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IRA’s and How to Handle

Clients are often confused about the manner of passing along IRA accounts upon their death to their family.  Heirs are confused about how to withdraw the assets.

If you are married and name a spouse as the primary beneficiary of the IRA, he or she can roll it over into his or her own name.

If you are not married, it is important to understand the rules.  If you leave it to your estate, it will be paid out in a lump sum and taxes will be due and owing by the estate.  It is much wiser to name individual beneficiaries.  In that way, the beneficiaries will have the maximum amount of flexibility for withdrawal.

If you name, for instance, you children as the beneficiaries, they will be obligated to start withdrawals from the account by December 31 of the year following the year they inherited the IRA.  The benefit is the fact that they can stretch the amount of time they will have to withdraw the IRA.  The Required Minimum Distribution (RMD) that they will have to take each year will be based upon each of their life expectancies.  In this way, they can stretch the IRA withdrawals over their lifetimes.  They can, however, withdraw more in any given calendar year if they chose.

While gifts and inheritances are not income, and thus not taxable, to the individual receiving the gift or inheritance, this is not true in the case of IRA’s.  Since no income tax was paid initially by the owner of the IRA prior to placing the money into the account, the amounts withdrawn are taxable.  This is true whether the money is withdrawn by the original owner of the account or by a beneficiary.

These rules do not necessarily apply to 401K and other employer established or funded plans.  The manner of distribution will ultimately be controlled by the employer who established the fund.  It is possible that children can stretch out the payments; however, this is not always true.  The beneficiaries may have to transfer his or her share of the inherited 401K into an IRA.  It is important to ask your employer or plan administrator.

Property Taxes – New in Michigan

Linda Wasielewski LogoMichigan Property Taxes

In Michigan, the value of your real property is assessed by the local municipal assessor.  This State Equalized Value is 50% of the value of the property.

Prior to 1994, the taxable value of your property went up and down on a yearly basis depending upon the increase or decrease in value of the home and/or the neighborhood.

The biggest problem was created for individuals who held their property for many years. While their property remained as is, others near-by could build new homes or greatly remodel the home so that the value of the neighborhood went up dramatically.  This was especially true with waterfront homes.  In more underdeveloped areas, cottages were eventually replaced with very large homes.  As the values around the lake went skyrocketing, so too did the tax bill for the small cottage that remained unchanged.  Many individuals were faced with selling the property because they could no longer afford the property taxes.

In 1994, the voters of Michigan approved Proposal “A”.  This capped the amount that property taxes could increase on an annual basis.  Therefore, the property tax upon a parcel of real property cannot increase more than 5% per year.

This leads to two separate values for a parcel of real estate:  the state equalized value (actual value) and the taxable value.  For parcels held on a very long term basis, the difference between the two values can be dramatic.

The property taxes are uncapped (or pop-up) upon the sale or transfer of the property by the owners.  This included the transfer of property by gift or at death to children or siblings.

Often long held farms or family cottages which the owners wanted to pass down to their children had to be sold after the children found an increase in taxes of up to three or four times what their parents had been paying.

Effective December 31, 2013, this has changed.  Now, the transfer of property by the original owners to individuals who are children, parents or siblings, will not uncap the property taxes.

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Lady Bird Deeds – Part II

Linda Wasielewski LogoIn Part I, I discussed the use of Lady Bird Deeds as a Probate avoidance method to transfer property from the original owners to their family.

There are other reasons that individuals might select a Lady Bird Deed:

Revocable (Living) Trusts

As a part of funding a revocable trust, real property is usually transferred into the revocable trust.  Property held in a Revocable Trust which transfers the property to children/family upon the death of the Grantor/Owner will not get the benefit of property taxes remaining capped.

The law requires that the transfer be from individuals, to other individuals (within one degree) to qualify.  A revocable trust becomes irrevocable upon the death of the Grantor(s) and is then an entity.  Even if the terms of the trust call for an outright transfer of real property to the Grantor’s children, the property will become uncapped.

This may not matter if the property will be immediately sold, or if the property has not been held for very long.

This result will be damaging if the property was purchased long ago and is meant to be held by the children – a family farm or a family cottage.  The uncapping of the property tax could force a sale of the property if the children are unable to afford to pay.

This leads to the use of Lady Bird Deeds.  The property is transferred out of the trust back to the original owners.  It is then transferred by the owners to themselves and their family as joint tenants with full rights of survivorship.  At the owners’ deaths, the property will belong to the children, the property taxes will not uncap, and the children will get a stepped up basis in the value of the property for federal tax purposes.

