Essential Facts about Wills and Trusts
What is an "estate"?
An "estate" consists of the property
owned or controlled by a person, including debts. Every
adult person has an estate because they have some property,
regardless of its market value. Your estate may also
include life insurance benefits, annuities, retirement
plans, and intangible assets. As a result, many people
have a larger estate than they realize.
What is estate planning?
The purpose of estate planning is to efficiently dispose
of a person's property upon death while taking into account
the laws of wills, trusts, probate, taxes, insurance, and
real estate. The basic tools of estate planning are gifts,
wills, and trusts.
Why do I need to plan?
Everyone accumulates property over his or her lifetime.
It is only natural then to decide how to preserve and distribute
your property to succeeding generations. There are also
many other reasons to plan your estate besides property
distribution, such as care of a child or spouse, care of
pets, tax avoidance, probate avoidance, charitable giving,
or disinheritance of an heir.
Why shouldn't I use a will or trust kit?
Filling out a will or trust form
is not estate "planning" because
you will have not considered a multitude of factors that
will affect your heirs and how your property will be distributed.
For example, would you know how your life insurance beneficiaries
will be affected by completing a will or trust? What will
happen to your real estate or retirement plans? Will probate
be required to transfer property to your heirs? A form
document simply cannot accomplish the goals of proper estate
planning.
How do I get my will or trust done?
- Complete the Client Worksheet on this site, and submit it to us.
- Schedule a conference so that we can discuss your particular
needs.
- Review and execute your documents under our direction.
- Complete any follow-up instructions that we provide.
How much does estate planning cost?
The cost of planning is a function
of the scope of the services that you need. Prices may
range from a couple hundred dollars for a simple will,
to several thousand dollars for complex tax planning
trusts. Most people do not need to spend thousands of
dollars to accomplish their goals. We will thoroughly
explain your options, and give you a firm price quote
before work begins. You are in complete control of every
step.
Be wary of cut-rate and non-lawyer
document services. Some of these services promise to
deliver a trust for a small fee. But will they explain
how to fund the trust, and provide the documents to do
so? Does the price include a pour-over will, power of
attorney, health care directive, deeds, memorandum of
trust, trust funding letters, property assignments, and
other ancillary documents that are critical to the overall
plan? How much training and experience do they have? With
us, the planning process will be thorough and complete,
with no hidden costs.
What is a will?
A will is a written instrument
that specifies how property a person's property will be
distributed upon their death, and how their debts may be
paid. A will can also be used to appoint a personal representative,
trustee, or guardian for minor children. In fact, there
is no limit to the number and type of instructions that
may be contained in a will for post-death administration
of your property. A will does not provide any instructions or powers with respect to lifetime management of property.
Is a will better than a trust?
Wills and trusts contain instructions for management and
distribution of property, and they both work very well
to accomplish that goal. However, there are certain advantages
to each type of document. Please click
here for a chart comparing the benefits of wills and
trusts.
How is a will used to distribute my property?
A will is not effective until it
is "admitted" to probate
court proceedings. When a will is admitted by the probate
court, it means that the court accepts the document as
your last will and testament, and appoints a personal representative
to act on behalf of your estate. The personal representative
is empowered by the court to carry out the instructions
in your will. A will is not effective until the court accepts
it, and a personal representative is appointed. In other
words, the personal representative cannot act for you unless
the probate court grants him the authority to do so. This
is the reason that wills MUST be admitted to probate in
order to be effective. Please review our FAQ section on Probate for more information of the court
process.
What happens to my property if I do not have a will?
The Michigan law that govern wills,
trusts, and probate proceedings is called the "The Estates' and Protected Individuals'
Code" ("EPIC"). EPIC contains a series of rules that specify
who will inherit your property if you do not have a will.
The probate court will appoint a personal representative
(or "executor") to act on your behalf to distribute your
property in accordance with the rules defined by EPIC.
However, not all of your property may need to be distributed
through probate proceedings. Please review our discussion
of probate to understand how your assets will be distributed.
What is a trust?
To understand trusts, you first have
to understand a few basic terms. A "grantor" or "settlor" is a person who creates
a trust. A "trustee" is a person appointed by the grantor
to act on the grantor's behalf. A trustee has a fiduciary
responsibility to the grantor, which means they must act
as a prudent person would act in dealing with the property
of another. In other words, the trustee must always act
for the benefit of the grantor rather than himself. The
property over which the trustee has control is called the "corpus".
