Q. Why have an Estate Plan?
- For an orderly transfer of your property as soon as possible after your death
- To avoid paying unnecessary taxes and fees
- To avoid probate
- To avoid public disclosure of your estate
Q. What should a basic Estate Plan include?
1. Will or Trust depending on the size and nature of your estate
2. Power of Attorney to appoint another person to handle your assets for you while you are living but are disabled and unable to do it yourself
3. Living Will Medical Power of Attorney to appoint another person to make decisions regarding life support if you are unable to do so yourself
Q. What options are available when planning my estate?
In planning your estate there are various options from which you may choose, depending on the size of your estate, the type of assets you own, and your objectives. Sit down with your attorney and discuss your situation to come up with an estate plan that is right for you and will accomplish your objectives.
Q. How do I determine my Gross Estate?
Your gross estate will include all real and personal property, including jointly-owned property, interests in pension plans, life insurance and stock. A wide range of other assets are included for estate tax purposes.
Q. What are the advantages of a Will?
- Choose who will receive your assets
- Choose the person who will administer your estate
- Appoint a guardian for your minor children
- Save capital gains income taxes on the sale of appreciated property. Heirs will get a step up in basis.
Q. What are the disadvantages of a Will?
- A will must be probated
- Probate is expensive
- Distribution of assets is delayed
- Your will becomes public
- Possible will contest
Q. Why avoid Probate?
Probate is the legal process through which the court oversees your estate to ensure that your debts are paid and your assets are distributed. An estate is probated with or without a will. With a will, your assets are distributed as you direct. Without a will, your assets are distributed according to state law. Probate costs are usually 3-8% of an estate's value. If you own real property in more than one state, your family could face probate in each state. Probate is also a lengthy public process, usually taking anywhere from 9 months to 2 years. Assets are generally not fully distributed until probate is completed.
Q. What is the difference between a "Living Will" and a "Living Trust?"
A living trust is for financial affairs and it protects your assets. A living will with medical power of attorney is for medical care. It lets others know how you feel about life support in terminal situations.
Q. What are the advantages of a Living Trust?
Same benefits as a will with none of the disadvantages PLUS:
- Avoids probate
- Avoids multiple probate if you own property in more than one state
- Can reduce or eliminate Federal/State estate taxes
- You can be your own trustee until your death when a successor trustee, whom you have named, takes over
- Brings all your assets together under one plan
- Allows quick distribution of assets to your beneficiaries
- Assets can remain in your Trust until beneficiaries reach the age(s) at which you want them to inherit
- May be changed or canceled at any time
- Prevents unintentional disinheriting and other problems of joint ownership
Q. Why won't Joint Ownership avoid Probate?
Joint ownership will just postpone probate. When one owner dies, full ownership transfers to the surviving owner without probate. But when that owner dies without adding a new joint owner, or if both owners die at the same time, the asset must be probated before it can go to the heirs. In addition, the surviving joint owner will not receive a step up in basis, therefore, paying a capital gains income tax on the original basis of the property.
Q. What is a Step Up in Basis?
Your basis in an asset is what you paid for the asset at the time you bought it. A step up in basis is the fair market value of the asset at the date of death. This theory can best be illustrated in the following example: If you bought a parcel of land in 1960 for $5,000 and have it in joint ownership with your beneficiary and you die, your beneficiary will have a basis in the property of $5,000. If your beneficiary sells the property for $100,000, a $95,000 capital gain will be taxed, (the difference between $100,000 and $5,000). Your beneficiary will have to pay income tax on this increase in value. Compare this to putting this same parcel of land in a living trust. When you die, your beneficiary will get a step up in the basis to $100,000 rather than the $5,000 basis that you had. The step up in basis is the fair market value of the asset on the date of your death. Thus, if your beneficiary were to sell the property for $100,000, there would be no capital gain to be taxed because of the step up in basis.
Q. What is a Living Trust?
A living trust is a legal document containing instructions for ownership of your assets. You transfer the title to assets from your name into the name of your living trust. You keep full control of the assets in the living trust and act as trustee. As trustee of your living trust, you can do anything you could do before the transfer, nothing changes but the names on the titles. And, as long as you are the trustee of your living trust, no separate income tax returns need to be filed. One of the many advantages of a living trust is maximizing the unified tax credit which calculates the Federal Exemption. According to the table below, if the new value of your estate is more than the amount shown in table 1, Federal/State Estate taxes must be paid. However, if you are married and you and your spouse each have a living trust, each of you can take advantage of the amount exempt. Thus, in the year 2003, you and your spouse can leave up to $2 million tax free to your beneficiaries. This will save about $490,000 in estate taxes, plus thousands of dollars in probate costs.
Table 1.
