Retirement Planning

Thank you for considering Charles Kleinbrook, P.C. for your estate, business, and financial planning. My informational handout below is a general guide on the above-referenced topics. I hope that you will find it helpful and insightful. Highlighted portions are especially relevant.

A few general and important rules follow:

1. Inspection. Inspect any formal documents for accuracy and keep them with all your important documents in a safe place for future reference. All legal documents should be well organized and stored in a fireproof safe or in a safe deposit box.

2. Taxes. This office does not give tax advice. Your accountant or tax/investment advisor should have a copy of any financial documents, if applicable. This will ensure proper tax credit and tax advice. If you do not have an advisor, I can recommend one.

3. Document Execution. Be aware that some institutions may not honor some documents even when properly executed. Contact me should an institution fail to honor any applicable documents. To execute documents, please initial applicable pages where indicated, sign, and date before witnesses and/or notary where noted. Your local bank will have a notary and the two witnesses must not have an interest in the transaction.

LIVING TRUSTS

A trust is a document that holds property for the benefit of others. You can create a living trust during your lifetime; it may be either revocable or irrevocable. [By comparison, a "testamentary" trust is created upon death by virtue of a will.] An alternate trustee is usually empowered to control the trust estate if you are incapacitated or on your death. For obvious reasons, you should select the trustee and alternate(s) with great care. This writer strongly recommends that you consider only those people with impeccable character and with an unblemished, longstanding record of thoroughness and honesty.

The trust agreement, commonly called a revocable living trust, is a contract where the Grantor retains full power to control, alter, amend, or revoke the trust during his lifetime. While executing a trust agreement may be sufficient to transfer in trust tangible personal property, the transfer of real property or intangible property, such as stocks or bonds, will most often require additional documents to register the property in the name of the trust.

The advantages of a revocable living trust are: 1. the avoidance of the expense and delay encountered in the administration of a probate estate; 2. maintaining privacy of all dispositions; 3. [in a marital setting] the surviving spouse can inherit the decedent’s federal death tax exemption; and 4. avoiding problems associated with joint tenancy and a beneficiary’s creditors. Property that has been transferred to a valid trust before the grantor’s death will not be subject to probate. The trustee will distribute trust property directly to the beneficiaries at the death of the grantor, or the trustee will continue to manage the property, in accordance with the terms of the trust.

As a general rule, each estate, whether probated or not, is allowed a $2,000,000 exemption from federal and Michigan estate tax automatically. The value of an estate over this figure is hit with a whopping tax as high as 55%!!! Many folks do not understand the massive tax savings they can receive if they see me for the appropriate advice.

Revocable living trusts do not offer immediate federal gift or estate tax savings but do afford the grantor the opportunity to retain control over the trust property during his lifetime and also determine who will receive benefits at death. In addition, you may desire to be relieved of the tedious problems involved in managing business property. If the grantor is dissatisfied with the operation of the trust during his lifetime, he is still able to change the trustee and any troublesome administrative provisions, while relieved of the daily burdens of trust management.

For income tax purposes, the IRS treats the grantor of a revocable living trust as the owner of the trust because he has retained the power to revoke the trust. As a result, the income from the trust is taxable to him, whether or not it is paid. When the grantor retains a power to revoke the trust, or a power to name new beneficiaries or to change the interests of the beneficiaries, unless the power is a fiduciary power limited by a fixed or ascertainable standard, the transfer is considered incomplete for gift tax purposes and the grantor has not therefore made a taxable gift. The receipt of income by a beneficiary of a revocable trust is a taxable gift from the grantor to the beneficiary in the calendar year the income is received by a beneficiary. There is a $12,000 annual exclusion on gifts. When the grantor relinquishes control over the trust, the grantor makes a completed gift for federal gift tax purposes. The $12,000 exclusion is increased for a one-time $50,000 distribution into a child’s education fund called a Section 529 College Fund. Please see me for details on creating such a plan.

An estate tax is imposed on any interest transferred by a decedent during his life, where the decedent possessed the power to alter, amend, revoke, or terminate the interest at the time of his death.

General rules for beneficiary designations are as follows:

1. For marital estates under $2,000,000, the primary beneficiary of life insurance can be either the trust or the spouse, whichever is easier. If the spouse is the primary, then the contingent beneficiary should be the trust. Tax-deferred investments [annuities, IRAs, pension benefits/annuity savings funds] should keep the surviving spouse as the current beneficiary and you must change the contingent beneficiary to the trust.