Medicaid Planning

Lady Bird Deeds have become important for Medicaid Planning today.

A married couple is able to claim their homestead as exempt property when one of them enters a nursing home and they apply for Medicaid.  In this way, the property may be held and used by the spouse who does not receive nursing home care.

In the last few years, Michigan has gotten on board with the federal mandate for estate recovery.  What this means is that the state government is permitted to seek reimbursement for sums expended on nursing home care.  Since the marital home was claimed as exempt property, this is the largest asset upon which the states could recover.

In Michigan, it was decided that the estate recovery would only be against the exempt homestead at the death of the second spouse to die, if the property goes through probate court.

Since a homestead is not exempt if it is held in a trust, the real property would pass to the children and/or family through a Last Will and Testament.  Since this would go to Probate Court, this would enable the state of Michigan to pursue recovery against the value of the homestead.

The alternative currently used is a Lady Bird Deed.  The property is still considered an exempt asset for purposes of Medicaid qualification.  Since the property passes to the children and/or family without the need to go through Probate court, the state of Michigan does not then have the ability to recover the value of care.

As with many regulations concerning Medicaid, this could change in the future.

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Lady Bird Deeds – Part I

Linda Wasielewski LogoWhat is a Lady Bird Deed? A Lady Bird Deed is a Quit Claim Deed from the owner of property, to him/herself and others – usually close family members.  It reserves a life estate to the owners and the right to sell without asking the permission of the family members. Why do people use them? Real property left to family through a Last Will and Testament will go through the Probate Court process.  Many individuals do not want their family to be forced to use this process due to cost and time expended on the process.    Therefore, owners sought a manner to transfer their property to their family (usually children) without using the probate process. Years ago, it was common for individuals to execute a Deed from themselves to their children – but they would not record it.  It was to be kept with the Will and other documents, to be recorded at the death of the owners.  This often created problems as the deed would be lost or destroyed. The next phase of probate avoidance style deeds was a Quit Claim Deed from the owner to him/herself and the children as joint tenants with rights of survivorship.  This accomplished the goal of having the property pass to the children upon the death of the owner. There were, however, draw backs with this type of arrangement.  The children were actual joint owners during the lifetime of the original owners.  Therefore, when the original owners wanted to sell the property, it was necessary to obtain the signature of every one of the joint owners on the transfer documents.  Additionally, if one of those individuals did not want the property sold, the original owner was blocked from selling. Now, owners are using the Lady Bird Deed.  It accomplishes the goal of removing the matter from Probate Court and it gives the right to sell to the original owner. Under a Lady Bird Deed, the property actually transfers at the death of the original owners.  It therefore gets a stepped up basis for federal tax purposes.  In other words, the children’s “purchase price” is the date of death value, not the amount their parents paid for the property. Additionally, under the Property Tax changes in Michigan, the transfer at death to the children prevents the property from uncapping the property taxes. To summarize – the Lady Bird Deed accomplishes the following:

  • Avoids the Probate process
  • Leaves the property to family without a trust
  • Gives the owner the right to sell during his/her lifetime without interference of children
  • Children get a stepped up basis (fair market value at owner’s death)
  • Property taxes are not uncapped
  • All children have to do is to file a death certificate


Leaving a Road Map for your Family – At your Death

Linda Wasielewski LogoIn the prior article, I examined the ways to leave your family a road map in the case of your disability. Many of the same issues apply when you are doing your planning for end of life.

Execution of a Last Will and Testament or a Revocable Trust is necessary to pass your estate to those you care about at the time of your death.  As with the issue of disability, it is important not only to leave those documents, but to organize the other financial components so that they are readily accessible.

As with disability planning, you will need organize all of the papers into one location:

Income.  What are your sources of income and how are they paid? Are there direct deposits?  Into which account?  When is the money deposited?  If you receive social security, caution your family that the last payment can be taken from the account electronically without prior notice if the department determines that it should not have been paid.

Monthly expenses:  What are your monthly reoccurring bills?  List them: mortgage, utilities, auto payment, auto insurance, homeowners insurance, credit cards, etc. Some of these will need to be paid until your estate is settled.

Next show what the name of the company, the account number, the date of the month the bill is due and how the amount is paid.  Is it automatically deducted from your checking account?  Is it automatically charged to your credit card?  Must it be paid by check? Or paid on line?  If it is paid on line, include the user name and password for the account.

