Monday, August 31, 2015

How to Properly Fund a Revocable Trust to Make it Useful

After I have signed my trust, what are the next steps?

Executing a revocable living trust is an excellent way to streamline an estate plan, avoid probate, and provide for loved ones. However, without proper trust funding, the document is essentially useless and will serve no purpose to either the grantors or their beneficiaries. Accordingly, it is essential to engage in the proper follow-up steps after executing the trust, which can be facilitated with the help of a knowledgeable Michigan estate planning attorney.

Real property

One of the most important aspects of trust funding is issuing a deed-to-trust from the current owner(s) to the name of the trust. In most cases, this is a simple procedure that involves drafting a new deed conveying the property from the grantor(s) into the name of the trust. The deed is then recorded and the “owner” of the property becomes the trust instead of the individual. This way, when it is time for the property to pass to the named beneficiaries, the transfer will occur based on the directives of the trust, and formal probate proceedings will not be necessary.

As a word of caution, however, grantors with an outstanding mortgage on a property should contact their lender before transferring ownership to trust. While it is often not a problem, lenders have been known to trigger the acceleration clause in the mortgage, citing an unauthorized change in ownership.

Titled personal property

Vehicles, boats, firearms, and other property with a title or ownership document should be transferred into the name of the trust as well. Depending on the item, this generally requires a trip to the Secretary of State, and may require payment of a small fee. Much like real property, personal property that is titled in the name of the trust will transfer to the intended beneficiary immediately upon the death of the grantor, and it will not be necessary to distribute these items through the probate process.

If you would like more information about the proper way to fund a trust, please do not hesitate to contact Andrew Byers, Attorney and Counselor at Law. Serving clients throughout the metropolitan Detroit area, we can be reached at 248.301.1511.

Thursday, July 23, 2015

Understanding the Unique Taxation Standards Applicable to IRA Distributions

I have most of my every-day checking and savings accounts titled in the name of my revocable trust. Should I take the same steps with my 401(k) and retirement investments? 

For clients with a single or joint revocable trust, retitling assets into the name of the trust not only accomplishes the goal of its creation, but ensures the seamless and effortless transition of personal and real property to beneficiaries when the time comes. However, trust creators (known as grantors) are highly cautioned to speak to an elder law attorney prior to retitling retirement accounts or transferring those assets into trust, as a hefty and unexpected tax bill may follow. 

Tax implications of retitling a retirement account

401(k) accounts and IRA’s can reap significant tax savings if withdrawn correctly and at the right time. By contrast, account holders can expect a massive tax penalty for withdrawing too early – or even inadvertently. 

Under current IRS rules, retitling a 401(k), 403(b), or Individual Retirement Account will be treated as an outright withdrawal of funds, even if the actual funds in the account are never actually spent. Therefore, the retitle will trigger a tax penalty congruent to the amount in the account for the transfer tax year, which can be especially significant for accountholder with high account balances. 

Safe ways to ensure the proper transfer of IRA assets

When it comes to leaving retirement account assets to a beneficiary, the easiest, simplest, and safest way to accomplish this task is to change the beneficiary designation on the account. This is accomplished by simply contacting the bank or investment firm and filling out a Change of Beneficiary form. Many accountholders choose an alternative beneficiary in the event the primary beneficiary predeceases the accountholder, but this is not always necessary. Then, when it comes time to distribute the assets upon the death of the accountholder, the funds will not only pass outside of probate, but will transfer directly to the beneficiary tax-free. 

If you have questions about proper estate planning or beneficiary designations, please do not hesitate to contact Andrew Byers, serving Auburn Hills, Rochester Hills and Troy, Michigan, by calling (248)301-1511. 

Thursday, June 18, 2015

Married Couples Should Consider Separate Trusts

What are the benefits of separate trusts?

Estates worth less than a certain amount of money are not subject to Federal estate taxes.  This is called the estate tax exemption and while this amount has changed numerous times over the past few years. it currently stands at $5.43 million.  Therefore, all estates with a total less than $5.43 million are not subject to estate taxes.  The exemption is portable between spouses meaning that a married couple benefits from an over $10 million dollar exemption together.  

Beneficial tax treatment under a lower estate tax exemption was one major reason why using separate trusts for married couples was a popular tool in the past. Now, with the increased estate tax exemption, some might think that separate trusts are no longer needed.  But, even with the decreased need due to an increased exemption amount, separate trusts still have many benefits. For example, separating assets into respective spousal trusts can help protect assets from creditors.  If one of the spouses dies the surviving spouse can access the deceased parties trust .  But, the surviving spouse’s creditors cannot.  Many joint trusts do not include this protection from creditors.  

Using separate trusts can also protect families in the event of remarriage.   Many times, an individual remarries after the death of his or her original spouse.  By using a separate trust model, the individual’s new husband or wife may be prevented from benefitting from the dead spouses trust after the death of the surviving spouse. While the trust can be written to allow the surviving spouse the ability to amend the beneficiary distributions from the original trust, it is rarely done.  However, separating trusts also allows the surviving spouse the ability to amend his or her own trust to provide access to the second husband or wife.

In contrast, many joint trusts are irrevocable at the spouse’s death meaning that the surviving spouse is prevented from changing anything regarding the joint trust.  With separate trusts, the spouse can amend or revise his or her trust up to the point of his or her death. 

Separate trusts can also be useful in the event that the surviving spouse needs nursing home care.  If special provisions are included in the Last Will and Testament of the first spouse to die, the assets that were contained in that spouse’s separate trust can be protected from a Medicaid spend-down in the event that the surviving spouse needs nursing home care.  Such provisions should be considered whenever either spouse is diagnosed with a medical condition that could result in the need for long-term care.

If you are planning an estate you should consider all of your options including a joint trust, separate trusts and various other options.  Andrew Byers is an estate planning and elder law attorney in the Auburn Hills and Troy, Michigan area. Contact him today at (248) 301-1511 with for all of your estate planning needs.


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Elder Law attorney Andrew Byers assists clients in Auburn Hills, MI and throughout Oakland County, MI including Rochester Hills, Rochester, Troy, Bloomfield Township, Lake Orion, Oxford, Waterford, Clarkston, Independence Township, and Pontiac, as well as throughout the metropolitan Detroit area, including Macomb County and Wayne County, Michigan.

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