September 13, 2018

Wills & Trusts

Wills & Trusts | Estate Planning

What Exactly Is A Will?

A Will is a written document that explains how a person’s property should be disposed of after death. In today’s modern world, individual assets or properties are complex: insurance policies, profit sharing programs, and pension plans are just a few examples of property an individual might own.

A Will is a legal declaration of a person’s intention concerning what shall be done following one’s death as to the disposition of the property and the administration of the estate. Three characteristics of Will set it apart from other forms of property transfer. First of all, a Will is revocable during life -you can change your mind half a dozen or more times. Secondly, a Will is inoperative until death -that is, its provisions don’t take effect until that time. And finally, it applies to the situation that exists at death -as to the extent of your property holdings and beneficiaries.

A Brief History on the Statute of Wills

Will: An early ENGLISH LAW providing that all individuals who owned land were permitted to leave or devise two-thirds of their property to anyone by written will and testament, effective upon their death.

The Statute of Wills (32 Hen. 8, c. 1 – enacted in 1540) was an Act of the Parliament of England. It made it possible for the first time in English history for landholders to determine who would inherit their land upon their death by permitting bequest by will. Prior to the enactment of this ancient statute, land could be passed by descent only if and when the landholder had competent living relatives who survived him and this was subject to the harsh rules of primogeniture. When a landholder died without having any living relatives, his land would “escheat” to the Crown. The statute was something of a political compromise between Henry VIII and English landowners who were growing increasingly frustrated with primogeniture and the royal control of land.

The Statute of Wills created a number of requirements for the form of a will many of which, as of 2010, survive in common law jurisdictions such as The United States and, for the purposes of this statement, Michigan inclusively as well. Specifically, most jurisdictions still require that a will must be in writing, signed by the testator (the person making the will), and witnessed by at least two other persons. The testator (a woman was called “testatrix”) needs to know the object of the bounty being given and to whom it is being given. The testator has to be of sound mind when he or she makes the will, and not under duress, threat or coercion. Presently there is no term “Testator” or “testatrix” as both sexes are so in referred to as “Representatives.”

If a person fails to make a valid will and has no legal traceable heirs, the money, property and other possessions will go to the State. If a person fails to make a will, or if there is a defect in the will that makes it legally not possible to follow the stated wishes so contained, the bounty will pass by intestate succession to legally entitled individuals predicated on the level closest to the deceased.


Who Needs a Will?

Any state resident 18 years of age or older of sound mind should have a Will. If you own a car, have interest in a home, keep cash in a savings or checking account, own furniture or have any possessions whatsoever, you probably need a Will. In fact, people with small estates often need a plan to provide for their loved ones after death even more than people with greater holdings. Generally this is true because the financial needs of such families are greater.

It is important that everyone has a valid Will, whether a man or a woman, married or unmarried, of significant wealth or modest means. Husbands and wives who hold property jointly should be aware that it is imperative that each should have a valid Will.

What are the Advantages of Having a Will?

    • It permits you to determine to whom, how and when your property will be distributed. It permits you to decide who will be the guardian of your children.
    • It permits you to decide who will manage your estate by appointing a personal representative.
    • It can help you reduce estate administration costs.
    • It can help you save costly estate and income taxes.
    • It can help you make charitable gifts to those organizations you would like to support.

With a Will, you can provide for the special financial security of a dependent, or a disabled child. Trusts contained in the Will afford considerable flexibility; where minor children are involved, cumbersome and costly guardianship proceeds may be avoided.

As one commentator stated: “The man with Will can determine not only who his beneficiaries will be but how and when they will receive this inheritance.” The Will, in effect, can be custom made to fit the requirements of the individual beneficiaries.

With a Will, you should also remember those who the Will omits. In most states, if you die survived by a wife and children your property will be divided among them; others, such as surviving brothers and sisters receive nothing. By means of appropriate clauses in your Will you can make provision for an aging parent, a favorite niece or nephew, or a loyal employee. Deserving charities need not be forgotten.

With a Will, you can take a full advantage of the substantial savings afforded by the marital deduction and additional Federal Estate Tax savings by creating trusts. You can also assure an equitable distribution of the death tax burden by setting forth specific directions for the payment of these obligations.

What Happens If I Don’t Have a Will?

If you don’t have a Will, each of the fifty states have a written an all-purpose “blanket” Will for you.

This type of Will, based on each state’s respective laws, is drawn up for the average person and is quite rigid and inflexible. The state’s laws may in fact be quite different from your particular wishes.