With the information listed above, your family will be able to continue paying those bills that are necessary.  Additionally, they will have the information necessary to cancel some of the bills such as cable television or internet services as they will no longer be required.

Financial Assets. The list of assets is critical for your family and/or Trustee or Personal Representative. If he or she does not know what you own, it is virtually impossible to get the bills paid and to distribute your trust or estate.

Place a copy of the quarterly statement for each asset account (savings, checking, financial institution) into one folder.  The balance in the account is not the critical piece of information here – the account number, contact information and institution is the key.

Real Estate. Make a listing of all real estate you own or have an interest in.  If there is a deed or land contract, place this with the listing.

Accounts Receivable.  Does anyone owe money to you?  If so, list this together with the documents that establish the debt.  In this manner, your Trustee or Personal Representative will know the details so that the money can be collected.

Accounts Payable.  Do you owe anyone money?  Are there any loans or loan documents which establish that you owe others a debt?  Place copies of this with your other estate planning documents.

Physical Assets.  Make a listing of the large personal property items that you have such as boats, automobiles, coin collections, wine collections, jewelry, etc.  What is their value?  Where are they located?  Who should they be distributed to?

Life Insurance Policies.  Put these in one folder.  If you can’t find them, neither will your Trustee or Personal Representative.

Outstanding Lawsuits.  Are you either a Plaintiff or Defendant in a lawsuit?  Put a copy of the pleadings with your estate planning documents.  While individuals pass away, the lawsuits will continue until they are concluded.  It may be that your estate may owe money at the conclusion or alternatively, money may be due to your estate.

Cash.  If you have hidden money, you need to put this information with your estate plan.  Otherwise, it may be over looked.  Is there money hidden in books?  Under rugs?  In boxes?  In pipes? Behind ceiling tiles?  It would be a shame for your hard earned money to be given away in a garage sale or thrown away because it was in an unlikely place.

Funeral Plans.  Do you have a prepaid funeral contract?  If not, have you pre-planned your funeral.  Leave details.  This will assist your family in following your wishes.

Past Employers.  If you have worked for any companies that had benefits due to you, leave a listing of the company, its address, the years of service with the company.  In this way, if there are death benefits due, your family will be able to access them.

Veterans Benefits.  Are you a Veteran?  If so, place your DD 214 and other relevant information with your estate plan.  In this way your family can obtain any benefits to which you are entitled at death.


While your estate planning legal documents are a critically important part of your estate plan, it is also very important to leave a road map to all of the assets and benefits that you have accumulated during your lifetime.  This will make a very difficult time for your family just a bit easier.

Leaving a Road Map for your Family During a Disability

Linda Wasielewski LogoTraditionally, when we think of Estate Planning, we think of Trusts, Wills, and Durable Power of Attorneys.  There are equally important steps to take to assist your family to assist you.

In the case of your disability, you may have executed a Durable Power of Attorney for Financial and Legal affair; however, if you haven’t left a road map of those affairs, your agent may not be able to adequately assist you.

First – organize all of the papers into one location.  It could be a safe, a notebook or a filing cabinet drawer.

Prepare a monthly “budget”.  Not the type that shows how much you spend per month on milk or coffee but one that shows the following:

Income.  What are your sources of income and how are they paid? Are there direct deposits?  Into which account?  When is the money deposited?

Monthly expenses:  What are your monthly reoccurring bills?  List them: mortgage, utilities, auto payment, auto insurance, homeowners insurance, credit cards, etc.

Next show what the name of the company, the account number, the date of the month the bill is due and how the amount is paid.  Is it automatically deducted from your checking account?  Is it automatically charged to your credit card?  Must it be paid by check? Or paid on line?  If it is paid on line, include the user name and password for the account.

Without this information, many bills could be left unpaid if you do not receive a mailed billing each month.

Also create a listing of your assets.  This can be done easily by placing a copy of the quarterly statement for each asset account (savings, checking, financial institution) into one folder.  The balance in the account is not the critical piece of information here – the account number, contact information and institution is the key.

Create a listing of your medical information and providers.  The providers can easily be done by stapling a business card for each of your doctors, therapists, and dentists onto a sheet of paper.

Make a listing of all current medications that you are taking with a note as to the doctor who prescribed the medication.

Finally, make a notation as to where your original documents are located so that they can be accessed by those who need them.

This will go a long way to assist others in assisting you in a time of crisis.