2. For marital estates over $2,000,000, the primary beneficiary of life insurance should be the spouse and the trust should be the contingent. Tax-deferred investments [annuities, IRAs, pension benefits/annuity savings funds] should keep the surviving spouse as the current beneficiary and the settlor must change the contingent beneficiary to be the trust. For that portion over $4,000,000, the grantor would be well advised to create an irrevocable life insurance trust with the trust as the owner and the trust as the beneficiary. The trust in turn will pay premiums from trust assets and pay benefits to the beneficiaries according to the terms of the irrevocable trust. There are many insurance vehicles available for this purpose and you must consult a tax advisor for tax advice and an insurance expert accordingly. You should strongly consider placing assets over $4,000,000 from a marital estate into a 529 plan. The 529 plan permits you to maintain control of money, grow it tax-free if used for education, and still transfer money from your taxable estate.

3. For single estate portions under $2,000,000, the primary beneficiary of life insurance may be the trust and the settlor can select any beneficiary as the contingent. Tax-deferred investments [annuities, IRAs, pension benefits/annuity savings funds] should designate the trust as the primary beneficiary. For any portion over $2,000,000, the grantor would be well advised to create an irrevocable life insurance trust with the trust as the owner and the trust as the beneficiary. The trust in turn will pay premiums from trust assets and pay benefits to the beneficiaries according to the terms of the irrevocable trust. There are many insurance vehicles available for this purpose and you must consult a tax advisor for tax advice and an insurance expert accordingly.

WILLS, JOINT PROPERTY AND PROBATE

The word “Testator” ( the masculine) and the word “Testatrix” (the feminine) refer to one who executes (signs) a will. A “Devisee” is a person who takes property under a will and an “Heir” is a person who takes property by operation of law when no will exists. The “Personal Representative” is a person authorized to administer and distribute the estate in a manner that comports with the will and applicable law. You may designate co-personal reps but I do not recommend having two reps for efficiency’s sake. The personal rep and the alternate rep should be selected with great care. Consider only those people with impeccable character. Notify your personal rep/trustee(s) of your intentions and give them a copy of this sheet and the operative document.

A simple will usually name the spouse as the beneficiary to whom all property passes, after the payment of legally enforceable debts, funeral expenses and expenses of the Testator’s/Testatrix’s last illness and administration expenses, providing the spouse is still living.

Marital property: If all property is held by husband and wife, there is technically no need to have a will since all property passes automatically to the surviving spouse by operation of law. However, should both die in a common accident or should a surviving spouse fail to convert the property into some joint tenancy or fail to execute a will, the estate upon death is probated and termed “Intestate.” Probate estates should be avoided due to high probate, attorney, and administrative costs.

Should everyone have a will? Answer: Yes! I recommend that everyone have a will in the event that they may incur some windfall (you could win the lottery you know!) and fail to have a plan in order.

Joint Property and Avoiding Probate: Property held by two or more people as “joint tenants with right of survivorship” will pass automatically to the surviving tenants by operation of law. This is the simplest and cheapest way to distribute property if the joint tenants are trustworthy; some tenants have been known to close the account and fly to Aruba. One danger in this arrangement is that the creditor of any joint tenancy accounts can be attached by creditors! As a general rule, joint property must be disclosed to the estate and the state, but are not otherwise subject to the probate process. Medicaid has a three-year look-back rule for coverage of medical expenses. The three-year rule says that any gift made within three years of death will be deemed to be a transfer made in contemplation of death. Any transfers in contemplation of death will automatically be considered part of the estate for medical payment purposes. To avoid complications under the three-year rule, I recommend that you contact me.

Remember that upon death an individual’s property may pass under either the laws of descent and distribution (probate) or by other means such as property or contract law. If property is held by individuals jointly with rights of survivorship, then upon the death of one party the property automatically passes to the surviving joint tenant. Also, with certain types of property, such as insurance policies, the individual can designate a beneficiary to receive the proceeds of the policy, and the amounts payable upon the death of the individual pass to the beneficiary under contract law.

If the property does not pass under any of these methods, then it passes according to the laws of descent and distribution. Under these laws, there are two structures for property to pass. First, if an individual has a Last Will and Testament, then the property passes according to the terms of such document. Alternatively, if the individual does not have a Last Will and Testament, then the property passes according to the laws of the State of Michigan. Property is subject to probate administration under the laws of descent and distribution regardless of whether the property passes to the recipients with or without a Will.