Amounts exempt from federal transfer tax, 2004-2011
Calendar
Year
Exemption from Estate Tax and Generation-Skipping Tax at Death Highest Estate Gift and Generation-Skipping Tax Rates 2004 $ 1.5 48% 2005 $1.5 47% 2006 $2.0 Million 46% 2008 $2.0 Million 45% 2009 $3.5 Million 45% 2010 N/A (Taxes Repealed) 35%(Gift tax only) 2011 Pre-2002 Law Returns Unless 2001 Law Reenacted 55% (?) Starting in 2002, the gift tax exemption amount will be increased to $1 million and will remain at that level. Starting in 2010 (the scheduled year of repeal of the estate gift tax), gifts in excess of a lifetime $1 million exemption will be subject to a gift tax equal to the top individual income tax rate at that time (35% under the act). Retaining the gift tax is intended to prevent the use of gifts to transfer income-producing property for higher-bracket to lower-bracket taxpayers.
Q. How can I take advantage of the Federal Exemption?
Illustration:
With no living trust
Married couple has 3 million dollars in assets and each has a simple will naming the other as beneficiary. 1. Husband dies first. On his death, there may be no tax due because of the unlimited marital deduction. All the property passes to the wife tax free. 2. Wife dies in 2005. On the death of the wife, taxes would total about $720,000! The estate of the second to die is assessed for Federal/State Estate Taxes.
With a living trust*
Married couple has 4 million dollars in assets and both have revocable living trusts with 1.5 million in assets in each trust to preserve the individual Federal Exemption. 1. Husband dies first. No taxes. His trust takes advantage of his 1.5 million Federal Exemption for 2005. The husband's 1.5 million trust generates income for his wife until her death, at which time his trust assets are distributed to beneficiaries named in his trust. 2. Wife dies in 2005. No taxes. Her trust takes advantage of her 2 million Federal Exemption and her trust assets are distributed to the beneficiaries named in her trust.
* The Federal Exemption in the above example will increase each year until 2010. Beginning in 2010, there will be a stepped-up basis provided for 1.3 million of an estate's capital gains with an additional $3 million exemption for gains transferred to a spouse. Beyond that, and unless Congress changes the law, a carryover basis will apply.
Q. Is a Living Trust expensive?
Not in the long run when compared to the costs and loss of control that come with court supervision at incapacity and death. How much you pay for preparing a trust and pour over will depends on how complex your estate plan is.
Q. If I have a Living Trust, do I still need a will?
Yes, you should have what is called a "pour over" will. This is a safeguard for any assets not transferred to the trust. For example, if you win the lottery and have a heart attack and die before you can transfer the winnings to your trust, a pour over will "catches" the forgotten asset (lottery winnings) and sends it into your trust. The asset may still have to go through probate first, but at least it can then be distributed as part of your living trust.
The Future of Estate Taxes
The economic Growth & Tax Relief Reconciliation Act of 2001 ("EGTRRA") is the most significant gift, estate and transfer tax legislation in 20 years. However, as of 2010, all estate tax and generation-skipping transfer tax (but not gift tax) is repealed, unless legislation is reenacted. Pre 2002 law returns in 2011. While we must plan for the law as it now exists, we must also keep in mind that things may (and probably will) change again over the next ten years.
Has There Been a Serious Injury or Death Suffered By Someone Close to You? May We Help You?
ACCIDENTS HAPPEN.
Injuries are painful and can affect your life. Loss of life is devastating. If a proven track record in representing accident victims is important to you and you are seeking representation from someone who will give you personal attention, call or come see us.
We at SCHUITMAKER, COOPER & SCHUITMAKER, P.C. represent individuals involved in accidents. Whether you, a friend or loved one is injured or suffer loss of life in an automobile collision or other mishap, we are able to help. Below are questions we are often asked:
Q. Am I entitled to compensation if I am injured in an automobile collision?
Yes. Regardless of who is at fault, your own insurance company may owe you lifetime medical benefits, up to 3 years of wage loss and payment for services that others have to perform for you because of your injuries.
Q. Can I seek compensation from the driver who caused my injury?
Yes, but Michigan law requires that you or your passengers must have suffered a serious injury before you are entitled to compensation from the "at fault" driver or his/her insurance company. A typical automobile lawsuit must be started within 3 years of the date of the accident.
Q. What is a "serious" injury?
There is no specific definition according to Michigan law. The following are some examples of the things we look for in determining whether an injury is "serious": Impairment of body function; Disability and pain; Surgery; Hospitalization; Scars; Broken bones; Loss of wages.
Q. Besides automobile injuries, can Schuitmaker, Cooper & Schuitmaker, P.C. help victims of other accidents?
Yes. We have a record of handling wrongful death actions and injury cases associated with a variety of situations and circumstances.
