Planning for where your property goes after death...
The three “vehicles” that will get your assets were you want them to go after you die.
There are three generally accepted ways to get your assets to the right place after you have died. Please forgive me for talking about death so insignificantly, but it is something that we will all have to face. If you’ve worked your entire lifetime, I think you should take control of where you want your property to end up when you are gone. The three ways listed here can be used exclusively, or what usually works best, is a combination of all. All of these three “vehicles” come with advantages and disadvantages. What works best for you is what you need to decide.
There is an advantage in using a “last will and testament” as your primary estate planning tool.
I will go on record and say that a “will” is a great way to plan for your assets after you have died. The biggest advantage a will has over “trust-based planning” is flexibility and it is really inexpensive to draft a will. Plus, unless your situation changes dramatically, wills do not require the upkeep or maintenance of a trust. There is far less that can go wrong with will-based planning than what the trust. That being said, prudent estate planning would require that you review your will periodically and make adjustments as necessary. With a will, you can inexpensively direct where your property should end up and who is charged with carrying out your wishes upon your death (called the personal representative in Michigan).
The biggest disadvantage, or what is seen as the biggest disadvantage, is that wills usually have to go through the probate process. A lot of people are under the impression that once a will is made, everything is all set. That’s just not right. The advantage of having a will versus not having a will is that a will maker can dictate exactly where property is to end up upon death. Otherwise, if someone dies without a will, the state of Michigan directs where property ends up and it may not be what the person would have wanted.
I don’t think that probate court is anything to be “feared.” In a lot of situations, a person can save a lot of money with will-based planning instead of trust-based planning, even considering the probate process.
If you absolutely want to avoid probate court for any reason, then a trust may be for you.
The biggest advantage of a trust is its ability to avoid the probate court process. If someone absolutely wants to avoid the probate court process, for whatever reason, in that instance a trust is recommended by this office. There is nothing “scary” about probate court and it is definitely not expensive, but it can be avoided with the trust.
In my judgment, there are three main reasons to have a trust: You have a “blended” family and both husband and wife are interested in making sure their children do not get “shut out” depending on who dies first, or you have a child with special needs, or you want to “control” your property well past the date of your death. A trust will do all of these things for you, and more. In addition, a trust also has an advantage in managing your property if you become disabled. (A will can work just as well if that is your primary estate planning tool together with a financial power of attorney). There is more privacy with the trust. A trust does not need to be filed with the probate court, and in most instances, the public will never know exactly what you owned or where you wanted it to go.
The biggest disadvantage of a trust is the required maintenance. Think of a trust as a car that needs pretty regular maintenance to work well. A trust has to be funded fully and properly and stay fully and properly funded to work well. There is a lot more work and expense during your lifetime with a trust. In my judgment, trust-based planning is also going to be more expensive overall, and especially during your lifetime, than will-based planning. A lot of people are pushed toward “trust-based planning” because, frankly, it makes a lot more money for the preparer of the trust. You need to be careful about these “trust sellers” and make sure a trust will really serve your needs best. Trusts are excellent vehicles, but they aren’t needed by everyone.
Depending on the type of asset, you may be able to name a beneficiary, but generally adding a name to the deed to your home is a bad idea.
I think that in most circumstances naming beneficiaries on “intangible assets” such as bank accounts, investment accounts, life insurances, and other assets of this type is a great idea. This is not specific legal advice for anyone reading this paragraph and I do not encourage you to do that without talking to someone first. However, naming a beneficiary on these types of assets is generally “trump.” The beneficiary designation eliminates the need for a “will” or “trust” to pass the asset upon your death. There is absolutely no less expensive or more direct way to get these assets where you want them to go upon your death. A combination of naming beneficiaries and using a will can be a very good way to plan your estate.
The disadvantage is that beneficiaries can only really be named on certain types of assets and you cannot use this type of planning for your real estate (although a Lady Bird deed mimics the process pretty closely). I do not recommend adding names to your vehicles due to liability concerns. I do not recommend adding names to the deed to your home for various reasons. One reason you do not want to add another name to your deed your home is that you lose control of your ability to sell or mortgage your home. If you deed your property to another, even if you deed the home back to yourself in someone else, your home cannot be considered legally “all yours” anymore. If you want to refinance your home or sell your home but another name is on your deed, you will not be able to get that done unless the other person signs off. Under certain circumstances, your home can become exposed to the claims of creditors if the other people on your deed have money problems because of a divorce, health issue, or job loss. The bottom line is that this form of estate planning should be used for certain types of assets only and not as a primary or exclusive way of passing your assets.
There is one thing that you absolutely do not want to do if you want to preserve family peace and fairness.
The number one bad idea that I have seen, and that has caused more family problems, is the idea that: “I will leave everything to this child (or put everything in this child’s name) because I know I can trust him and I know he will get it distributed fairly.” This just does not work in the real world. There are way too many outside influences and too many things can go wrong here. There is also the tax burden that may fall upon this one child. The worst thing that can go wrong is the child claiming “all the property is mine because mom and dad wanted me to have it and the proof is that my name is on the property.” This idea does not make things simple and does not solve problems but instead, creates problems and creates a lot of legal work. We all would like to believe that our children are completely trustworthy and will do exactly what is right. But when you are gone, a lot of unresolved family issues seem to crop up as well as justifications as to why property does not need to be shared. This is not the way to preserve family peace and relationships.