Many clients plan for their passing by leaving their assets to their children at their death. They do not leave assets to grandchildren or great-grandchildren. Now that the exempt amount for estate taxation is $5Million per person, many have forgotten about gifting programs to diminish the size of their estates.
From a tax perspective, all of this makes sense; however, it may be worth another look since we have had big shifts in our economic reality.
For those with modest estates, staying the course as above is probably wisest. It is crucial to maintain adequate assets to last for your lifetime, including a period of disability.
For those with large estates, it may be time to look at the economic reality that is confronting your children and grandchildren. This generation of adults is confronted with paying for student loan debt, mortgage debt, funding their own retirements, and saving for their children to go to college all at the same time. Even with good jobs, they can be struggling economically. While they will certainly appreciate any bequest they may receive when you pass away, it may be a little late for it to make a meaningful change in their lives.
For your grandchildren, they will need education in this coming age. Yet, the increasing mountain of student debt is staggering. Higher education is now reaching the point where it is virtually unaffordable.
How can you alter your planning to assist with this changed reality?
First, you may consider gifting during your lifetime on an annual basis to your children or your grandchildren. Giving additional funds today may ease the financial burden they are laboring under. For grandchildren, you should strongly consider establishing and funding 529 Plans for college education. This money will grow as they do and may provide the ability for them to go to the college or university of their choice when they are ready, without being buried under a mountain of student loan debt.
Next, you may consider leaving bequests to your grandchildren directly in your trust or will. It will undoubtedly come at a time when they can truly benefit from the money. It can make a real change in their lives. Additionally, it will also touch their hearts to know that you remembered them.
Same-sex Marriage in Michigan. The celebration from the Supreme Court decision has diminished. But is it really all over?
There is still significant work to do. Laws in Michigan need to be changed to conform to the mandates of the Supreme Court ruling. And – there will be challenges and end-runs by the religious freedom activists on the right.
The Supreme Court decision may really be a beginning instead of an end.
Your kids are getting ready to go to college. Their dreams and aspirations are high and you don’t want to take the wind out of their sails. Yet, the staggering student loan burden for college graduates is a road block to financial prosperity for many. Even with a good job, having a student loan debt of $100,000 is like having a mortgage without the house to live in.
How can you counsel your children so that they attain their dreams of the college education but avoid the debt trap?
It is not unusual to encounter the issue of loans made by parents to children. These are often not documented in writing. The parent and the child are often the only ones who know of the loan. It is common for the loan to be open-ended without interest. The child is simply supposed to pay the loan back when they can.
These are not documented for a number of reasons. Parents often feel that it is too formal for them to draw up a loan agreement with the child. They trust the child and expect him or her to honor their agreement to pay back the debt.
This can present something of a problem in the estate planning area. When a parent leaves his or her estate to the children equally, does that mean that the loan or debt should be treated as a part of the child’s share? Or should it be forgiven?
If the loan is undocumented, there is no means to enforce repayment of the loan to the estate or to treat it as a part of the child’s share unless he or she voluntarily agrees. Often, the child is not in the position to pay back the loan. It may actually exceed his or her equal share of the estate.
The siblings may be aware of the loan, but are not aware of its status. Has it been paid back? Partially? None of it? This affects the amount of their pro-rata share of the estate.
It may be that the loan recipient has received a number of loans from the parents. Siblings can be resentful and ready to enforce repayment of the loans. Unfortunately, without anything in writing, there is no avenue for recovery. Even when the check written to the child can be found, it is not proof of a loan without a writing that documents it is a loan. It could be a check written as a gift and will in all likelihood be categorized as such.
This is the type of issue that pits siblings against one another after the passing of their parents. The loan recipient may feel that the siblings are being greedy. The siblings feel they are being short-changed.
As a parent, do you need to have a complicated legal agreement drawn up to document a loan to one of your children? No. The loan agreement can be simply done, stating the date of the loan, the amount, the terms, if any, the fact that it must be repaid. Both parties should sign it. Done.
Parents should address the issue of loans in their Will or Trust. Either loans made to family members should be forgiven if not paid, or the loans should be treated as a part of the child’s share.
While the most common situation involves parents making loans to children, it can be the other way around. Parents on a fixed income may deplete their savings and need assistance. If that assistance is not being equally shared by all the children and is coming from one individual, it should be documented. In that way, upon the parents’ deaths, the child who made the loans can receive at least a partial repayment if there are any assets left. Again this loan arrangement should be in writing.