If you die intestate, it simply means that you have left no valid Will governing the disposition of your assets after death. But this statement isn’t precisely correct because if you didn’t execute a Will, the state you’ve called home may be able create the Will that you neglected to make depending on its law.

The following are a few examples of the kinds of problems that can result from not having a Will:

A husband, who had always intended on having a Will drawn up, died without one. He wanted his wife to have the bulk of his estate so she could take care of herself and their two children.

Unfortunately, the laws of that state permitted his wife to receive no more than one-third of his estate with the balance of his property going to their children. Consider the case of a man who did not write a Will whose widow had to ask the court to appoint her as legal guardian for her own daughter. Every year, she had to file detailed reports and even get approval from the court for certain expenditures for her daughter.

There also have been cases of unknown, undeserving relatives legally asking for, and receiving, part of a person’s estate.

Without a Will or by way of an accompanying “Testamentary Trust, the courts sometimes have determined that surviving children should live with their closest blood relative rather than with those whom the parents would have designated as guardians.

Not having a valid Will then may cause many additional and burdensome problems that could have been avoided.

What is the Law of Intestacy?

If you die without leaving a Will, you die “intestate.” Each state has a formula for distributing property when there is no Will. In Michigan, the law of Intestacy states that if you die without leaving a will, a Family Division Circuit Court appoints an administrator for your estate. Your family may submit its personal choice for the administrator but the final decision on this ultimately rests with the court.

This law also sets the guidelines for the distribution of property. For example, when the family of the deceased includes a spouse and more than one child, the spouse usually receives one-third of the property and two-thirds goes to the children. If there is a spouse and one child, the property is divided 50-50. This procedure can have its limitations in certain cases. For instance, a widow who has two married adult children and she may need more than one-third of the estate to live in her normal standard of comfort. If a Will doesn’t point this out then establishment rules are followed.

If you rely on the Law of Intestacy, a court appointed administrator does not have the same legal powers as does ( a personally named administrator (named Representative). By relying on the law of Intestacy, it will no doubt take more time – and therefore cost more to distribute your property.

The court appointed administer must be governed by the narrow confines of statutory provisions. With an executor in the picture considerably more flexibility can be obtained by your granting of elastic and discretionary powers -authority to deal with circumstances unique to your estate. On the other hand, the administrator cannot act with any similar degree of freedom; his or her authority is limited by law. He or she must secure the consent of the court far more often than the personal representative to whom specific powers have been specifically given and who can as a result act more promptly, economically and efficiently.

The key drawback of the fixed statutory plan for distributing property under the laws of intestacy is that such a division makes no allowances for the differing circumstances and the needs of the individual members of your family.

Does Joint Ownership Eliminate the Need for a Will?

No. Joint ownership, or joint tenancy, means two persons own property together; if one dies, the property normally goes to the other person. But suppose the deceased had wanted the property divided differently. If no Will was left, then those wishes may not be carried out.

What Happens to My Financial Assets When I Die?

If you leave a valid Will, your assets are distributed according to your wishes. By leaving a Will, you are exercising your right to determine who should or should not receive your property. If you leave no Will, the court uses a formula set forth in the Law of Intestacy.

What is a Testamentary Trust in a Will?

Within a Will, you can leave property in trust for a wide variety of purposes, such as: to provide a specific standard of living for your family; to provide a life income for your spouse, child, or other relative; to educate a minor child; to take care of unexpected future financial emergencies; to give a child his/her inheritance in installments; to provide for a favorite charity; these reasons among many more.

The establishment of a trust in a Will can also reduce, and sometimes eliminate, costly estate taxes.

What is the Role of Estate Administration?

The basic purposes of estate administration are to collect the decedent’s assets, pay all lawful claims and distribute the balance to the beneficiaries. To illustrate, the Representatives must assemble and examine decedent’s records to learn the nature and whereabouts of all assets and facts regarding liabilities; obtain inventories and the value all real estate, household and personal effects and other assets for tax purposes; to set up and maintain books and records to reflect all security and cash transactions; to investigate all claims to determine their validity; to arrange for necessary accounting; analyze and evaluate business interests or stocks of closely-held corporations; and, to file returns and pay federal and state death tax promptly to avoid penalties. The information above is just a small sampling of an estate Representative‚Äôs many jobs. Without a Will these important responsibilities may well fall upon an individual who is ill-equipped to deal with them. But a key advantage of a Will is in appointing a qualified Representative who can initiate smooth and efficient estate administration.

