You finally have decided to get your estate planning documents in place. However, you haven’t decided to get a trust, or settle for a will with financial and healthcare powers of attorney. You are not alone. Many people debate whether they should have a trust or not.
I have heard many people who say: “I was told that I didn’t have enough assets for a trust.” However, it is not the amount of assets you have that determines whether or not you have a trust. What determines whether you have a trust or not are the instructions you have and the goals and objectives you want to accomplish.
I have had clients whose total gross estates were under $100,000, including their home, who wanted trusts because of the protections offered. I have had other clients with over $1 million in assets who wanted wills with powers of attorney instead of trusts because they did not care about the time, money or effort it would cost their beneficiaries after the clients’ deaths.
Many people have trusts for the protections that they offer for their beneficiaries, such as privacy, avoiding probate, charitable planning, or protections from divorces, creditors or remarriage. Others have trusts because they have beneficiaries who are on governmental assistance, have an addiction or poor money management skills, are minors or are not motivated to find a job. Still others have trusts to protect the family homestead or cottage, provide financial resources for higher education or for pets.
Another reason for having a trust that you may not think about is what happens upon your mental disability. Trusts can have enormous benefits over financial powers of attorney when you are mentally incapacitated. Over the last dozen or so years, we have been seeing financial institutions and financial services firms more closely scrutinizing financial powers of attorney.
I believe it is a combination of the Patriot Act, the mortgage meltdown crisis and privacy concerns, and this drives these companies to cover their assets. Whatever the reason, these financial companies are becoming more resistant to honoring financial powers of attorney. In order to reduce this resistance, we regularly add language to our financial powers of attorney. Our financial powers of attorney, which were 3 pages long in 1999, now are about 24 pages long.
Although there is no legal basis to do so, I have seen financial companies refuse to honor a power of attorney because it was too old, it was not on their form or the maker of the power of attorney is mentally disabled. If a financial company wrongfully dishonors a financial power of attorney, about your only recourse is to go to court.
You could go to court to request a protective order for the financial company to honor the financial power of attorney. Or you could go to court to appoint a conservator to handle the disabled person’s property and financial affairs. However, one of the primary reasons you have a financial power of attorney is to avoid a conservatorship.
Oftentimes, just the threat of court action gets the financial company to honor a financial power of attorney. Unfortunately, the Michigan power of attorney statute has no penalties for anyone who wrongfully refuses to honor a legally valid and binding financial power of attorney. And if you do go to court, a court may recommend a conservatorship instead of ordering the financial company to follow Michigan law and honor a valid legally binding financial power of attorney. I have seen this happen.
Or a court may not find a financial company liable for the financial injuries it has caused by its wrongful dishonor of a valid legally binding financial power of attorney. I saw one such case in which the wrongful dishonor of a valid legally binding financial power of attorney by a financial company cost the family $7,000 per month in nursing home costs because assets could not be transferred to qualify the individual for Medicaid to pay for nursing home care.
Much of the time, the financial companies will not honor the financial powers of attorney immediately upon presentment. They have to send the powers of attorney to their legal departments for review. This review often takes 2 weeks to over a month before the financial agent is given “approval” to act.
On the other hand, with trusts, we regularly see financial companies honor the successor trustee’s instructions immediately upon presentment of a certificate of trust. We rarely see a financial company send trust documents to their legal department for a lengthy review process like we see with financial powers of attorney.
The ease at which trusts are honored upon the trustmaker’s disability is just one more reason we do fully funded trusts in our office. This means that all of your assets where possible, from bank accounts to investments to real estate, are properly titled, designated beneficiaries and/or insured. Funding your trust is the proper titling of your assets in the name of your trust or individual names and/or proper naming of your trust and/or individuals as beneficiaries and additional insureds.
And fully funded trust based estate plans are one of the biggest bargains in town. In our experience, we have found in our office that the sum total of all lifetime costs of the trust plan plus the after-death trust administration costs is less than just the after-death costs of administering a will and estate through the probate court process.
I recently did an online survey of probate attorneys in Michigan and across the country. By far, the most commonly quoted costs of administering a will and estate through the probate court process after a death was 5-10% of the gross value of the estate. So if you have a $300,000 estate and it went through the probate court process after your death, you could probably expect the after-death estate administration costs to be between $15,000 and $30,000.
We have found with our clients, that in most cases, the total overall lifetime and after-death costs of implementing a fully funded trust based estate plan, including annual updates and administering the trust upon disability and after death are well below 5% of the gross value of the estate.
So if you want to be in control of your property while you’re alive and well and provide for you and loved ones in event of your mental disability, and give what you have to whom you want when you want the way you want at the lowest overall predictable cost, you may want to consider a fully funded trust based estate plan.
By: Matthew Wallace CPA, JD
Published edited April 6, 2014 in The Times Herald newspaper, Port Huron, Michigan as: Trusts have advantages in event of a disability