Castle Wealth Group

February 17, 2021

Michigan Estate Planning: The Ultimate Guide

An Estate Plan is your rule book versus relying on the government’s rulebook of guardianships, conservatorships and probate. If you do not put together an estate plan, then you are relying on the State of Michigan’s default rules and may be sending your loved ones to court. While alive we call this living probate and it takes the form of Guardianships and Conservatorships. Upon death we call this Probate, which is a court process that can cost your family countless hours and thousands of dollars.

If you would like to begin the estate planning process for your family, complete the Estate Planning Stress Test to determine how much stress your family would feel if something were to happen to you today.

This is the Ultimate Guide to Michigan Estate Planning. If you have questions about estate planning, then this blog post should provide a great reference for you and will cover all the tools of estate planning, plus give you a Michigan Estate Planning Checklist.

This Ultimate Guide to Michigan Estate Planning will cover:

• What is Estate Planning?
• What is an Estate?
• Who Needs an Estate Plan?
• When Should You Start Your Estate Plan?
• What are the Benefits of Working with a Certified Elder Law Attorney for your Michigan Estate Plan?
• The Michigan Estate Planning Checklist
  • Trusts (Revocable Living Trusts, Legacy Inheritance Trusts, Castle Trusts™)
  • Last Wills and Testaments and Pour-Over Wills
  • Financial Powers of Attorney/Durable General Powers of Attorney
  • Medical Powers of Attorney/Patient Advocate Designations/HIPAA Authorizations/Living Wills/Advanced Directives
  • Personal Care Plans
  • Deeds (Lady Bird Deeds)
  • Final Expense Liquidity Plans
• How to Create a Michigan Estate Plan
  • Choose Your Trustees and Personal Representatives
  • Choose Your Beneficiaries
  • Choose Your Financial Agents
  • Choose Your Medical Agents
  • Fund Your Trust
• The Most Common Estate Planning Mistakes
  • Dying Without an Estate Plan
  • Having a Simple Will
  • Giving Property Outright
  • Relying on Joint Ownership
  • Not Having the Right Type of Trust
  • Not Funding the Trust
  • Not Reviewing Your Estate Plan
  • Not Considering Long-term Care Issues
  • Not Having Disability Documents
  • Procrastination
• Michigan Estate Planning Laws
  • Trusts
  • Wills
  • Financial Power of Attorney
  • Medical Power of Attorney
• Get Started with Your Michigan Estate Plan

What is Estate Planning?

Estate planning can be defined in different ways, but typically estate planning (elder law) is about three primary goals. First, managing assets if you become incapacitated. Second, passing assets to beneficiaries as efficiently and effectively as possible. Third, building legal protections to avoid the devastating cost of long-term care and protection against lawsuits.

What is an Estate?

Your estate is comprised of all of your ‘stuff.’ Your estate is anything that has title, such as bank accounts, IRAs, 401k, real estate, business interests, personal effects, stocks, bonds, mutual funds, and personal items.

An estate is more than just ‘stuff’ though. An estate is also your legacy. It’s the lessons, work ethic, sense of responsibility and the feeling you leave upon passing. Estate planning is more than just passing assets to the next generation, it’s also about leaving a legacy to the next generation.

What kind of legacy do you want to leave? How do you want to be remembered?

Who Needs an Estate Plan?

To put it bluntly, everyone needs an estate plan. Unless you’ve figured out how to avoid death, you will need an estate plan. Even 18 year olds need some of the basic estate planning documents, specifically disability documents.

Once you turn 18 in Michigan, you are an adult. Therefore parental rights end. So, if you have adult-age children, you should consider at least getting a Financial Power of Attorney, Medical Power of Attorney and HIPAA Authorization for them. These documents will allow you to make medical and financial decisions if something were to happen. Plus, with the HIPAA Authorization, you will be able to get access to their medical records if they were to become injured or incapacitated.

So, who needs an Estate Plan in Michigan? Anyone over the age of 18.

When Should You Start Your Estate Plan?

Yesterday. Just kidding.

That said, many clients come into our office and they wish they had sat down with us five years ago. The reason for that is that some of the asset protection benefits of trusts, like Castle Trusts™, do not kick in until assets have been funded in the trust for a period of five years.

If you cannot go back in time, then the second best time to start your Michigan Estate Plan is today.

Estate planning is easy to put off and procrastinate on, but the sooner you begin putting together your estate plan the more options you will have and the better the potential outcomes.

The best time to plan is now.

What are the Benefits of Estate Planning with a Certified Elder Law Attorney?