Same Sex Marriage in Michigan – The current status

In 2004, Michigan Proposal 04-2 was passed by 59% of the voters. This Amendment to the Michigan Constitution makes it unconstitutional for the state of Michigan to recognize or perform same-sex marriages or civil unions.

Under other circumstances, our courts in Michigan would recognize legal rights granted in other states to that state’s citizens. Under this Constitutional Amendment, Michigan does not recognize legally performed marriages for same sex couples in states where the same is permitted. Therefore, a same sex couple legally married in New York, will not find that marriage legally recognized in the state of Michigan.

What does this affect?

Taxation. The federal government has recognized same sex marriage as legitimate for federal income tax purposes. Therefore, these couples may file their taxes on a joint tax return. However, if they happen to live in Michigan, they must have their taxes recomputed as each filing single and carry that information over to each of their Michigan Tax Returns.

Adoption. The Michigan Adoption Law requires that a couple be a man and a woman in order to permit a legal adoption by that couple. Therefore, if a same sex couple desires to adopt a child, only one partner may apply to be the legal adoptive parent of the child. Additionally, if one woman partner is the birth mother of a child, her female partner is not legally permitted to adopt the child.

This was the essence of the recent case in Michigan DeBoer v. Snyder, in which Judge Bernard Friedman held the Michigan ban on same sex marriage to be unconstitutional. The following day, approximately 300 couples obtained marriage licenses and were legally married prior to the Sixth Circuit Court of Appeals placing a stay on Judge Friedman’s ruling. These couple are now in limbo. The state of Michigan is refusing to recognize these marriages.

Status. This case is now on appeal to the Sixth Circuit Court of Appeals. This will be a very slow process.

Appeals are not a re-trial of the issues that were raised below. There will be no testimony taken again. The Appeals could will read the legal briefs submitted, read the applicable law, read the transcripts, and hear oral argument. The Court will then determine whether or not the ruling of Judge Friedman, holding the Michigan law unconstitutional, was correct or incorrect.

The initial submission of briefs by the Michigan Attorney General (the appellant or appealing party) and the women who originally brought the lawsuit (the appellees or defending parties) are not due to be filed until June. Thereafter, there will also be opportunity for Responsive Briefs to issues raised by the other parties.

Then, the case will be scheduled for oral argument. This matter will not be scheduled until late September or late November. Thereafter, the Court will then take significant time to make a decision which will be issued by a written decision or Opinion of the Court sometime in 2015.

That will not be the end of the case. The losing party will then file an appeal with the U.S. Supreme Court. Unlike the Court of Appeals, which must hear the cases which are appealed to it, the Supreme Court may decide to hear the case or not hear the case. This is called a writ of certiorari. If the Supreme Court decides to hear the case, this appellate process will start all over again with submission of briefs, oral argument and Opinion of the Court.

Both sides of this issue are hopeful that the U.S. Supreme Court will hear this issue because at the present time, there are 64 cases pending in 30 states challenging the constitutionality of gay marriage bans.

For now, for Michigan couples, it is a waiting game.

Taxes Are Over – Summer is Not Yet Here – It’s Time to Get Estate Planning Off of Your Bucket List

The mad rush to file your taxes are (or should be) done. It’s early spring if you are in Michigan and the weather forecast for Northern Michigan is cool until early June.

It’s time to get some things off of your bucket list before the beautiful summer weather sets in. Don’t leave everything for the autumn.

You have been meaning to do estate planning – you’ve talked about it – you know you should do it.

Somehow it is something that gets put off until another day.

It’s time to get started. What will you need to do?

• Check all of your beneficiary designations on life insurance policies and your 401K’s, IRA’s, and other deferred savings accounts. Are these the way that you want them? Is your spouse or significant other the primary beneficiary? Who have you named as the secondary or contingent beneficiaries?

• Do you have a Will or a Trust? If not, you should think about who you would leave your assets to when you pass away. If the beneficiaries are children or young adults, you might consider whether you would want them to get the money immediately or have it managed on their behalf.

• Who would be the individual you would select as your Personal Representative (Executor) or Successor Trustee? Who would you select if your first choice was unavailable?

• Do you have a Durable Power of Attorney for financial and legal affairs? If you do, are the choices still correct? If not, who would you trust to be your agent if you were unable to manage your financial affairs? Who could be a back-up in case your first choice was unavailable?

• Do you have a Durable Power of Attorney for Medical matters? Who would you select to make medical decisions for you if you were not able to do so? Who would be the back-up?