The primary disadvantages of joint property are: 1) once you add a joint tenant, that person has an ownership interest in the property. Depending upon the nature of the property conveyed, that person could have unchecked access to the property or the joint holder could petition a court to forcibly sever the property and force a sale. For example, if it’s a bank account, one joint tenant could cash out the entire account! For real property, however, title companies generally require all tenants to sign a deed. 2) since the added joint tenant is presumed to be an owner of the property, and upon the death of the principal owner(s), the property automatically vests in the joint owner. If the joint owner transfers the property in violation of your wishes, there is little the remaining heirs can do shy of a messy lawsuit. The heirs would be required to file a lawsuit to overcome the presumption of ownership by the surviving joint owner and to have the property brought into the probate estate. This “worst case scenario” results in the property being subject to the probate court administration, which the use of joint property attempts to avoid. It incurs additional expenses over and above the cost normally associated with probate administration as a result of the litigation. 3) complications may arise with respect to certain taxes assessed against the surviving owner. Without a trust, complicated IRS rules apply and capital gains are assessed against co-tenants when they sell the property, often substantial, and well more than the cost of a trust. Please contact me to arrange for a trust to alleviate problems with Uncle Sam’s capital gains tax.

Providing for Children: Some wills are designed for use when there are minor children and/or children whose property should be held and managed by a trustee, in the event that both spouses pass away. Management continues until they reach a designated age. The will may appoint a guardian for minor children in the event that the other parent is no longer living.

Creating a Trust Upon Death: The will may also include a provision granting power in trust over any property passing to any person who is under a designated age, e.g. a young grandchild. A simple will is not intended as an all-inclusive document for use by everyone and will not be appropriate in many instances. It will avoid the inconvenience of intestacy, designate a Personal Representative, and relieve the estate of the expense of a fiduciary bond.

Statutory Requirements: The will must be signed by the Testator/Testatrix in the presence of two witnesses and a notary public who should affix his or her notarial seal to the document. The witnesses and the notary should not be relatives or in any way interested in your estate. The Testator/Testatrix must first read the document carefully to be sure that it reflects the maker’s wishes accurately.

The notary public before whom you are executing the will shall ask the following: that the maker and the witnesses, under oath, declare that the maker signed the will as his/her last will and testament; that it was signed voluntarily; that each witness, in the presence of the maker and at the maker’s request, and in the presence of each other, signed the will as a witness; and that to the best of the knowledge of each witness, the maker was at that time, eighteen or more years of age, of sound mind and under no constraint or undue influence. The maker should write his or her initials in the left-hand margin of each page of the will on which his or her signature does not appear. This prevents fraud.

The signed original will should be placed in a safe place where a designated member of the family, CPA, or other person will have access to it upon death. A safety deposit box in your name only is not a wise choice. Many Probate Courts will allow a Testator/Testatrix to place an original will on file with their office for safekeeping.

The document I will draft or drafted for you will have the following provisions:

The Article entitled PAYMENT OF DEBTS, TAXES, AND EXPENSES of the Last Will and Testament provides for the payments of your debts, funeral, and last illness expenses, as well as the expenses of administering your estates. The next Article entitled DISPOSITION OF PERSONAL EFFECTS provides for your personal effects to go to each other if then living, and if not, to be divided equally among your then living children. This article may provide a request that each child should be allowed to choose the items they desire. If you want grandchildren to share in the personal property to the extent of their parent’s interest if their parent (your child) is not living at your death, please notify me and I will make the appropriate revisions. The Article entitled DISPOSITION OF RESIDUAL ESTATE provides for the balance of the estate to go to the devisee(s).

Another Article may provide that the property be shared equally among your children and, if one of your children is not then living, that deceased child’s share would be divided among the deceased child’s then living children. The Article entitled APPOINTMENT OF PERSONAL REPRESENTATIVES designates the Personal Representative and nominates an alternate to act as successor Personal Representative.