Estate planning is planning for death, while Elder Law is planning for what happens if you don’t die, continue to live, and face all the issues that go along with aging.

A Certified Elder Law Attorney is the gold standard as it relates to estate planning and elder law.

A properly designed Michigan estate plan allows you to accomplish all of your legacy and asset protection goals, including the following:

• Help your family avoid probate, which can be time-consuming and costly.
• Take care of minor children.
• Appoint the correct people to take care of you if incapacitated.
• Protect your assets from creditors, lawsuits and long-term care costs.
• Ensure that what you leave to your family stays in the family and doesn’t go to the in-laws (outlaws).
• Pass your legacy to the next generation.
• Reduce estate, income and gift taxes.
• Keep your affairs private, versus getting mixed up in the probate court process.

The Michigan Estate Planning Checklist

The following is a checklist of tools you may want to consider when putting together your Michigan Estate Plan. These are the valuable documents that appoint medical and financial agents to make decisions if you are unable to make your own decisions. The tools listed below are a checklist that can be used in preparing your estate plan in Michigan to ensure that your estate is distributed in the manner you want upon death.

1) Trust (Revocable Living Trusts and Castle Trusts™)

There are many different types of Trusts depending on what your family’s goals. Most people either have a Revocable Living Trust or Castle Trust™.

A Revocable Living Trust allows you to maintain control of your assets while you are alive and control the distribution upon death. A basic Revocable Living Trust can avoid probate and direct assets upon passing. A Legacy Trust is a Revocable Living Trust that avoids probate and can protect the next generation from divorces, lawsuits, creditors and ensure the money stays in the bloodline for generations.

A Castle Trust™ is a trust where you maintain control while alive, can build in protections for your children upon death, but most importantly build in protection from lawsuits and the devastating cost of long-term care while you are alive.

With both Revocable Living Trusts and Castle Trusts™, you can make changes to the trust while you are alive.

2) Last Will and Testament

A lot of people think that a Last Will and Testament avoids probate, but it does not. What a Will does is give instructions to the probate court on how to administer an estate. If you want to avoid probate, then you most likely do not want to rely on a Will based estate plan.

That said, everyone should have a Last Will and Testament. One of the reasons is that the Will appoints a personal representative who will be in charge of planning the funeral.

Even if you have a Trust based estate plan, you would still want a Last Will and Testament. When you have a Trust, the Will becomes what is known as a Pour-over-Will. A Pour-over-Will is a Last Will and Testament that says that if any assets end up in Probate, then the Will knocks the assets into the Trust so they still follow the terms of the trust.

3) Financial Powers of Attorney

A Financial Power of Attorney in Michigan is a document that appoints someone to make financial decisions. If you get a knock on your head, the Financial Power of Attorney will have the ability to write checks, pay bills and handle your finances.

There are different types of Financial Powers of Attorney. There are what are known as immediate Financial Powers of Attorney that go into effect right away and do not require someone to be deemed incapacitated. Then there are springing Financial Powers of Attorney that ‘spring’ into being only when someone is deemed incapacitated.

Financial Powers of Attorney are also sometimes called Durable Power of Attorney or General Durable Powers of Attorney. All mean a basically the same thing, appointing someone to make financial decisions and pay your bills.

4) Medical Power of Attorney

A Medical Power of Attorney in Michigan is called a Patient Advocate Designation. A Medical Power of Attorney or Patient Advocate Designation is a document that appoints someone to make medical decisions if you are unable to make your own medical decisions.

Another name for a Medical Power of Attorney or Patient Advocate Designation in Michigan would be an Advanced Directive or Living Will.

The Medical Power of Attorney appoints someone not just to make medical decisions but also to be able to make end of life decisions. For example, decisions with regards to life support would be handled with the Medical Power of Attorney.

Michigan is one of the few states that do not have a statute on Living Wills, therefore, end of life decisions are handled in the Patient Advocate Designation or Medical Power of Attorney.

A HIPAA Authorization is a release of medical information and will typically be found in the Financial Power of Attorney document, the Medical Power of Attorney document or will be a stand-alone document.

5) Personal Care Plan

While the Financial and Medical Powers of Attorney appoint someone to make financial, medical and end-of-life decision making, the Personal Care Plan gives instructions with regards to long-term care decision making.

For example, the Personal Care Plan would discuss whether you would want to stay at home for care or move to an assisted living. The Personal Care Plan would talk about activities you would want to participate in, books you’d want to read, music you’d want to listen to, and even food you like or don’t like.