A "trust" is a contract between a grantor and a trustee
to manage the corpus for the benefit of the grantor or
a third party. The key to understanding trusts is to understand
that they are agreements between the grantor and the trustee
to manage the trust property. There is no limit on the
types of trust that may be created, or the terms that they
may contain. Trusts can be revocable or irrevocable, and
may serve a multitude of purposes. However, the most common
forms can be categorized as "living" trusts and "testamentary" trusts.
What is a "living" trust?
A "living" trust simply means that the grantor created
it to be effective while they are still alive - hence the
term "living" trust. The grantor of a living trust usually
appoints himself or herself as trustee in order to maintain control
of the trust property during his or her lifetime. This is referred
to as a "self-trusteed" trust. Self-trusteed living trusts
are usually revocable and amendable while the grantor is
alive, so that grantor maintains complete control of the assets
in the trust. However, the grantor often appoints a "successor
trustee" to manage the property after he or she dies. The successor trustee can
then take over management of the trust property without
any further transfer of ownership. Again, there is no limit
on the terms and conditions that may be contained in a
living trust. Most people create living trusts to
avoid probate.
What is a "testamentary" trust?
A "testamentary" trust becomes effective
after the grantor dies. In other words, the trustee does
not receive any property to manage for the grantor until
after the grantor's death. For example, let's say that
a grantor wanted his property to be managed for the
benefit of his children after he dies, but only if his
children were under the age of thirty. The grantor could
use a testamentary trust to allow a trustee to manage
property for his children, but no trust would be created
if they were all over the age of thirty. In that case,
the trustee may distribute the grantor's property directly
to the children without management.
What are the benefits of a trust?
Trusts provide a means of effective
property management after the death or incapacity of
the grantor. Trusts serve a multitude of purposes where
the grantor wants to provide ongoing management of property
for a spouse, children, pets, charitable organizations,
or any other person or entity. Living trusts also avoid
probate if they are properly created and "funded".
What does "funding" a trust mean?
"Funding" a trust is act of placing property into the
ownership of the trustee. All trusts must be "funded" at
some point - otherwise the trustee will have no property
to manage and the trust will be worthless. In the case
of a "living" trust, the grantor usually funds the trust.
This means that the grantor changes ownership of the trust property
from himself to the trustee. For example, if the grantor
wanted to place a certain parcel of real estate into the
trust, he would execute a deed to change the ownership
of the property to trustee. The trustee could then manage
the property in accordance with the terms of the trust.
As we have discussed, a testamentary trust is only funded
after the grantor dies. This means that the trustee will
not have any property to manage until the death of the
grantor. Testamentary trust may be funded by a last will
and testament, life insurance, or other sources of property
that are created upon the death of the grantor.
What happens if I do not fund my trust?
Nothing happens, which is the problem. The trustee has
no property to manage, and the terms of the trust cannot
be carried out.
How does a living trust help me avoid probate?
You learned earlier that trusts are
actually agreements between a grantor and a trustee to
manage certain property. In order for a living trust
to avoid probate, it must be "funded".
The act of funding a trust transfers ownership of the trust
property (i.e. "corpus") to the trustee. This transfer
of ownership allows the trustee to manage the property
for the grantor even after the grantor dies. Since the
ownership of trust property has been transferred to a surviving
trustee, probate proceedings are not required for the trustee
to exert management and control of the trust property.
In other words, the trustee already owns the property when
the grantor dies, so he can manage or convey it to another
person in accordance with the terms of the trust. Please
read the FAQ section on probate for a better understanding
of probate proceedings, and the purpose behind them.
What happens if I do not have a will or trust?
The Michigan law that governs wills,
trusts, and probate proceedings is called the "The Estates and Protected Individuals
Code" ("EPIC"). EPIC contains a series of rules that specify
who will inherit your property if you do not have a will
or trust. The probate court will appoint a personal representative
(or "executor") to act on your behalf to distribute your
property in accordance with the rules defined by EPIC.
Is a trust better than a will?
Wills and trusts both contain instructions for management
and distribution of property, and they both work equally
well. However, there are certain advantages to both types
of documents. Please click
here for a chart comparing the benefits of wills and
trusts.
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