The next Article entitled POWER AND AUTHORITY OF FIDUCIARIES enumerates a number of powers and authorities of the Personal Representatives. Another Article may provide that if both spouses die under circumstances making it difficult to determine who was the survivor, then the wife shall be deemed to have been the survivor. The next Article entitled INDEPENDENT PROBATE provides a request that your estate be administered by an independent probate, as provided by Michigan law, rather than being subject to a supervised court administration. With an independent probate, the Personal Representative, after receiving his or her authority from the Probate Court, does not need to file as many reports and documents with the Probate Court as in the case of a supervised court administration. This generally results in an independent probate being completed in a more timely fashion with fewer costs incurred. The next Article entitled DEFINITIONS provides that the terms “child,” “children” and “issue” shall include adopted persons, and this Article further provides that an individual must survive you for 30 days to be considered living at the time of your death except for the presumption of survivorship as specified previously. Another Article may provide that although spouses may execute Wills at the same time, the Wills are not joint Wills and that each retains the right, at any time, to alter or revoke the respective Will. The final Article provides that the Wills should be governed according to the laws of the State of Michigan.

DURABLE POWER OF ATTORNEY FOR HEALTH CARE ["LIVING WILLS" IN MICHIGAN]

Durable Power of Attorney for Health Care [also known as a Designation of Patient Advocate Agreement] (DOPA). Michigan law permits a person to designate a patient advocate to act as an agent with regard to the administration and the withdrawal of medical care. Be aware of the serious ramifications of such an election. While I can review specialized documents, for a nominal fee you may obtain pre-printed forms that comport with the state statute from Advocates for Better Care at P.O. Box 9145, Grand Rapids, MI. 49509-0145; (616) 530-2864. While I generally agree that these forms comport with state statutes, I am convinced that they are unsatisfactory in stating the philosophy that respects life and otherwise fails to proscribe active and passive euthanasia. Thus, I strongly recommend that anyone concerned about explicitly embracing the life-embracing criteria in their DOPA should engage me to draft a document appropriate to your wishes.

First, a review of important background information is in order:

A DOPA grants an agent the power to make health care decisions on your behalf if you are unable to participate in your own decisions. The Patient Advocate should try to communicate with you even if you are unable to participate in the decision. Your agent specifically agrees that he will not exercise any power that you could not have exercised on your own behalf, receive any compensation, or act in a manner that is not according to the high standard of care applicable to fiduciaries. Your agent may decide to withhold care which may result in your demise.

It is my conviction that medical treatment should not include ordinary care given to persons under natural law, namely the continuation of shelter, food, hydration, and sanitation by reasonable but not heroic efforts. There is a morally significant difference between medical treatment and supportive care. Consider first that the denial of food and fluids is biologically final because it will undoubtedly lead to death. Food and fluids are universal and ordinary human needs. Physicians should always aim to preserve life and never induce death. Food and fluids are not medical treatment or therapy simply because another person provides it.

From a moral perspective, I agree that the DOPA should/may provide for the termination of medical treatment when 1. there is a terminal condition that will result in imminent death (usually a period less than that time during which a person could survive without food or water), or 2. there is an irreversible coma which will result in a permanent loss of conscience and there is no possibility of returning to a sapient or cognitive state. The discontinuance of any medical treatment that would prolong the moment of death is equally justifiable, as is medication appropriate to keep one comfortable and free of pain. These agreements are revocable at any time.

GENERAL DURABLE POWER OF ATTORNEY

A General Durable Power of Attorney (GDPOA) empowers an agent to have certain powers that you, the principal, have. The General Durable Power of Attorney allows the agent to perform essentially anything for the principal that the principal could perform for himself or herself as long as the principal is alive.

One thing the agent cannot do for the principal with the General Durable Power of Attorney is to endorse U.S. Savings Bonds on behalf of the principal. Under the category Tax Returns, the document allows the agent to handle tax matters on behalf of the principal. However, the Internal Revenue Service requires a Power of Attorney to specifically enumerate the type of tax, along with the specific tax years, in order for the Internal Revenue Service to honor the Power. Therefore, I have inserted a provision providing for the agent to have powers concerning income and gift taxes for the five preceding years and the subsequent five years. However, after the expiration of the subsequent five-year period, amendments to the Power will be required to extend the authorization for later years. The IRS has a standard form that can be executed later if a lapse occurs.

By themselves, neither a trust, nor a will, nor a power of attorney, nor joint property, nor a designation of patient advocate will thoroughly complete your estate plan. The DPOA for health care is only part of a comprehensive estate plan. I highly recommend that anyone who executes these documents seriously consider having a thorough will, living trust, DOPA, and general power of attorney as the most prudent, private, and efficient means to establish a personal estate plan.

