BASIC ESTATE PLANNING
by Michael J. Houlihan



This brochure is one of a series discussing estate planning topics. It provides general information, not legal advice. For advice concerning your specific needs, consult your attorney. If you have suggestions or comments about our brochures, please let us know. You may write us at the address below or e-mail us at: mjh@mhoulihan.com
Copyright 1997 Michael J. Houlihan

Introduction

Your estate plan is a plan for the protection and distribution of your estate at death. These days, estate plans also involve planning for possible disability or advanced old age. An estate plan usually involves wills and sometimes trusts, powers of attorney and living wills. Sometimes we suggest you transfer property for family and tax reasons. As estate planners, our job is to help you establish a plan to suit your needs and to draft the documents you need.

This brochure gives you background information on estate planning to help you find the best plan for your family. To keep it simple, we've made some general statements without noting exceptions and special cases.

Wills

Your Will describes how to dispose of your property upon your death. It contain simple instructions wrapped in formal language. A basic will says:

  1. Collect my assets.
  2. Pay my debts and taxes.
  3. Give the rest of my property to my heirs.

To protect your estate from claims, and, to make sure that your heirs receive their shares, lawyers use more words than in this example, but the purpose is the same. We strongly recommend that you have a will drafted by an attorney. There are plenty of ways to save money but drafting your own will or using a form will is not one of them!

We do not recommend a single "joint" will for husband and wife in most cases. Usually, the client's needs can be met in better ways. Joint wills are often one of those ideas that "seemed like a good idea at the time."

Probate

Giving effect to a will is sometimes called "probating the estate." This is a process by which:

  1. The Probate Court decides whether a given document is a binding will (usually routine.)
  2. A personal representative, named in the will, is appointed to collect the decedent's property, pay his bills, and distribute the remaining property to his heirs.
  3. The decedent's property is collected by the personal representative. Sometimes this is simple, sometimes not. Problems which were left unresolved during life sometimes must be solved during probate.
  4. The personal representative pays the decedent's bills with funds from the estate. The personal representative, with help from an attorney and CPA if necessary, files final income tax returns for the decedent and may file state and federal estate tax returns.
  5. When all the bills are paid, and tax returns filed, and the taxes paid, the property is distributed as the will directs.
  6. The personal representative is responsible for preparing accountings for the estate, showing the receipts and disbursements. Each beneficiary is entitled to financial information.
Probate Court

Most wills are probated today by "Independent Probate." With independent probate, the personal representative does his or her job without court action. The Probate Court will supervise administration at any time to protect the rights of persons involved, to decide what a confusing provision means, etc. However, unless there is a problem, the Probate Judge is not involved.

Personal Representative

Many estates are "probated" without anyone appearing in Court. The personal representative is responsible for administering the estate according to law and the terms of the will. The job of the personal representative is important. Usually, it calls for good business ability (in record-keeping, meeting deadlines, etc.) and sometimes knowledge of the family. Often a relative is chosen for this job. However, where no close relative is available to serve, or, where it would put unreasonable burdens on a family member, a bank trust department is often appointed. Occasionally, the family lawyer or accountant is appointed to serve in that capacity. Sometimes, a family member and bank (or lawyer, or CPA) are appointed co-personal representatives.

We recommend a local personal representative whenever possible. This can greatly simplify the administration process.

Guardians

Parents with minor children usually wish to designate a guardian to take care of the children if disaster strikes. Although this is not binding upon the Probate Court, the parents' wishes will be given careful consideration. (Where parents are divorced, no guardian may be appointed over the objection of one of the parents.) Sometimes, it may be appropriate to give someone other than the guardian control over the minor's money. For example, a trustee could manage the money, while a guardian provides a home.

Trusts

The will or another document may appoint a trustee. A trustee is a person (including a bank trust company) who is given authority to manage money or property for the benefit of another person. A trust may be set up for several different reasons:

  1. Trusts provide management of property and investments for children, for the disabled and the elderly. Often, the trustee pays bills and provides other services.
  2. Trusts are tax-planning tools in larger estates. Often, we use a "living trust" for this purpose. A living trust is a trust which is created during life rather than in a will. For Latin students, this is an Inter Vivos trust. Living trusts provide a way to avoid public disclosure of family assets --- sometimes a very important concern.
  3. A trust is sometimes used to provide management for property where many people have interests in the same property. For example, leaving a single piece of real estate to 22 grandchildren might be done by means of a trust.

The trustee administers the trust, as the personal representative administers the estate. There is a business side and a family side to the trustee's job. For the same reasons, sometimes a family member is combined with a bank trust department (or CPA or attorney) to create co-trustees.

There are several qualified local bank trust departments. You may wish to use a local financial institution to serve as trustee or personal representative.

If you need more detailed information on trusts, let us know. We have a similar information brochure on trusts.

Questions

Think about these questions you'll be asked about your estate plan. Even if you can't answer them now, it's helpful to give them some thought.

  1. If your spouse does not survive you, who should receive your estate?
  2. Are there special gifts you wish to make - family mementos, or charitable gifts?
  3. Who should serve as your personal representative?
  4. Who should serve as guardian?
  5. Do any family members require special provisions? Is one in need of special medical care? Is one unable to manage his or her money?
  6. If you need a trust, who should act as trustee? The trustee's job may last much longer than a personal representative's --- even a lifetime.
Durable Powers

As we get older, durable powers of attorney become a valuable planning tool. A power of attorney lets another person you designate take care of your business affairs. Durable powers may be broad, allowing the attorney-in-fact to do anything the "principal" could do. A power of attorney may also be limited, covering, for example, a single bank account or a single piece of real property.

Living Wills

Michigan now permits a person to designate a "patient advocate" to make medical decisions for the patient, when the patient cannot. These decisions are based upon medical information and the instructions of the patient. Many clients find a "Designation of Patient Advocate" a useful addition to their estate plans.

Joint Accounts

Joint accounts are often described as a "poor man's will" or as a way to avoid probate costs. In our experience, they make pretty poor wills. Sometimes a joint account is a good answer to a specific problem, but very often there's a better answer that doesn't involve the risk of big trouble.

Planning Costs

Most estate plans require the services of an attorney. Some require the services of other professionals such as CPAs and insurance experts. Our fees are based upon the amount of time expended. We'll be happy to discuss our fees with you upon request.

Additional Thoughts

You may have a hard time talking about your own death. If this is a problem for you, say so; your estate planner can make you more comfortable. Often, it's hard to start the estate planning process, but once begun, it becomes easier.

Don't put off making your will because you can't resolve a question or problem. Often, other families have dealt with similar problems.

Most of our clients find that completing an estate plan gives them a feeling of "putting things in order."

Finally, we have further information about trusts. If you want more information on these topic select the "Trusts in Estate Planning" or "Funding the Living Trust" brochures.


[ Trusts in Estate Planning ] [ Funding the Living Trust ] [ Construction Liens Outline ]

MICHAEL J. HOULIHAN
539 S. Garfield, P.O. Box 28
Traverse City, Michigan 49685-0028
Tx 231-941-4646 Fax 231-941-4649
Regular Office Hours 9:00-12:00 1:00-5:00 Mon - Fri
One-half block South of Eighth on Garfield, Traverse City
Email us at: mjh@mhoulihan.com