A will is a formal and legally enforceable document that provides a set of instructions to the Probate Court regarding what you want done with your property after you pass away. It is also used to appoint the person(s) you have selected to see that your instructions are put into effect. If you have minor children, you can use your will to name a guardian for them. You can also use your will to control when your children will receive their inheritance. Without a will, your children will have full access to anything you leave to them the moment they turn eighteen. Is that a good idea for your children? A will can allow you to postpone when they receive their share to a later age of your choosing. A will also permits you to distribute assets differently among your heirs, and even disinherit some of them. If you die without a will, all your heirs in the same class (e.g., your children) will receive the same amount.
While a will is an important part of your estate plan, it has some important shortcomings. First, a will only takes effect after you pass away. If you are incapacitated due to an injury or illness, but still alive, your will does you no good. Another shortcoming of a will is that it only covers property in your “probate estate.” These are generally assets held in your sole name. Some assets pass outside of probate (such as by a beneficiary designation, or through a right of survivorship). These will not be covered by your will. Another important shortcoming of a will is that it is a public document. Anyone can go down and pull the probate court file and read your will. If your privacy is important to you, this can be an uncomfortable prospect.
It’s important to remember that the state has essentially written a will for you – the intestacy statute. This statute provides a set of “default” rules that govern what happens if you do not have a will. Do you know if the statute will do what you want done with your assets? Is it wise to just assume that this “once size fits all” statute will do what you would have done with what you worked all your life to build?
A trust is an agreement between you and a “trustee” to hold property for the purposes expressed in the trust document. Trusts come in many different forms and types. An exhaustive list of these is beyond the scope of this articles. However, a trust can be a very flexible tool that overcomes some of the shortcomings of a will. First, it can be used to manage your assets both if you become incapacitated, as well as after you pass away. A will only deals with the latter of these situations. Second, unlike a will, a trust is not a public document. A trust does not need to be filed with the probate court or ruled on by a judge. You maintain your privacy with a trust, unlike a will. A good way to think of a trust is to imagine that it is like a company that you set up while alive and to which you transfer certain assets. While you are alive, you are the “president” (trustee) of this “company,” and you make all the decisions regarding the company’s (the trust’s) assets. Should you become incapacitated or die, a new trustee steps in and manages the “company’s” assets. There is no need to retitle assets due to your death or incapacity (retitling assets is essentially what the probate process is for). Since the court need not be involved with the trust, you save probate court fees and related expenses. However, the court is always there as a backup should your trustee need its assistance. If the trust is fully revocable, then while you are alive there is no need to file a separate tax return for it. Furthermore, you can amend it as you wish during your lifetime to account for changing circumstances, or even revoke it entirely. The trust is a wonderfully flexible tool to deal with a multitude of circumstances.
Durable Power of Attorney for Finances:
A power of attorney is a document by which you (as the “principal”) appoint someone to act on your behalf. The power you grant to your “agent” or “attorney-in-fact” (the person you appoint to act for you) can be either broad (“anything I can do myself”) or very narrow (“the power to sign documents for the closing on the sale of 123 Main St., Ann Arbor, Michigan”). Under a regular power of attorney, an agent’s ability to act for the principal will terminate when the principal becomes incapacitated or dies. What makes a durable power of attorney different is that the agent’s power is unaffected by the principal’s incapacity. Therefore, your agent can continue to handle your assets should you lose the ability to do so. However, your agent’s power will always end when you die. If you have property that needs to be managed during incapacity, and you do not have that property in a trust or you have not appointed an agent under a durable power of attorney, then your loved ones might need to go to court to have a conservator appointed. This can be expensive and time consuming. It is also typically a public proceeding. Even of you have a trust, there might be assets that you decide to not put in your trust. To manage these assets that are not in your trust if you become incapacitated, your agent will need a durable power of attorney. Once you become incapacitated though, it’s too late to appoint an agent. Do it before the need arises.
Durable Power of Attorney for Health Care:
Similar to a durable power of attorney for finances, a durable power of attorney for health care (also called a “patient advocate designation”) allows you to appoint another person to speak on your behalf regarding health care decisions when you are unable to do so. The person you appoint is your “agent” or “patient advocate” under the durable power of attorney for health care.
You might have heard the term “living will.” A living will is a written document detailing your desires regarding your medical treatment in circumstances in which you are no longer able to express informed consent. Michigan takes the approach that you must appoint a living person to make your decisions for you when you are unable to do so. A written document cannot take the place of such an appointment. Of course you are free to leave your patient advocate a written statement of your wishes and beliefs regarding certain situations that might arise (for example, if you are one life support with no realistic prospect of recovery). However, it is the patient advocate that must speak on your behalf to your health care providers. It is important to appoint someone who will follow through with your wishes, since family members might have significantly differing wishes and beliefs regarding what should be done in a given situation. You should appoint someone ahead of time that knows what you would want done, and who will follow through with your wishes.
These estate planning documents can be invaluable tools in helping to assure that your loved ones are taken care of and that what you have worked all your life for is used as you want it to be. However, you need to take action before the need arises for these tools. Make sure you have a solid estate plan in place before it’s needed.