Q&A: Common Estate Planning Questions
It’s never a bad time to start your estate planning journey. Though if you’ve had questions about starting the process, attorneys Brandon Grysko and Mark Mandell sit down for a discussion on the most common questions!
For anyone that’s considered starting the estate planning process, our recommendation is don’t wait! Pushing this off for too long can mean the difference between your family fighting in probate court versus enjoying the estate you worked so hard for to its fullest!
Q: Do I need a Will or Trust?
We get this question all the time, “Do I need a will; Do I need a trust; Is a Trust overkill?” Those types of things come up all the time.
What I like to focus on with my clients is education. I educate them on the specifics of what a will and trust are, as well as their limitations. If you want a trust and it makes sense to move in that direction, we can certainly do that. But I’ll spend a couple of minutes just talking about each and what the benefits/drawbacks could be for a will.
For example, a will only take effect when you pass away. There’s really no lifetime benefit to having a will other than the peace of mind that, of course, you get from having your affairs in order and wishes set down in writing. But that document is not going to do anything for you during your lifetime.
A trust, on the other hand, does a lot of the same things that a will can do, but it also has the benefit of a trustee that can step in to help you manage your assets or affairs during your lifetime. Then, of course, when you pass away, the trustee will also manage those post-death distributions that you’ve set in writing.
Q: Will my Estate enter Probate if I use a Will?
The answer to that is maybe, I know that’s a classic attorney answer, but nowadays, almost all accounts and assets have what’s called the “transfer on death” or “pay on death beneficiary designation”.
What that means is, for example, you go to your bank and open an account, when you fill out your paperwork, you can designate a beneficiary. That account paperwork is essentially a contract with the bank, and the beneficiary designation directs the bank. So, these types of assets do not have to go through probate, assuming you’ve properly updated your beneficiary designations.
But if you open an account and don’t list any beneficiary, or if you have an asset that doesn’t allow a beneficiary designation on it, those types of assets will go through probate unless, during your lifetime, you’ve created a trust and funded those assets into the trust by changing the title of the account or asset to the name of the trust.
Q: Is there any benefit between a Will and Trust as it relates to Taxes?
There can be in certain circumstances. Now, the general rule is that a beneficiary receiving inheritance does not have to pay tax on that. It also depends on the size of the estate. Currently, the estate tax threshold in the United States is $11.7 million. If you pass away and your estate is under that threshold there won’t be any estate or inheritance tax due. However, when you talk about retirement benefits and benefits that are pre-taxed – funds coming out of your paycheck and added into an IRA or 401k account – beneficiaries will have to pay income tax on those benefits despite not having to pay inheritance or estate tax.
Q: Should I use a Will or Trust based on Estate size?
I think that’s a component of it. As folks achieve more, develop greater earning potential, and get more complicated assets – real estate holdings, business interests, or significant investment accounts – you’re probably looking at wanting a trust over a will. The reason for that is you really want somebody during your lifetime to be able to step in and manage those various assets for you to the extent that you’re not able to do so. A lot of times as things become more complicated, it makes sense to strongly consider a trust over a will.
Q: Which Planning tool is best for Medical Considerations?
As it pertains to making medical health care, custody, and control types of decisions, really neither is appropriate for that type of situation. In this case, you’re looking at what Michigan calls a “patient advocate designation” – most common are a medical power of attorney or living will. This is a document that allows you to designate someone who can make decisions for your healthcare needs to the extent you’re incapacitated or unable to do so.
This is part of the package that I educate my clients on and recommend they get. It would typically include a will, potentially a trust, power of attorney for legal and financial matters, and then a patient advocate designation or medical power of attorney for healthcare-related decisions.
Q: Is there a correlation between my income and how much I should move from a Will to a Trust?
I think that the wealthier someone is, the more it points me in the direction of a trust for many reasons, including potential tax implications, and as a planning tool, the trust tends to be a larger document. It tends to give estate planning attorney’s a little bit more flexibility in terms of how the planning is done.
Q: Any final words of wisdom regarding Estate Planning?
I don’t care what plan you get. Just come in, talk to me, get it down in writing, and develop that plan. It’s crucial to get a plan together. I’ve seen too many people wait too long to get their affairs in order, and sometimes you wait too long. You may think you have time, but before you know it, you’ve run out.
It could be an unforeseen circumstance or even COVID could come into play. A lot of my clients that are in nursing homes I couldn’t see as quickly as I needed to because of COVID visitation restrictions and things like that.