ESTATE PLANNING, PART II
|By KRISTIN D. ARNETT|
“Basic” Estate Planning Tools
(This article is the second in a three-part series which relates to estate planning paying special attention to non-marital relationships. Part two will be posted next Friday, May 21. The author, Kristin D. Arnett, is a Lansing attorney specializing in estate planning. She can be reached at KArnett@HubbardLaw.com.)
By using the term “basic” I do not mean to imply that estate planning documents are simple; quite the contrary. Estate planning documents are created as a sort of instructional manual intended to guide others to carry on the administration of an estate that you have spent your life building. We are talking about the administration of your assets at your death, but also during your lifetime if you become incapacitated.
In my last article I posed some important questions: who will carry out your wishes if you are unable to participate in making your own medical and care decisions? Who will be authorized to pay your bills if you become incapacitated or disabled? Who will have custody of your minor children if you die? How will the care of your children be funded? How will your partner be supported when you are no longer able to provide support or have passed away? In this article, I will explain some of the tools used in estate planning and give some insight on how to answer these tough questions. You have probably heard of wills, trusts and power of attorney. But what are they and how will they work for you?
A WILL is a document that is authenticated in a process through the Probate Court following your death. It is the last expression of your wishes and is used by the Court and others to determine your intent regarding the disposition of your assets after your death. It is a written statement that must comply with certain statutory formalities. A will is not only used to direct disposition of your assets, but it can also name a guardian and conservator for minor children or children with special needs. In your will you may name who you would like to serve as your personal representative. The Personal representative is who will administer your estate. A will controls the disposition of assets which you owned prior to your death which are not transferred automatically to some other owner at your death.
If you do not have a will then you have not named a personal representative. In this case, a personal representative will have to be selected to administer your estate. In selecting a personal representative, when one has not been selected in a will, Michigan law states the order of priority as follows: the surviving spouse who is also a devisee, other devisees, surviving spouse, heirs of the decedent, nominee of a creditor (with court approval), or the state or county public administrator. A domestic partner is not mentioned anywhere in the statute. The only way a domestic partner would have authority to serve as personal representative is by being named in your will. A person named in a will has priority over all others. Having a will in which you name your partner as personal representative may prevent a legal contest between your surviving partner and your family over who is best suited to serve in this role.
One important function of the will, as mentioned above, is the naming of a guardian and conservator for any minor children. In a married context, the surviving parent will usually continue to raise the child. However, Michigan does not recognize second-parent adoption for unmarried couples. Consequently, one of the partners will not be considered a parent or legal guardian of the minor child. Michigan law gives the Court authority to appoint a guardian for the minor if (i) the minor’s biological parents have never been married to one another; (ii) the minor’s parent who has custody of the minor dies; and (iii) a relative of the minor petitions the court to be the guardian. Therefore, if the partner who is the legal guardian of the child does not properly name a guardian in his or her will, the surviving partner could find himself or herself in a legal battle with the deceased partner’s family over who should get custody of the minor. For some same-sex couples this may result in your partner being excluded from the parenting of your minor child.
A TRUST is more complex than a will, but unlike a will it offers flexibility, longevity, and privacy from the probate process. If a Trust is created and properly funded, then the probate process is not needed to dispose of your assets; instead the terms of the trust are carried out by the trustee. A trust can continue for however long it is needed, such as when it is providing for minor children or the lifetime care of a special needs child. A trust is established by the Grantor(s) (a/k/a “Settlors) who frequently also act as the initial Trustee(s) who carry out the terms of the trust. The trust also specifies who shall become the successor trustee after the original trustee(s) becomes disabled or dies. The trust can specify who is to receive the assets of the trust and when that should occur. In many cases the trust gives the trustee some discretion so decisions can be made based on the circumstances at the time rather than requiring all decisions to be made in advance.
Many people think that if they do not have a large estate then they do not need a trust. Not so, while a trust is often of great use with large estates, it may be even more important in more modest estates because it reduces the costs of administration, avoids many legal contests and allows the Trustee to carry out your intentions with some discretion as to how to best do so. For these reasons, a trust can also preserve assets for you and provide care and assistance to you while you are living.
One example of a useful trust is a Discretionary Trust. A Discretionary Trust is a grantor trust which specifies the beneficiary but vests discretion in someone else acting as trustee to decide if, when, and how much, income or principal of the trust is to be either granted to the beneficiary or applied for the benefit of the beneficiary. It treats the trust fund as a spendthrift trust so that neither the beneficiary nor the beneficiary’s creditors may anticipate the funds. The trust provides that the remainder of the trust after the death of the beneficiary goes to someone or something other than the beneficiary’s estate.
A POWER OF ATTORNEY is a document in which an individual gives someone else the authority to act on his or her behalf, even after the agent becomes incapacitated. There are two types of a Power of Attorney, a Durable Power of Attorney and a Medical Power of Attorney.
In a Durable Power of Attorney, you can select an agent to act on your behalf. The authorization that you grant to your agent can be broad or it can be limited to a particular event. You control how much authority you give to your agent. Prior to December 19, 1990, both general powers and patient advocate powers could be recited in one document. Since that time, the law requires that a grant of general powers and a grant of patient advocate powers be stated in separate documents (the durable power of attorney and medical power of attorney).
Like a Durable Power of Attorney, a Medical Power of Attorney allows you to appoint someone to make health care and end of life decisions when you are not able to participate in making such decisions. The person in this case is referred to as the Patient Advocate. A Patient Advocate, with such authority granted, also has the authority to make an anatomical gift on behalf of the principal. Without a health care power of attorney designating your partner as your patient advocate, he or she may be denied access to you as well as information concerning your condition, potential treatments and prognosis if you are hospitalized. It is rare that anyone other than a Spouse will be allowed to make medical or end of life decisions for you without specific legal authority to do so. Even a Spouse may be challenged if there are other adult immediate family representatives since neither Doctors nor Hospitals want to run the risk of being sued, particularly where the decision may be to not treat.
There is no automatic right to act as agent or patient advocate for either a partner or a spouse. So, in that context, a non-marital partner and a spouse are on equal terms. However by custom, many times a spouse is deferred to if there is no active challenge. That is not true in an un-married couple context.
(The information above is meant to illustrate aspects of estate planning and is for informational purposes only. It is not meant to be construed as legal advice. Prior to taking action, you should consult directly with an attorney for specific advice based upon full disclosure of your own legal situation. The above information shall not be reproduced without specific authority obtained from the author of this article. 2010 Kristin D. Arnett)