Q. Will Schuitmaker, Cooper & Schuitmaker, P.C. handle all of my legal needs?
Yes. We personally handle all aspects of your case, from litigating the injury or wrongful death in Court to representing the estate in Probate Court.
Q. How much are attorney fees?
There are a variety of ways to hire an attorney. You can hire an attorney where the fees are based on an hourly rate or through a contingent fee agreement. The decision is one that you make. Many people like to hire an attorney through a contingent fee agreement because this provides that the attorney is paid only if there is a recovery.
There are more questions to be answered. For over 28 years this office has been helping people in Southwest Michigan. We have also handled cases in Indiana, Illinois and other states within the continental United States.
Schuitmaker, Cooper & Schuitmaker, P.C. represents people in all types of accidents, not just automobile accidents. We have been involved in multimillion dollar litigation. So if you or a loved one are in an accident and are in need of a team of attorneys highly specialized in unique areas of the law, we are available to you.
We are local attorneys with a proven record of helping victims of serious injury and/or death.
Q. What types of legal structures are available for setting up a new business?
Sole proprietorship, partnership, limited liability company, or a corporation ("C" Corporation or "S" Corporation) are the most widely used choices available. There are also other variations on these classifications. Tax, legal, and estate planning issues play a big role in your decision. Making the wrong choice can cost time and money. Each structure has a different legal and tax status that can be used to your advantage as follows:Sole Proprietorship
A sole proprietorship is usually a small business with few, if any, employees. It is easy to form and there are few restrictions on the flexibility. Profits and losses flow through the proprietor and are reported on his or her personal form 1040 income tax return. There is generally no protection for the sole proprietor against legal liability for the proprietor’s actions or inactions.Partnership
Like the sole proprietorship, the partnership's profits and losses flow through to the partners. In addition, losses can be deducted; however, there are restrictions on the proportion. The disadvantage is the lack of legal protection against legal liability. Each partner is liable for all the partnership debts.Limited Liability Company
A limited liability company may be taxed like a partnership (i.e. through the individuals). In addition, it offers its members limits to liability from the business' and the other members' liabilities."C" Corporation
A corporation is a legal entity having its own assets, liabilities, and privileges apart from those owning or forming the corporation. The corporation can own assets, borrow money, and perform business functions. Corporate earnings, however, are subject to double taxation of profits. A "C" Corporation pays its own income taxes and, when dividends are passed through to shareholders, they too are liable for taxes on that payment. A corporation’s stockholders are generally not liable for corporate debts and liabilities."S" Corporation
If an "S" Corporation qualifies, it may be taxed under a special section of the Internal Revenue Code which permits a corporation to be taxed as a partnership/sole proprietorship, i.e., through the individuals, generally, there is no "double taxation" problem.
Q. Do I need an Attorney involving the purchase or sale of my home?
The purchase of real estate is possibly the most important single investment you will ever make. It may be wise to have an attorney experienced in real estate to assist you through this process. Your attorney will protect your interest by looking over the purchase agreement, making sure the terms and conditions of the sale are being followed. Your attorney will make sure you are getting good marketable title to the property and that all closing documents are in order.
Q. What is a Purchase Agreement and what should I look for?
The Purchase Agreement is the preliminary contract wherein the Purchasers agree to purchase property and the Sellers agree to sell the property, usually with certain conditions. It is important you consult an attorney before entering into a purchase agreement as it needs to contain terms of the sale and what needs to happen before the sale can be finalized. The Agreement should include: the purchase price, financing arrangements, what personal property is included, what inspections need to be done, who will pay for them, who will pay for any repairs, prorations and the date used to compute proration, earnest money paid by the buyer and the date of occupancy. Often important terms can be overlooked so it is best to seek the advice of an attorney.
Q. What is Earnest Money and what happens to it if the sale falls through?
Earnest Money is the money the buyer deposits with a third party, to be held in escrow, to show good faith and helps to make the purchase agreement a binding contract. When the sale is completed this money is given back to the buyer. If the sale falls through, the earnest money may be used to pay any expenses already incurred. If the buyer fails to perform according to the sales agreement, the seller may choose to keep the deposit and, if the contract so states, require specific performance. The purchase agreement should state what will happen in such cases.
Q. What is included in closing costs?
Closing costs include title insurance, property tax prorations, recording fees, inspections, escrow fees, transfer tax, loan fees, attorney fees and sales commissions. Who pays these fees will vary from place to place, therefore the purchase agreement should state who will pay which fees.
Q. Why do I need to purchase title insurance?
Most purchase agreements require the Seller to provide title insurance to the buyer as a guarantee that they have marketable and unencumbered title to the real estate.
Q. How long does it take to get a divorce?
By State statute, a final Judgment of Divorce may not be entered until after the expiration of a waiting period: 60 days after the Complaint was filed for a divorce that does not involve minor (under the age of 18) children, and six (6) months when minor children are involved. The date of filing starts the waiting period.