Deeds for Real Estate

If you have have real estate then one of the often overlooked pieces of an estate plan is what to do with your home or real estate. This is where a deed comes into play.

There are different types of deeds to use, depending on what your goals are.

If you set up a Castle Trust™/Asset Protection Trust then you would most likely want to use a Warranty Deed or Quit Claim Deed to deed the property directly to the trust.

If you are setting up a Revocable Living Trust then chances are you would want to utilize a Lady Bird Deed. A Lady Bird Deed is a Quit Claim Deed or Warranty Deed that says the property is in your name while you are alive, then upon death flows into the trust or to the named beneficiaries. Basically, it is a beneficiary designation for your real estate.

If you have second pieces of real estate or rentals, then chances are you will want to deed your property to a Limited Liability Company (LLC) or Castle Trust™. The reason you may want to use these legal entities is that that they offer you asset protection, where if something happens on the property, the liability may not flow to your other assets.

6) Final Expense Liquidity Plan

One of the often overlooked aspects of creating an estate plan is to consider how final expenses would be paid.

Ask yourself this question. “Do you want to leave immediate cash to your beneficiaries or trustees upon your passing to help them with immediate expenses?” If the answer is yes, then you need to have a plan for final expenses.

Upon passing, many estates experiance a lack of liquidity. Accounts may be frozen, death claims take weeks, and financial instituions may drag their feet. How will the family take care of all of the bills, settle the estate and funeral costs when access to the accounts could be locked up for 30 days to 6 months?

The simple solution is a Final Expense Plan. A Final Expense Liquidity Plan is a tool that will pay out to beneficiaries or trustees within 24-48 hours upon death to ensure that they have the immediate funds to settle the estate and cover all of the upfront expenses when someone passes away.

How to Create an Estate Plan in Michigan

To ensure your wishes are carried out if you are incapacitated or if you were to pass away, you need to create your Michigan estate plan. The following will help you understand the steps and things to think about when you begin creating your estate plan.

Step 1- Choose your Trustee and Personal Representative

The first step is to think about who would wrap up your affairs if you were to pass away. The role of a Successor Trustee and Personal Representative are basically the same responsibilities. This would be the person who would use your assets to pay off your bills and final expenses.

With the assistance of a Final Expense Liquidity Plan, your Successor Trust or Personal Representative will wrap up the estate, handle the funeral, pay the bills and once all of that is accomplished they will look to distribute the estate to the beneficiaries.

Typically you will want to name more than one Successor Trustee and/or Personal Representative. The reason for that is if something happens to the person you name, there will be a back-up ready to step up and wrap up your estate.

Step 2- Decide Who Your Beneficiaries Are

One of the most important pieces of creating an estate plan is determining who your beneficiaries are. If you have children, usually this is a pretty easy decision where assets will be split up amongst the beneficiaries. This does have to be in writing though.

A Trust (whether Revocable Living Trust or Castle Trust™) is a great tool to avoid probate and handle the distribution plan for beneficiaries.

If you do not have children, then more thought may needed to determine who the beneficiaries should be. You could choose other family members, friends, churches, charities, and even pets.

Step 3- Choose Who Will Make Financial Decisions if You Are Unable to Manage Your Financial Affairs

The next step in creating your Michigan Estate Plan is to consider who would make financial decisions if you were unable to make your own financial decisions. Typically, this would be a spouse first, then you need to think of who would be a back-up to your spouse.

The person you choose would be who you would name in your Financial Power of Attorney. They would have the ability to write checks, pay bills, and handle your financial affairs if you were unable to handle your own financial affairs.

Step 4- Choose Who Will Make Medical Decisions if You are Unable to Make Your Own Medicaid Decisions

Once you’ve appointed someone to make financial decisions if you are unable to manage your financial affairs, the next step is to do the same thing, but think about who would make medical decisions. This could be the same person or it could be someone different.

The process of choosing someone to make medical decisions can be one of the most important decisions you can make because it is literally ‘life and death’.

Similar to the Financial Power of Attorney, typically who you appoint first in the Medical Power of Attorney is the spouse first. Then the next step is pick a back-up Patient Advocate or Medical Power of Attorney.

Their role is to make medical decisions, including end of life decision making.

Step 5- Review Funding of Trusts and Beneficiary Designations

One of the most important and most overlooked aspects of setting up an estate plan is to review the beneficiary designations on your accounts and if you have a Trust, ensure the Trust is funded properly.