It is extremely important for personal and financial reasons to have a combination of all these documents. Spouses should never withhold information and documents of their estate plan. It only causes family strife and stress. If you withhold documents and information, regardless of the size of the estate, you need counseling more than I can give. I will be happy to tailor one to fit your needs; no matter how seemingly small. Please contact me if you have any questions.

FEES

My current fee schedule for documents that do not require advanced estate planning, do not require specially tailored documents for special needs children or special IRS planning is as follows:

Review of a current estate plan for the simple estate: $300

Review of current trust language and draft updated “no contest” and “trustee insulation” provisions against rouge judges: $1,000

Simple Will: $300 each*

Simple Power of Attorney: $300 each*

Simple Patient Advocate Agreement for Health Care: $300 each*
* = including 30-minute free consultation, if consultations by email, phone, and fax and in person exceed 30 minutes, the rate is $200 per hour.

Standard Trust Package Including Will, Trust, POA, and PAA with supporting information and documents for Single Person: $2,000 [compare at $2,500 to $4,000]

Husband and Wife Package: $2,500 [compared at $4,600 to $6,000]

Plus recording deeds to place real estate into the trust is an additional $40 per deed.

Important Note On Fees and Representation: Because single estates over $2,000,000 [married couples over $4 million] require technical, additional tax, and estate planning, there will be additional fees that I will quote on a case-by-case basis. Additional fees will also be charged for review by the CPA of your choice for these estates. While I will always remain available to answer general questions for you and your family at any time, the representation of CHARLES KLEINBROOK, P.C. with respect to monitoring and funding the estate stops once the documents are signed. The client must understand that the firm will not be obligated to monitor, fund, or otherwise administer the trust unless hired to do so on an hourly rate basis. Thus, there will be no continuing representation.

NO PROTECTION FROM CREDITORS. IT IS VERY IMPORTANT THAT YOU UNDERSTAND THAT THIS PROCESS DOES NOT PROTECT YOU FROM YOUR CREDITORS. IF YOU WISH TO INSULATE YOURSELF FROM CREDITORS TO THE GREATEST EXTENT PERMITTED BY MICHIGAN LAW, THERE ARE ADDITIONAL DOCUMENTS YOU MUST EXECUTE. THESE RULES ARE FAIRLY COMPLICATED SO PLEASE CONTACT ME FOR MORE INFORMATION.

TRUST INCOME TAXES. On the death of the grantor, be sure to contact my office. The trustee must instruct the CPA to prepare and file the decedent’s final income tax returns and the Federal and State Estate and Inheritance Taxes. SPECIAL ATTENTION SHOULD BE GIVEN TO VERIFYING THAT THE APPROPRIATE K-1′S, 1099′S, INDIVIDUAL RETURNS, AND ESTATE RETURNS WILL BE PROPERLY FILED. IF INCOME IS NOT TIMELY DISTRIBUTED, THE TRUSTEE HURTS THE TRUST BY PLACING IT IN A HIGH TAX BRACKET. TRUST INCOME EASILY REACHES THE 38% TAX BRACKET AND THE TAX CAN BE AVOIDED IF YOU CONSULT MY OFFICE AND A CPA RIGHT AWAY.

SPECIAL NEEDS CHILDREN AND ADULTS WITH DISABILITIES. For children with special needs, be sure to do the following: 1. Apply for social security disability, but see me first with regard to denials and appeals. 2. Be certain the school district annually issues its IEP after a complete exam. 3. After each IEP is complete, call 866-754-3398 to arrange a yearly Person Centered Plan from the Macomb/Oakland Regional Center. 4. Be certain to meet with me to create a special needs trust and a power of attorney. And 5. Be sure to apply for social security at least one month BEFORE the child’s 18th birthday.

For adults with disabilities, be sure to do the following: 1. Apply for social security disability, but see me first with regard to denials and appeals. When granted, be sure that you are the Representative Payee on the checks and that there is an alternate. 2. Be certain to call 866-754-3398 to arrange a yearly Person Centered Plan from the Macomb/Oakland Regional Center. 3. It is best to attempt all documents short of probate court first. To accomplish that, be certain to meet with me to create a special needs trust, an authorization for the release of information, a power of attorney, and a patient advocate document.