Q. Can I get custody of my child?
In establishing custody or modifying existing custody arrangements, the court is required to consider statutory factors outlined by the legislature and to make specific findings on the record. These factors, known as the Best Interest of the Child Standard, apply to custody disputes between parents, between agencies, and between third parties such as guardians.
Q. How do I get child support and how does it work?You must file a petition with the Court asking for support. If both parties agree and sign an agreement, it will be entered as a support order if it is approved by the court as being in the best interest of the child. If there is no agreement, the court will hold a hearing and possibly conduct a wage investigation. The court must use a child support formula to determine the appropriate amount of support. The formula considers both the non-custodial and custodial parent's income. The support can include the payment of health insurance premiums, medical expenses, child care expenses, and educational expenses.
The responsibility for processing and mailing payments is handled in Lansing, Michigan by the Michigan State Disbursement Unit ("M.SDU") which is a statewide child support system.
Q. What is Parenting Time and how does it work?The court must grant parenting time according to the best interest of the child. Michigan law requires the court to presume that a strong relationship with both parents is in the child’s best interests. The court must also decide the frequency and length of parenting time according to the child’s best interests. Further, the court may grant specific parenting time terms if requested by either party at any time. During the time the child is with a parent, that parent may decide all routine matters. This would include such things as when the child will go to bed and who may be present during the parenting time. A parent’s right to make decisions about any of these routine matters may only be restricted if ordered by the court. Since parenting time and child support are separate orders, and have separate enforcement procedures, a parent cannot cut off the other parent’s parenting time if he or she has failed to make regular child support payments.
Q. What can I do to have visits with my grandchildren?As of January, 2005 Governor Granholm signed into law language establishing rights for grandparents to petition for visitation with a grandchild. Michigan law now allows a grandparent to seek a grandparenting time order under one (1) or more of the following circumstances: (a) an action for divorce, separate maintenance of annulment is pending between the child's parents; (b) the child's parents are divorced, separated under a judgment of separate maintenance, or have had their marriage annulled; (c) the child's parent, who is a child of the grandparents, is deceased; (d) the child's parents have never been married, are not living together, and paternity has been established; (e) if the legal custody of the child has been given to a person other than the child's parent, or the child is placed outside of and does not reside in the home of a parent, except in certain cases of adoption; (f) in the year preceding the commencement of a request for grandparenting time, the grandparent provided an "established custodial enviorment" for the child. In order to obtain a grandparenting time order, the grandparent must prove by a preponderance of the evidence that a parent's decision to deny grandparenting time creates a substantial risk of harm to the child's mental, physical, or emotional health. This is a substantial burden and the grandparent should fully explore this matter with the assistance of an attorney before deciding to proceed.
Q. How is Paternity established?Establishing paternity means making the biological father the legal father too. If the mother is married at the time of conception and/or birth, her husband is considered by law to be the legal father unless a court has determined that the husband is not the father. If the mother is not married at the time of conception or birth, paternity can be established voluntarily through an affidavit of parentage or a judge can declare a man the legal father of the child through a paternity action.
Q. What is the Friend of the Court?As suggested by its name, the purpose of the Friend of the Court ("FOC") is to help the court in determining proper orders for domestic cases. There is at least one FOC office for each circuit court in Michigan. The FOC’s responsibilities fall into four main categories: 1) helping parents resolve their disputes without court action; 2) investigating facts where court action is necessary; 3) providing forms that help parties in filing support, custody, and/or parenting time motions; and 4) initiating enforcement when it appears that the court’s custody, parenting time, or support orders are not being followed by a party.
Q. Does Michigan recognize common-law marriages?No. Effective January 1, 1957, common-law marriage was abolished by state statute. Parties are now required to consent and have a license to have a valid marriage. The purpose of abolishing common-law marriage was to prevent perjury and fraud in survivor benefit cases involving so-called common-law marriages. However, there are two exceptions to this rule: Courts will recognize a common-law marriage when 1) couples who had a common-law marriage before January 1, 1957 are deemed legally married, and 2) If a common-law marriage was valid in the state where the couple became "married," then the marriage will be deemed valid in Michigan.
Q. What is an Annulment?Annulment is the means of dissolving two kinds of marriages - those that are deemed to be void - as having never taken place (ab initio) and marriages that are voidable. The grounds for declaring a marriage void are consanguinity (too closely related by blood), affinity (too closely related between a spouse and the blood relative of the other spouse), bigamy, fraud, duress, and nonage. If a marriage is void, it is deemed as having never taken place. If a marriage is voidable, it is valid until one of the parties brings an action to have it annulled. The action must be brought while the parties are still living, and until a court declares the marriage annulled, it is legally binding.
