What is a Trust?
A simple definition of a Trust is one party (the Trustee) holding assets which belong to another party (the Grantor) for the benefit of another party (the Beneficiary). In the standard Revocable Living Trust usually at the establishment of the Trust, one party may be all three, the Grantor, Trustee, and Beneficiary. While the Grantor is alive, the Grantor has complete control and acts as Trustee, and the Grantor is also the Beneficiary.
Upon the death of the Grantor, a Successor Trustee takes over and administers the Trust for the benefit of the Beneficiaries. The Trust sets forth the terms of the distribution of your assets.
Are there different types of Trusts?
There are several different Trusts that are used for different situations. Some of the Trusts are:
- Revocable Living Trust:
A Trust established by you during your lifetime which may have assets transferred to the Trust during your lifetime or at death. The Trust is in your complete control and may be amended or revoked as long as you are competent. This Trust distributes the assets in the Trust at your death without the Probate Court being involved.
- Joint Revocable Living Trust:
The Joint Revocable Living Trust is the same as the Revocable Living Trust except it is a Living Trust for a married couple. Separate trusts are not necessary for each spouse. Usually, the surviving spouse may amend or revoke the Trust after the death of the first spouse.
- Irrevocable Trust:
The Trust that is irrevocable once it is signed. This Trust is used to transfer assets so the assets are not countable when a Medicaid application is prepared and filed. This Trust must be funded at least five years before a Medicaid application is filed with the State of Michigan.
- Discretionary Trust:
A Discretionary Trust is prepared for a beneficiary who has special needs and may be receiving “needs based benefits”, or may be entitled to “needs-based benefits” in the future. If the beneficiary receives your assets without the Discretionary Trust, the beneficiary will lose the needs-based benefits. A Discretionary Trust allows you to set aside assets for the beneficiary without the beneficiary losing the needs-based benefits.
- Testamentary Trust:
A Testamentary Trust is a Trust established within a Will. This Trust is funded with the assets of a beneficiary who is a beneficiary under a Will and who has not attained the age you have selected for them to receive the assets. This Trust also has a special use in Medicaid Planning.
- Child/Grandchild Trust
This Trust may be in a Living Trust or Will. The purpose of this Trust is to provide management and control over the assets of a beneficiary until they attain the age you select. This Trust allows time for the beneficiary to gain maturity and experience in handling financial matters.
What does a Will or Revocable Living Trust do for you?
A Will or a Revocable Living Trust allows you to do the following:
1) You name who will act as the Personal Representatives or Trustees, and their responsibilities are to administer the Will or Revocable Living Trust. Their duties are primarily financial tasks.
2) You are able to have your own distribution plan at the time of your death. You answer the three “Ws”: Who receives What and When do they receive it. Without a Will or Revocable Living Trust, the State of Michigan has given you a distribution plan for your assets at death, and this distribution plan is set forth in the intestate laws of the State of Michigan.
What are the advantages to having a Revocable Living Trust over a Will?
The major advantage of having a Revocable Living Trust over a Will is that assets in a Trust avoid the Probate Court supervision. Avoiding this Probate Process will lower the costs of distribution of your assets at the time of your death.
The Revocable Living Trust is private. There is no public record of the Revocable Living Trust and the assets held by the Revocable Living Trust. When a Will is probated, the Probate Court’s records are public with all of the assets and who received the assets is part of that public record.
The Revocable Living Trust provides for management of your assets during your lifetime. If at some time you are unable, or unwilling, to continue management of your assets, the Successor Trustee you have selected can take over the management of the assets.
There is a situation when you should give serious consideration to a Trust. If you own real estate in two or more states, the real estate must be probated in the state in which it is located. For example: If you own real estate in Florida and Michigan, you will have a Probate Estate in each state. A Revocable Living Trust avoids both Probate Processes.
What does funding a Revocable Living Trust mean?