Once again, it is appropriate for the parents to address this issue in their estate planning documents, specifically stating that loans received from the child or children are to be repaid prior to dividing the estate among all of the children.
I have a number of clients lately that are in the process of selling their own homes without using a real estate agent. This is possible and doable; however, there are some issues to keep in mind.
First, this will not be all profit. While you will save the sales commission, there are other costs associated with the sale of a home that you will pay whether you use an agent or not. It is not simply a matter of placing a “For Sale” sign in the front yard and hoping for the best.
Transfer tax: In Michigan, there is a real estate transfer tax that is imposed on the seller of the property. It is based upon the amount that the property is sold for. It is $.75 per five-hundred dollars value for the County portion of the tax and an additional $3.75 per five-hundred dollars value for the Michigan portion – total is $4.50 per five-hundred dollars value or $9.00 per thousand that must be paid at the time the property is transferred and the deed recorded.
Title Insurance: This guarantees to the buyer that you own the property and that it has no title defects. The title insurance company researches the title to assure that this is the case and then issues a policy of insurance based upon the selling price of the property. In the event that there is an issue with ownership or liens that were undiscovered by the title company, the insurance policy is there to assure that this will be paid for.
Document Preparation: If you are for sale by owner, you will need the correct documents for your transaction. You should have a professionally prepared Purchase Agreement that covers all of the bases. The cost of legal counsel to prepare this for you is far less expensive than doing it yourself and making costly errors.
Closing: It is unlikely that your attorney will be the one to actually prepare the closing statements, tax proration, etc. This, in Michigan, is ordinarily done by the title company. There will be a charge for this service. The closing is often held at the title company office as it has the ability to cut all of the necessary checks for the transaction.
If you are selling on a Land Contract, it will be necessary to have some alternative documents prepared. Again, it is wise to have these done by a professional. You will want your rights as a seller protected in the event that the buyer does not make the required payments down the line.
If you are well prepared and have the right assistance, you may be able to sell by owner. It is important that you consult the appropriate professionals to make sure that you are doing it right.
You have a completed estate plan. Many people put it away and never think of it again. They believe that they are all set – for life. That’s really not true.
Life changes and so do our needs. An estate plan completed when you have minor children is not the same one you will need when they are in their 30’s and you are in a retirement mode. So, how often should you review your documents?
First, all reviews do not need to be conducted by an attorney. These are your documents and you know what your needs are. I recommend reviewing the documents every one to two years. Pull out the documents and re-read them. Are all of the facts contained in the documents correct? Are the choices that you made still the ones that you want? Are the individuals that you have named as agents still available?
If the documents are still accurate and what you want, fold them up and put them back. You are all set. If however, things have changed, it is time to make an appointment with your attorney to change the provisions that require updating. This does not mean that you will need all new documents. Often simple amendments are possible to change distribution provisions or agents.
As time goes on, it is wise to schedule a review of your documents at least every five years with your attorney. Laws change which may affect your documents. Additionally, your personal circumstances may have changed in a way that an amendment is required.
Other times, there will be triggering events that will lead to changes.
The death of a spouse
The death of a child
The marriage of a child and/or the birth of a grandchild
The death or disability of one of the agents that you have named
A large change in your finances such as an inheritance
The acquisition of multiple parcels of property
In any of these circumstances, it is wise to make an appointment with your attorney to address these issues and make certain that your documents are up to date. Then you can once again, put the documents away and be certain that you are well prepared.
Not all families have the same estate planning considerations and concerns. This is particularly true for Dual Income No Kids (DINKs) couples.
Couples or singles with children are equally concerned with stretching their money throughout their lifetimes and leaving a legacy to their children. They often assume (or hope) that if they become disabled over time that family members will step in to assist. This could mean hands on care or supervision of their care in a facility.
For DINKs, this is not the case. While they may have close relationships with nieces, nephews and friends, their primary focus is not on leaving these beneficiaries a large inheritance. If there is money or property left upon their demise, they have beneficiaries that they would prefer to leave the wealth to. Since these individuals did not have the expense of raising children, and did not have their careers modified by child raising times, they will often have more assets than the married with children couples.
For these couples, the primary focus is upon their future and the possibility that at some point, one or both of them may require assistance and care. Without children to guide that process, the selection of agents under Durable Power of Attorneys and Advocates under Health Care Power of Attorneys becomes of greater importance.
Selection of these agents is often difficult. Naming siblings seems practical – they are persons that can be trusted. It may also be somewhat unwise because an individual of the same age may predecease them, or be disabled as well. It is less likely that younger family members would provide a “hands on” approach to caring for them during a health care crisis.