Do I Need to Name a Personal Representative in My Will?

Another factor calling for revision in a Will is the situation where the Representative named can no longer serve with the efficiency originally expected either due to illness or disability or for some other reason. Or, perhaps the named fiduciary has died, calling for the appointment of another Representative. All too often a good deal of care is given to all provisions of a Will except one of the most important -naming a Personal Representative. As we have seen, the duties of the Representative are generally far more detailed and complicated than generally realized. Inexperience in matters of estate settlement and distribution may lead to errors of judgment, which can be costly to your beneficiaries.

Why is it Important to Have a Periodic Review of My Will?

Many individuals have taken that all important first step: they have an executed Will. But some are under the mistaken impression that a Will is forever, that it can be filed and forgotten. However this is far from the truth. Changing circumstances necessitate a re-evaluation of the Will’s provisions and perhaps a possible revision in line with your present objectives.

As noted earlier, a Will is revocable during your lifetime. You can change your mind by executing a codicil or a writing an entirely new Will. Revision and updating may also be a good idea in a number of circumstances. For example:

    • There may have been substantial changes in value of your assets. There may have been deaths, births or marriages which affect the Will’s provisions.
    • The laws among the states vary. If you become a resident of a State different from that in which the Will was drawn, a review is a good idea.
    • You may have embarked upon a new business venture. Here, again, a review is recommended.
    • Changes in federal or state tax law may materially affect the value of the Will’s dispositive provisions or the plan of distribution.

What Information Do I Need to Prepare for the Creation of My Will?

    • To whom, how, and when your property should be distributed.
    • Selection of your Personal Representative – the person who will direct and manage the settlement of your estate.
    • Who you want to be the guardian of your children, subject of course to your spouse’s rights.
    • Whether you want an individual, bank or trust company to manage and invest your estate.
    • Whether you want a trust established for your spouse, children or others.

What is a Trust?

A trust is a way of “avoiding probate” (having a forum for disputes) because whatever is inside the trust has already been disposed of and usually there is new ownership other than the one who disposed of it. Normally, like a corporation, it is a taxable entity, but not always. Generally there are two basic types of trusts: the Testamentary Trust that begins when the individual dies, and the Intervivos Trust that can be made and activated anytime. There are generally two types of Intervivos Trusts: the revocable and the non-revocable and they are distinctively different in terms of control and especially taxation. This last type generally is not spoken of in terms of in association with the Last Will and Testament.

What is a Living Will?

The term “Living Will” is a misnomer…it is not a Will at all!

In fact, in the landscape of all laws, Wills and Living Wills are on opposite ends. A Living Will is actually a fiduciary document and as such it is subject to the law of agency. A Will becomes viable when a person dies and a Living Will ends when a person dies just as an agency relationship does. A Living Will is actually a “durable power of attorney.” It is an extremely important document but should not be confused with what a Will is.

Most people have an understanding of what is a power of attorney. It involves one person or entity giving another the power to do or not do something such as house sitting while on vacation, selling the other’s car, or the like. The piece of paper that one is often called upon to sign at the hospital before an operation is usually considered as their momentary intention of what to ‘do just in case.’ It is usually not notarized and, in the stress of the moment before surgery, it may not be given the full weight of one’s intentions. The person, people or entity receiving the power of attorney are “the attorney-in-fact” of the one granting the power to act in his or her place. A Durable Power of Attorney is considerably stronger as it is made with full deliberation of thought beforehand, most often has an acceptance of the one receiving it in writing beforehand and has a durable and lasting effect. In most cases, if later so chosen to be nullified, it must be specifically revoked by the one who granted the power except, of course, if the power is extinguished by the person’s death.

A Durable Power of Attorney should be written at the time of the drafting of the Will. It covers not only the normal power of attorney matters of who has the right to do your banking, pay your bills, etc., but also covers your wishes as to what should happen if your brain, not just your health in general, ceases to function with no chance of recovery and yet you are legally still kept alive. Here a Patient Advocate can be appointed by you in advance, which grant to one or more designated people, the say as to what will be withheld so as to allow you to die with dignity according to the wishes that you specified while you were cognizant. This document needs more than two witnesses and, unlike a Will, it needs to be notarized.

If you would like to schedule an appointment for the purposes of writing a Will, a Living Will (durable power of attorney), or having a testamentary trust included for the safety of your minor children, please give us a call today at 517-234-0528.

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