Estate planning is an essential process that ensures your assets are protected and distributed according to your wishes. Typical estate planning documents include wills, trusts, durable powers of attorney, and medical powers of attorney. However, many Michigan residents make common mistakes that can lead to complications for their loved ones down the line. As an experienced estate planning attorney in Michigan, I’ve seen firsthand the issues that can arise from these mistakes. Here’s how you can avoid them and ensure your estate plan is solid and effective.
1. Failing to Update Your Estate Plan
One of the most common mistakes is not updating your estate plan as needed. Life changes such as marriage, divorce, the birth of a child, a child attaining legal adulthood, or the purchase of significant assets should prompt a review of your plan. In Michigan, failing to update your estate plan after major life events can lead to unintended consequences, such as assets being distributed in ways that no longer reflect your wishes.
For example, imagine a scenario where you named your spouse as the primary beneficiary in your will, but you later divorce and remarry without updating your estate plan. In the event of your passing, your assets could inadvertently go to your former spouse, causing significant distress for your current family. Regular reviews of your estate plan, ideally every three to five years or after any major life event, can prevent such unintended outcomes and ensure that your plan remains aligned with your current circumstances and wishes.
2. Not Planning for the Care of Minor Children
In Michigan, if you have minor children, it’s crucial to designate who will care for your children in your estate plan. A guardian is responsible for ensuring your children’s physical needs are met and for providing love, care, and affection. A conservator or custodian is responsible for managing your children’s money and property. Without an estate plan that names who you want to be the guardian and conservator or custodian, the court will decide who will care for your children if something happens to you, and their decision may not align with your preferences. Ensuring that you’ve named a trusted guardian and conservator, or custodian will provide peace of mind that your children will be cared for according to your wishes.
The process of selecting a guardian and conservator or custodian is not one to take lightly. For a guardian, you should consider the potential guardian’s relationship with your children as well as their values, financial stability, and ability to provide a stable and loving home. For a conservator or custodian, financial knowledge and integrity are key considerations. It’s advisable to discuss your decisions with the people you’re considering, ensuring they’re willing and able to take on such significant responsibilities. These conversations, though difficult, can prevent future misunderstandings and ensure that your children are cared for by those who truly understand and respects your wishes.
3. Overlooking the Importance of Powers of Attorney
Generally, there are two types of powers of attorney that every estate plan should include: a durable power of attorney and a medical power of attorney.
A durable power of attorney allows someone you trust to make financial and legal decisions on your behalf if you become incapacitated. In Michigan, this document is critical but often overlooked. Without it, your loved ones may face lengthy and costly court proceedings to gain the authority to manage your affairs.
A durable power of attorney can cover a wide range of decisions, from managing bank accounts and paying bills to handling real estate transactions. By designating a trusted individual to act on your behalf, you ensure that your financial and legal matters are handled smoothly, without the need for court intervention. It’s important to choose someone who is not only trustworthy but also financially savvy and capable of handling complex decisions. Without this crucial document, your family could be left scrambling to make decisions during an already stressful time.
A medical power of attorney, sometimes called a living will or healthcare directive, names your Patient Advocate, who is the person you designate to make medical treatment, custody and personal care decisions on your behalf if you are unable to express your wishes or make those decisions yourself. The medical power of attorney gives direction to your patient advocate on how to make profound medical decisions, such as whether to put a do not resuscitate order in place.
The person you choose as your Patient Advocate should be someone you trust who will respect your wishes even if they differ from their own and who can ask questions and make difficult decisions.
4. Not Planning for Long-Term Care Costs
Long-term care can be a significant financial burden, and many people in Michigan fail to plan for it. In Michigan, the average cost of a private room in a nursing home can exceed $100,000 per year. Without proper planning, your assets could be depleted by nursing home costs, leaving little for your heirs. Incorporating Medicaid planning or long-term care insurance into your estate plan can help protect your assets and ensure that your care needs are met without compromising your financial legacy.
Medicaid planning, which involves structuring your assets to qualify for government assistance, can be a complex but valuable strategy to protect your estate. Additionally, long-term care insurance can help cover the cost of nursing home care, home health care, and other services, providing a safety net that preserves your estate for your heirs.
5. Ignoring the Impact of Michigan’s Probate Process
Probate is the process where a decedent’s assets are legally transferred without the decedent’s signature. Probate in Michigan involves a court overseeing the distribution of your estate in public proceedings, which can be expensive and take months or even years to complete, depending on the complexity of the estate and whether any disputes arise. During this time, your assets may be tied up, and your beneficiaries could face delays in receiving their inheritances. By using tools like living trusts, which allow assets to be transferred directly to beneficiaries without going through probate, you can simplify the process and ensure that your loved ones receive their inheritances more quickly.
Other ways to avoid probate in Michigan are by naming beneficiaries on all your financial accounts and by the use of ladybird deeds to transfer real property. These strategies enable the transfer of your assets automatically upon your death without involving the court. Properly structuring your estate to minimize probate can save your beneficiaries time, money, and stress.
6. Choosing the Wrong Administrator of your Estate
The trustee of your trust or the personal representative, sometimes called executor, of your will plays a crucial role in managing your affairs after you pass away. Selecting someone who is not up to the task, or who may have conflicts of interest, can lead to delays, disputes, and even litigation. In Michigan, it’s important to choose a trustee or personal representative who is trustworthy, organized, and capable of handling complex legal and financial matters.
The responsibilities of a trustee or personal representative can be overwhelming, especially if the estate is large or if there are complex assets like businesses, real estate, or intellectual property. It’s essential to choose someone who has the time, skills, and temperament to handle these responsibilities effectively. In some cases, it may be wise to appoint a professional administrator, such as a trusted attorney or financial advisor, to ensure that your estate is managed properly and that your wishes are carried out without unnecessary delays or conflicts.
7. Failing to Consider the Tax Implications
While it has been many years since Michigan has had an estate tax (sometimes referred to as a death tax), the federal government still imposes a tax on estates after death. However, only very large estates are currently subject to the tax because of the tax’s high exemption amount. The 2024 federal estate and gift tax exemption is $13.61 million for an individual and $27.22 million for a married couple. This exemption is slated to reset and fall to an estimated $6 to $7 million per individual beginning on January 1, 2026, unless Congress acts prior to then to keep the larger exemption in place.
While most people have estates lower than the federal estate tax exemption, it is still important to consider other tax implications, such as the taxability of retirement accounts, the uncapping of property taxes, or the transfer of assets on a stepped-up basis, when preparing your estate plan. A well-crafted estate plan will take all tax implications into account, ensuring that your heirs receive the maximum benefit from your estate.
Conclusion
Avoiding these common estate planning mistakes can make a significant difference in how your assets are managed and distributed after your death. By working with an experienced estate planning attorney in Michigan, you can ensure that your estate plan is comprehensive, up-to-date, and tailored to your unique needs and circumstances. Don’t wait until it’s too late—take the necessary steps today to protect your legacy and provide for your loved ones.
Estate planning is not just about distributing your assets; it’s about ensuring that your wishes are honored, your loved ones are protected, and your legacy is preserved. With the right guidance and careful planning, you can avoid the pitfalls that have derailed so many others and create a plan that provides peace of mind for you and your family.