A Trust (whether Revocable Living Trust or Castle Trust™) needs to be funded. Trusts are like suitcases. While you are alive and well, you are holding onto the suitcase or trust. Then upon death you pass the suitcase to your successor. But, if there is nothing titled in the trust, then all you are doing is passing an empty suitcase. If the Trust is not funded properly, then there may be assets that end up going into probate.

To fund a Trust, beneficiary designations need to be reviewed and updated. A general rule is that any qualified accounts, such as IRAs and 401ks, should like the spouse as a primary beneficiary and then list the Trust as a contingent beneficiary. Any non-qualified accounts, such as Life Insurance, checking accounts, savings accounts, and brokerage accounts, should name the Trust as the primary beneficiary.

Regardless, beneficiary designations on all of the accounts should be reviewed to ensure that all of the assets of the estate avoid probate.

The Most Common Estate Planning Mistakes In Michigan that Are Easily Avoidable

The following are the most common estate planning mistakes that you can avoid if you work with an experienced estate planning attorney (Certified Elder Law Attorney). Many people who create their own estate plan (Do-it-yourselfers) make at least one of these mistakes.

1) Dying Intestate in Michigan

If you die without a Last Will and Testament in Michigan and your assets end up in probate then they will follow the default rules of Michigan, which is called dying intestate. Dying intestate means that the State of Michigan gets to determine where your assets will go. Typically assets will flow to the spouse and children first, then parents, siblings, and then nieces and nephews.

Most people want to avoid probate because it is time consuming, costly and public. The national average is that 3-5% of any assets going through probate get eaten up in costs, including filing fees, publication fees, inventory fees and sometimes attorney fees.

2) Having a Simple “I Love You” Will

A lot of families make the mistake of having a simple “I Love You” will that says that everything goes to a spouse, then kids. While the disposition isn’t a problem, the fact that the Last Will and Testament only controls assets in probate is an issue.

If you are relying on Will based estate plan, you may be sending your loved ones to probate, because all a Will does is give instructions to the probate court.

3) Giving Property Outright to Your Children

One ‘solution’ we see families make is to give property outright to children. Not just while alive, because you are giving up control, but also upon death.

There are two reasons why this may be a bad idea, first is the financial immaturity of your children. Even if they are adults (over the age of 18) you may feel that a large sum of money is too much of a responsibility.

That said, most of the families we work with feel their kids would make good decisions and have that their kids have good heads on their shoulders. The concern is about the outside environment. What if you rely on beneficiary designations or your Trust says outright distributions, then your child gets a divorce, lawsuit, creditor action, or passes away. With outright distributions, that money may be lost. That is why many families choose to build in protections for their children with Legacy Inheritance Trusts or Castle Trusts™.

4) Owning Property Jointly with Someone Other than a Spouse

As a probate avoidance ‘strategy’, some families name kids or others joint to property, like bank accounts and real estate. This is a mistake because you are opening yourself up to all of the liabilities of the person you named to that account or asset.

If you name a child joint to your house to avoid probate, then they get a divorce, sued or need long-term care, you may now loose or have to defend your house.

There is always a better way to handle things other than joint ownership, whether it’s Lady Bird Deeds for your real estate, Transfer on Death or Payable on Death designations for your bank accounts or Financial Powers of Attorney so your loved ones can pay your bills, there is always a better way to handle things other than joint ownership.

5) Not Having the Right Type of Trust

Not everyone needs a Trust, but a Trust is a powerful estate planning tool to avoid probate, control the distribution, and depending on the type of trust, provide you asset protection during your life.

There are two main types of Trusts, there are Revocable Living Trusts and then there are Castle Trusts™.

Revocable Living Trusts fall into two types of categories. The first type of Revocable Living Trust is a Basic Living Trust. A Basic Living Trust avoids probate, if funded properly and can provide outright distributions to beneficiaries at a specific age, say 25. This is a good trust for families with young children who want to ensure their minor or young children to do not inherit property until their children are mature.

A Legacy Trust, a more advanced Revocable Living Trust, is a trust that avoids probate, controls the distribution upon death, but now protects beneficiaries for their lifetime from divorce, creditors, lawsuits, long-term care costs and ensures the money stays in the bloodline, versus going to in-laws (out-laws). This type of trust is typically for families who children are adults, have good heads on their shoulders, but you want to protect them from life throwing your children a curve ball.