Funding the Revocable Living Trust means changing the ownership or the beneficiary designations to insure your assets are in your Revocable Living Trust at your death. This is very important to complete. We at Wieber Green, PC, can prepare the very best Trust for you, but if it is not properly funded, the Probate Process may be needed to transfer the assets to the Revocable Living Trust.
Here are some funding tips:
- Bank Accounts:
The best plan is to name the Revocable Living Trust as the Primary Beneficiary. This does not require a new account to be opened by you, and it will avoid all the problems and inconveniences encountered with having to open a new account.
- Stock – Broker Accounts:
Name the Revocable Living Trust as the Primary Beneficiary.
- Life Insurance:
If you are married, your spouse will be named as the Primary Beneficiary, and the Revocable Living Trust will be named as the Contingent Beneficiary.
- Deferred Income Accounts (Such as Annuities, IRA, 401k, 403b):
Do Not name the Revocable Living Trust as the owner. If you are married, your spouse should be named as Primary Beneficiary. You should consult with your Financial Advisor regarding the naming of the Beneficiary for these assets. There can be unexpected tax consequences that need to be considered. There are several options to discuss regarding the beneficiaries for these assets, including a special Trust to help defer the payout over the life expectancy of the beneficiary.
- Real Estate:
Real Estate is generally deeded to the Revocable Living Trust at the time the Revocable Living Trust is drafted. Any real estate acquired after the Revocable Living Trust is drafted should have a deed prepared and recorded titling the real estate in the Revocable Living Trust.
- Motor Vehicles:
- Do not title motor vehicles in the name of the Revocable Living Trust for liability reasons. There is a special process to transfer motor vehicles at the time of death without the Probate Process.
NOTE: This is intended to be general information, and it may not be appropriate for your specific needs. You may wish to consult with us regarding your specific situation before you name any beneficiaries.
Do you think you are too young for a Will or Revocable Living Trust?
You are young and you have young children; why do you need a Will or a Revocable Living Trust? A Will and a Revocable Living Trust are legal document which essentially allow you to do two things. First, you name who takes over for you in performing certain tasks upon your death. You appoint who will be in charge of financial matters. This person is called a Personal Representative or a Trustee. You may also name the Guardian for your minor children. The Guardian will make all the decisions regarding the day-to-day care, medical and educational decisions for your minor children.
Second, you may control the child’s inheritance past age 18. Under Michigan Law, a child becomes an adult at age 18, and the child is entitled to the inheritance in full. You may establish a Trust within your Will or Living Trust to control the assets until an age you select. The Trust terms give the Trustee you have appointed directions regarding the distribution of funds before the selected age. The Trustee may usually be authorized to distribute funds for care, support, health and education of the child.
Without a Will, the Probate Court selects the Guardian and Conservator for your children based upon Petitions filed by your family, and at age 18 your children will be entitled to their shares in full.
Do you need to be wealthy to have a Revocable Living Trust?
You do not need to be wealthy to have a Revocable Living Trust. A simple way to estimate the costs of having the Probate Court distribute your assets is to multiply the assets subject to Probate by 3%. The costs to administer the Revocable Living Trust are much less, usually below 1%. This cost savings at death, in most cases, will offset many times over the extra cost of having a Revocable Living Trust prepared rather than a Will.
Also, the administration of the Revocable Living Trust is generally easier and less hassle than the administration of a Will. So, it is easier for the person taking over after you die.
Why do your assets avoid Probate when you have a Revocable Living Trust?
At your death, two types of assets must be subject to the Probate Process. They are:
- Assets that are not joint with a living joint owner.
- Assets that do not have a living beneficiary.
A Revocable Living Trust does not die when the person establishing the Revocable Living Trust dies. Properly funding the Revocable Living Trust will allow the Successor Trustee to gain control over all the assets without the Probate Process being involved. (See the What is Meant By Funding the Trust question and answer).
Should you use beneficiary designations to distribute your assets?
Naming beneficiaries on an asset is generally very easy and has no cost. There are two major disadvantages to naming the beneficiaries as the direct beneficiaries.
