Trusts Attorney in Farmington Hills, Michigan
Trusts are a critical component of estate planning, offering numerous benefits for those who wish to manage their assets effectively and protect their legacy. In Michigan, trusts are often used to avoid probate, reduce taxes, and provide for loved ones in a structured manner.
At the Law Office of Blake P. Lipman, he’ll help you explore the different types of trusts available in Michigan, the advantages of using a trust in your estate plan, and how trusts influence the probate process.
What Is a Trust?
A trust is a legal arrangement in which one party, known as the grantor, transfers assets to a trustee, who holds and manages those assets on behalf of the beneficiaries. The trustee is responsible for managing the trust assets according to the terms set forth in the trust document, making sure that the grantor’s wishes are carried out and that the beneficiaries receive their designated shares.
In Michigan, trusts are often used as an alternative to wills because they offer several advantages, including avoiding probate. Probate is the legal process through which a deceased person's will is validated, and their assets are distributed to beneficiaries. While probate serves an essential function, it can be time-consuming, costly, and public, which is why many people seek to avoid it through the use of trusts.
Types of Trusts in Michigan
There are several types of trusts that can be established under Michigan law, each serving different purposes and offering unique benefits. Understanding these different types of trusts is essential for anyone considering how to structure their estate plan.
1. Revocable Living Trusts
A revocable living trust is one of the most commonly used trusts in Michigan. This type of trust is created during the grantor’s lifetime and can be altered or revoked at any time. The grantor typically serves as the trustee, retaining control over the assets placed in the trust.
One of the primary benefits of a revocable living trust is that it allows the grantor to avoid probate. Since the assets are owned by the trust, they aren't subject to probate upon the grantor’s death. Instead, the assets are distributed directly to the beneficiaries according to the terms of the trust, which can significantly speed up the process and reduce legal costs.
2. Irrevocable Trusts
Unlike a revocable living trust, an irrevocable trust can't be altered or revoked once it has been established. When assets are placed in an irrevocable trust, the grantor relinquishes control over those assets, and they're no longer considered part of the grantor’s estate.
Irrevocable trusts are often used for tax planning purposes, as they can help reduce estate taxes by removing assets from the grantor’s taxable estate. These trusts can also be used to protect assets from creditors, as the assets are no longer owned by the grantor once they're transferred into the trust.
3. Testamentary Trusts
A testamentary trust is created through a will and doesn't take effect until the grantor’s death. Unlike living trusts, testamentary trusts don't avoid probate, as they're established as part of the probate process.
Testamentary trusts are often used to provide for minor children or beneficiaries who may not be capable of managing their inheritance. The trust can specify how and when the assets are to be distributed, making sure that the beneficiaries receive the support they need without gaining access to the full inheritance before they're ready.
The Benefits of Using a Trust in Michigan Estate Planning
Trusts offer several key advantages that make them an attractive option for many individuals when planning their estates. Whether the goal is to avoid probate, reduce taxes, or provide for loved ones, trusts can be an effective tool in achieving those objectives.
1. Avoiding Probate
One of the most significant benefits of using a trust in Michigan is the ability to avoid probate. As mentioned earlier, probate can be a lengthy and costly process, and it often involves public disclosure of the deceased person’s assets and beneficiaries. By transferring assets into a trust, those assets bypass the probate process and are distributed directly to the beneficiaries, providing a more private and efficient method of estate distribution.
2. Reducing Estate Taxes
For individuals with large estates, reducing estate taxes is often a priority in estate planning. Irrevocable trusts can be particularly useful in this regard, as they remove assets from the grantor’s taxable estate. This reduction in the taxable estate can lead to significant tax savings, preserving more of the estate’s value for the beneficiaries.
3. Protecting Assets
Trusts can also provide a level of protection for the grantor’s assets. For example, assets placed in an irrevocable trust are generally shielded from creditors, as they're no longer owned by the grantor. This protection can be particularly valuable in cases where the grantor faces potential liability or financial risks.
Additionally, trusts can be structured to protect beneficiaries from losing their inheritance due to poor financial decisions, divorce, or legal judgments. By placing conditions on the distribution of assets, a trust can help make sure that the beneficiaries receive ongoing support without risking the loss of the entire inheritance.
Trusts and the Probate Process in Michigan
While one of the primary advantages of using a trust is to avoid probate, it’s important to understand how trusts interact with the probate process in Michigan. Not all assets can or should be placed in a trust, and there are situations where probate may still be necessary, even if a trust is in place.
1. Funding the Trust
For a trust to effectively avoid probate, it must be properly funded. This means that the grantor must transfer ownership of assets into the trust during their lifetime. If assets aren't properly transferred into the trust, they may still be subject to probate, defeating the purpose of the trust. Common assets that can be transferred into a trust include real estate, bank accounts, investments, and personal property.
2. Pour-Over Wills
Even when a trust is in place, it’s common for individuals to create a pour-over will as part of their estate plan. A pour-over will directs that any assets not already placed in the trust at the time of the grantor’s death be transferred into the trust upon their passing. While this does mean that these assets will go through probate, the pour-over will guarantees that all assets are eventually placed in the trust and distributed according to the trust’s terms.
3. Probate for Assets Outside the Trust
Not all assets can be placed in a trust. For example, certain types of retirement accounts, such as IRAs and 401(k)s, may have specific beneficiary designations that make them unsuitable for placement in a trust. In these cases, the assets will pass directly to the designated beneficiaries outside of the probate process.
Additionally, if the grantor fails to transfer certain assets into the trust before their death, those assets may still be subject to probate. This highlights the importance of regularly reviewing and updating the estate plan to make sure that all intended assets are properly transferred into the trust.
Speak to a Michigan Trusts Lawyer
Trusts are a powerful tool in Michigan estate planning, offering numerous benefits such as avoiding probate, reducing estate taxes, and protecting assets. By understanding the different types of trusts available and how they interact with the probate process, individuals can make informed decisions about how to structure their estate plans to best achieve their goals.
Whether considering a revocable living trust, an irrevocable trust, or a testamentary trust, working with an experienced estate planning attorney can help make sure that the trust is properly established and funded, providing peace of mind that one’s assets will be managed and distributed according to their wishes. Properly utilizing trusts in estate planning can make a significant difference in the efficiency and effectiveness of passing on wealth to the next generation.
Are you searching for a family lawyer who is experienced with trusts and probate?
Attorney Blake P. Lipman is here to help. When you choose him as your lawyer, he’ll always work — andcommunicate — with you directly. He makes himself available to update you on your case, answer your questions, and address your concerns promptly. He serves the Detroit Metropolitan Area, and Tri-County area of Oakland, Wayne, and Macomb. Reach out today to get started and remember, even though things may seem overwhelming now, you can get through this.