to be carried out whenever possible.(See Norton Annual Survey of Bankruptcy Law, 2011, p. 2. Available at: http://furrcohen.com/wp-content/uploads/2011/10/Norton-Annual-Survey-2011.pdf.

Spendthrift Trusts and Bankruptcy

The Bankruptcy code has been drafted as broadly as possible to include as much of the debtor’s assets as is possible in the bankruptcy estate. However, if the debtor is the beneficiary of a spendthrift trust, that changes the creditor’s ability to collect. Being a debtor who is also a beneficiary of a spendthrift trust, the assets and income of the trust are an exception from the bankruptcy estate. Id. See also Restatement of Trusts, § 58 (2).

If the beneficiary has creditors who are waiting to seize/ attach assets once a distribution is made, the trustee can wait to make a distribution. So the assets, once distributed, will all go to the beneficiary.

Spendthrift Trusts and Michigan Law.

            Currently Michigan only allows a spendthrift trust provision when the beneficiary is someone other than the settlor. This means that if a settlor wanted to create a spendthrift trust that was used to keep the settlor’s assets shielded from creditors for the settlor’s own benefit, it would not be recognized under current Michigan law as a valid trust. So the creditors of the settlor could “pierce” a self-settled trust in a court action.

October is Pro Bono Month

Once again, the State Bar of Michigan has designated October as Pro Bono Month.
Michigan Rule of Professional Conduct 6.1 suggests that lawyers should render public interest legal service. There are still 4 weeks left in October, and many ways to participate in pro bono events this month. Visit the state bar website if you need more information. http://www.michbar.org/probono.cfm

Welcome To Estate Planning News in Michigan, MI-Estateplan

This is your source for updated news on Michigan law regarding trusts, estate plans, and related topics. Feel free to contact us with specific requests. All posts are written or supervised by licensed attorneys.