First, you should ask what happens if the beneficiary dies before you. Does it pass to the children of the deceased beneficiary? Or, does the share pass to the other named beneficiaries?
Second, if the share does pass to the children of the deceased beneficiary, are the children mature enough to manage the assets? If you have a Trust for those children in your Revocable Living Trust, the asset does not ever become subject to the Trust because you have named the beneficiaries as the direct recipient of the asset.
Now, if the Revocable Living Trust is the beneficiary, you do not have these two problems.
What is Trust Administration?
An Administration of a Trust is to complete the process that ultimately results in your assets being distributed under the terms of the Trust. The Michigan Trust Code, which became effective in 2010, sets forth the steps to properly administer a Trust. If the steps are followed, the liability of the Trustee can be greatly reduced. The proper administration of a Trust is not a do-it-yourself task. One of the advantages of a Trust over a Will is to lower costs at your death. The legal fee to administer a Trust is usually considerably less than to administer a Will.
Some of the duties of the Trustee include:
- Determining what assets are in the Trust.
- Determining the debts of the deceased and which debts will be paid.
- Protect and care for the assets during the time of the Trust Administration.
- Determine if there is sufficient insurance on the assets and if not, acquire sufficient insurance.
- Sell assets that need to be sold.
- File all income taxes that are due.
- Distribute the assets to the beneficiaries who are entitled to the assets.
John E. Wieber administered his first Trust in 1973 when he worked with the Trust Department at a Lansing Bank. He has administered or provided legal counsel to the Trustees for hundreds of Trusts since that time and has dealt with numerous difficult situations.
If there are problems with the administration of a Trust and litigation is necessary, Wieber Green, PC, has the experience to help resolve the problem.
What should you expect at your first meeting regarding your Revocable Living Trust or a Will?
First, there is no fee for the first meeting for new clients who come in to discuss their Wills and/or Revocable Living Trusts.
At the meeting, we will discuss your present situation and what hopes and plans you have regarding your family and your estate plan. Some of the matters that will be discussed are:
- Do you have any charitable amounts to be given?
- Do you have a specific dollar amount to be given to an individual?
- Who will receive your tangible personal property?
- Who will receive the remainder of your assets and in what proportion?
- Are any of the beneficiaries or contingent beneficiaries too young to manage their shares? If so, you may establish a Trust that continues after your death to manage the assets until the beneficiary attains the age you select.
- Who will handle the financial matters when you cannot do so? The financial positions include the Trustee of the Living Trust, the Personal Representative in the Will, and the Agent named in the Financial Power of Attorney. Who will be the backup?
- Who will be named in the Medical Power of Attorney to make medical decisions for you when you are unable to do so? Who will be the backup?
- Who will be named as Guardian for your minor children? Who will be the backup?
- Is a Trust needed to protect assets for a beneficiary who is unable to manage money, receiving “needs-based benefits” or has financial problems?
Additional matters may be discussed depending upon your situation and your wishes and plans.
Why should you avoid internet Do-It-Yourself Wills (or other legal documents)?
The documents offered over the Internet are not provided by an attorney. If you read the disclaimers, you will see they disclaim all responsibility or liability. In the video for one of the most well-known of these do-it-yourself Wills, it states that 80% of people will fill in the blanks incorrectly attempting to create the legal documents. These web sites will try to give you a false sense of security. The documents are “cookie cutter” guides to fit the general situations, with no special provisions for your individual situation.
Please read the “What You Should Expect at the First Meeting Regarding a Will or Trust” section to understand what Wieber Green, PC, will do for you.
There is an old saying about a person who tried to write his/her own Will: “That person, who saves the expense of an attorney at the time the Will is drawn, often will create work for at least two attorneys when he/she dies.”
We at Wieber Green, PC, provide personalized service with documents tailored for your specific situation. We are also available to answer questions and help with problems, and we are here to help the family in the event of your incapacity or death.