The third type of Trust is a Castle Trust™, which is a trust that avoids probate, protects the beneficiaries, but most importantly protects you from lawsuits and the devastating cost of long-term care. By moving assets into the Castle Trust™, you are starting the Medicaid or Nursing Home 5-year look back clock, where once you make it 5-years, 100% of what is funded into the trust is protected from Nursing Home or Medicaid spend-down. In other words, Medicaid can pay the base level of care, then you have a pot of resources to pay for additional services to improve your quality of life. Or if you are married and one spouse needs long-term care, to ensure the healthy spouse is not completely impoverished.

6) Not Funding Your Trust

This is one of the biggest mistakes, not funding your Trust. We see this mistake even when families work with an estate planning law firm to help prepare their estate planning documents.

Most estate planning law firms just provide a ‘Funding Letter”, which is basically a ‘CYA Letter’ for the estate planning law firm, where if the family cannot or doesn’t fund the Trust the responsibility is not on the estate planning firm because of the ‘Funding Letter.’

Many Revocable Living Trusts are not funded properly for a variety of reasons. First, the funding of a trust is tedious, time consuming and frustrating. Working with the different financial institutions to change ownership and beneficiary to the trust is a pain. Second, it can be confusing in terms of understanding how and which assets should be funded to the trust. Last, there could be additional assets acquired after the Trust is set up and the family forgets to title them in the name of the Trust or does not get a chance to change the beneficiary of the asset to the Trust.

A Trust is like a suitcase, assets, and stuff need to be put in the suitcase or Trust, otherwise, you are just handing over an empty suitcase/Trust.

7) Not Reviewing Your Estate Plan on a Regular Basis

Many families feel that once they put together their Michigan Estate Plan, there is nothing else to do, ‘the box is checked.’ However, estate planning is not a one and done type propisition. An estate plan is something that needs to be reviewed and should be reviewed on an annual basis.

With an estate plan, there are a variety of things that could change warranting a change to the legal documents. For example, your assets could change, your family situation could change, laws could change, tax rules could change and legal strategies could change. That is why it is important to review your estate plan regularly. An estate plan is like a parachute, you never know when you may need it, but if you do, you want to make sure there are no holes in it.

8) Failing to Plan for What Happens if You Don’t Die

Estate planning is all about planning for what happens if you pass away. Elder law is planning for what happens if you continue to age and face all the issues that go along with aging.

What we’ve found is that people are living longer than ever and with that longevity, long-term care is a large concern for many families. If you sit down with a basic estate planning law firm, they will typically focus just on avoiding probate. There will be little discussion about protecting against long-term care costs and typically no discussion of Asset Protection Trusts like a Castle Trust™.

Does it matter how much you are leaving to your children if your assets are wiped out due to the devastating cost of long-term care? If you are concerned about avoiding probate and protecting your assets, then you want to sit down with a Certified Elder Law Attorney, not just an estate planning attorney.

9) Thinking a Trust and Last Will and Testament are Enough

There is more that goes into an estate plan than just a Trust and a Will. There are ancillary documents like the Financial Power of Attorney, Medical Power of Attorney, Personal Care Plan, Deed for the real estate, Final Expense Liquidity Plan.

A comprehensive estate plan doesn’t just deal with death, it also deals with incapacity and long-term care planning as well.

By having the Disability Documents in place (Financial Power of Attorney, Medical Power of Attorney, and Personal Care Plan), you can avoid a loved one having to get a Guardianship or Conservatorship for you. They can avoid having to goto probate court while you are alive to be able to make decisions for you.

10) Not Understanding the Enemy isn’t Probate, the IRS or Long-term Care Costs

The enemy is procrastination.

It is easy to put off estate planning or try to save a couple of bucks by going with a cheaper estate planning attorney than a Certified Elder Law Attorney. But, estate planning, leaving a legacy is something you only get one shot at. If you pass away and things are not handled properly, that may be how you are remembered. If you had an opportunity to protect against long-term care and passed on it and then suffer a stroke, your money may be going to a Nursing Home instead of to your loved ones.

Michigan Estate Planning Laws

• Revocable Living Trust-§ 700.7601(-7615)
• Last Will and Testament-§ 700.2501(-2519)
• Financial Power of Attorney/Durable Power of Attorney-§ 700.5101(-5505)
• Medical Power of Attorney/Patient Advocate Designation-§ 700.5506(-5520)

How to Get Started With Your Michigan Estate Plan with a Certified Elder Law Attorney

Our firm, Castle Wealth Group Legal, helps clients throughout Michigan (and outside of Michigan) with their estate planning needs. To get started visit our home page and complete the Estate Planning Stress Test to determine what your estate planning concerns are.

From there, we will start the process of getting your estate plan in order so that you can avoid probate and provide for your family with peace of mind.