For these individuals, planning for long term care takes a higher priority. They must economically provide a means to live either assisted or ultimately in a long term care setting. This might be for the survivor, or for both of them if they survive into their 90’s. The selection of health care advocates is a key.
Durable Power of Attorneys and Revocable Trusts must be carefully drafted to assure that the Agent or Successor Trustee focuses upon continuing the standard of living of this individual without any concern as to the preservation of the financial estate for the beneficiaries and heirs.
One size certainly never fits all – and that is especially true in the case of the Dual Income No Kids Couple. Careful, special planning is needed to assure that their needs are addressed for disability and old age, as well as the disposition of the remaining wealth upon their passing.
Many individuals never get around to doing their estate planning – because they are waiting for the “right time”.
For many, this is a magic age – they think they need to be over 50 or over 60 years old to need an estate plan. Others wait even longer.
So what is the right time?
For those in their 60’s through their 70’s
Now is the right time. You have acquired property and wealth. While you are hoping for longevity, it is possible that you will not live into your 80’s and 90’s. Accidental injury leading to death can take any of us at any time. A serious and severe illness could strike and with the urgency of the medical issues you may not have the time or energy to thoughtfully devote to planning.
It is also more important than ever to have Powers of Attorney in place to assist you if you are disabled and unable to handle your business or financial affairs or your medical affairs.
For those in their 50’s
Now is the right time. Your children may be over 18 but are not wise enough to handle the inheritance of your assets. You are now accumulating wealth and property – hoping to add to that wealth. While it is less likely that you will pass away, as with any age, there is no magic ball to tell us what our future brings. Longevity? or illness and disability? or accidental death?
For those in their 30’ and 40’s
Now is the right time. Your children are minors. It is important to make the difficult decision concerning their care if you are not there to raise them. Who would they live with? Who would raise them according to your values? Who would manage the money that you leave behind for their benefit?
How your children would be cared for is a far more important issue than who gets the family piano. This is not an inevitability, and somewhat unlikely. However, it is not unheard of for minor children to lose both parents. Take the time to plan for their future.
For those in their 20’s
Now is the right time. You think that you own nothing but debt. You may not have any children. So why do any planning?
It is at a minimum important for you to have Durable Power of Attorneys for financial and legal matters as well as for medical matters. If you are single, who would care for these matters if you were unable to do so? While your parents may want to assist, they could not legally do so without these important documents in place.
So, when is the right time to do estate planning? Now is the right time, young or old. Get this item off of your bucket list and achieve a peace of mind knowing that you have tied up the loose ends and planned for your family.
For many with pets – dog and cats – consideration of who gets our beloved furry friends has become an important estate planning issue. Who will care when you’re not there?
It is important to plan for a home and care for these pets. Selecting a kind and caring individual that you trust is critical to the continued well-being of your dog or cat. Yet, this is less complex than larger animals – after all, the animal can be taken into a home and cared for becoming part of a new family. The amount to set aside for food, care and veterinarian fees is fairly modest.
This becomes more complex for horse owners. While you may love your horse as much as the dog or cat owner loves their animals, it isn’t as easy as taking the animal into another home. Horses require property and a constant, daily care that is more complex and time consuming than feeding a cat.
Have you planned for a disability? If you are temporarily disabled and in the hospital, do you have someone who will step in immediately to care for your equine friends? A well-meaning friend that is not familiar with the care of horses may not understand what is required. After all, this involves more than putting out a bowl of kibble once a day.
Are there funds available to pay for supplies, food, and vet bills that can immediately be accessed? Have you appointed an individual to immediately step in and take over this financial component?
Upon your death, how will your horse be cared for? Have you discussed this issue with the individual(s) that you would select to care for the horse? Are they willing and able to assume this responsibility? A large dog may only live for 10 years while a horse may live to 20 or 25 years.
How will the financial responsibility be taken care of? If you leave a stipend in your Will to the individual, the money may be distributed; however, there will be no continued oversight after your estate is closed. There will be no legal assurance that the caregiver will actually continue to care for your horse.
You may want to consider having a trust in which the trustee is able to pay for the ongoing costs associated with the upkeep and care of your horse so long as it is cared for. If the ownership is transferred to yet another individual, the trustee can then continue to make funds available to that new owner.
Who will care when you’re not there? Responsible loving owners of horses as well as dogs and cats must plan for the care of their beloved friends if they are not available due to disability or death.