Armed with this information, your next step is to make an appointment with an estate planning attorney to get your documents drafted.

Don’t put it off! Get started today!

Providing for our Pets

Who will care when you’re not there?

When doing estate planning, one issue often overlooked is the care of our beloved pets.  It’s not something that is on the typical information questionnaire that clients fill out at their estate planning attorney’s office.  If your consultation with counsel doesn’t touch on the issue of your pet, it make end up overlooked.

Many of us feel that our beloved pets are a member of our family.  They dcat 1epend on us.

So, what would happen to our furry friends waiting at our homes if something happens to us.  While we would like to think that our family members would step in and take care of our friend for his or her lifetime, it may be best not to leave it to chance.

Family members may not want to take in a pet, or additional pets.  Annually many animals end up at animal shelters when the owner passes away.  If you love your friend, this is not the future you want for him or her.

Reaching out from the grave to protect pets used to be for eccentric rich people like Leona Helmsley who famously left $12 million to her pampered pooch Trouble.

Now ordinary animal lovers are taking action to care for their furry loved ones.  Funds for Muffin’s lifetime care may be as small as $5,000, or be much more.

The idea of leaving a substantial sum for a pet may not appeal to the other members of the family, especially if they think that it is money they should rightfully be inheriting.  Legal battles may be fought when parents leave substantial money to their pets instead of the money going to their children. Accordingly, it may be better not to tell your kids in advance because you will endure an endless stream of complaining and lobbying.

To avoid court challenges, or to avoid a judge from altering the terms of your estate plan, it is best to keep the amount left for your pets modest.

In setting the amount, estimate how much your furry friend will require by adding up the annual expenses for food, vet visits, grooming and toys.  Multiply that by your pet’s life expectancy.  Then adjust.  Be realistic and consider what a prudent person would spend on their pets.

Chesapeake Bay Retriever Puppy in corn stalks

This amount can be left by Will or by Trust to the individual that will care for the pet.  If it is by your Will, you will need to update your Will frequently to take into account the changing amount that will be required.  Alternatively, Pet Trusts are legal arrangements that set money aside for a pet’s care and designate a trustee to fulfill an owner’s wishes. In this way, you may leave an annual amount to be distributed during the lifetime of the pet.

You may want to invest in a life insurance policy to fund this expense.  Such a policy will assure your children that the amount of their inheritance is not being diminished in order to take care of your cat or dog.

You will also name a guardian or custodian for your pets when you are no longer present to care for them.  It goes without saying that you must have a realistic conversation with the proposed pet guardian to assure that he or she is genuinely interested in caring for your pets.

This, as with many other estate planning issues, is something that we would prefer not to think about.  It is, none the less, very important.  Once you have made these arrangements for your furry family member, you will feel a sense of relief, knowing that your beloved friend will be well cared for during the remainder of his or her life if you are not there to do so.

Make sure that someone will be there, to care, when you’re not there.

Special Needs Planning

Parents with special needs children live with the daily challenge of caring for this special child – both emotional and financial.  Unfortunately, many parents believe that they must disinherit the child in order to preserve government benefits. 

This places the child at peril and/or places the other children in the family with a significant burden. With appropriate planning, the special needs child can be provided for without risking his or her governmental benefits.

The first question that a parent will ask is, “Who will care for my child when something happens to me?” Most parents assume a sibling will provide the emotional and financial support for their special needs child. A family member can, in all likelihood, provide the love and emotional support for the special needs child.  It can be a heavy financial burden to expect that family member to provide financial support as well.

Creating a Special Needs Trust (SNT) is a solution.  This can provide the special needs child with the amount of care and support that the parents find appropriate after the parents are gone. This Trust can provide financial resources for the child that will not affect his or her eligibility for the all‑important government benefits such as Social Security Supplemental Income (SSI), Medicaid, and housing subsidy benefits.

The Special Needs Trust provides support for the child as long as this support does duplicate that provided by government benefits. So assets from a Special Needs Trust may be used to purchase items that will enhance the child’s quality of life, such as entertainment, family vacations, etc.

A Special Needs Trust must be carefully crafted to achieve these goals and to conform to federal guidelines and state requirements.  A properly and carefully crafted Special Needs Trust, however, will allow your child to receive the benefits of inheritances from you and other loved ones all without jeopardizing the child’s government benefits.

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Linda E Wasielewski
attorney & mediator
3199 Logan Valley Road
Traverse City, MI 49684
Phone: (231) 933-0829


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