Estate Planning 101:

Shea AielloA Professional Limited Liability Company

How to protect your family, build a legacy, and find peace of mind.

Copyright © 2015, Shea Aiello, PLLC 26100 American Drive, Southfield, Michigan 48034

Disclaimers: Although the author(s) and publisher have made every effort to ensure that the information in this book was correct at press time, the author(s) and publisher do not assume and hereby disclaim any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from negligence, accident, or any other cause. The scenarios included in this document are not uncommon and include some variations of real life scenarios.

The information in this publication is based on general legal and tax rules and is strictly for informational purposes only. It is not intended as legal or tax advice. Readers should consult legal and tax advisors as to their specific legal or tax situation as it may require more complex analysis, or the consideration of other information.

TABLE OF CONTENTS

What Probate Court can do to a family ..........................................................

Incapacity Planning: How a simple, affordable document can save your family thousands ..........................................................................................

Planning for Death: Keep your family intact and pass on a legacy ...........

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What Probate Court can do to a family: Jim did it all the right way… This is a story about a man named Jim. Most would probably consider him the very embodiment of the ‘American Dream’. He graduated from dental school, married his college sweetheart, and moved into a cozy three-bedroom home where he raised his three children. Jim enjoyed a successful career as a Dentist and through hard work and wise investing, ensured that his family would be able to continue enjoying the fruits of his labor long after he was gone. Always with an eye to the future, he carefully crafted a well-funded retirement plan and put in place ample life insurance policies - actions we consider essential to building a comfortable financial future. In fact, you might say Jim was a picture of perfect financial health. And that would be true, but for two exceptions: Jim never finished his estate plan. A family left helpless. One otherwise ordinary day, Jim had a heart attack. With his wife visiting family out of the country, his adult children rushed to the hospital to help with his care. Unfortunately, once there they were denied the ability to make critical decisions with regard to his treatment, because Jim had never put a Health Care Power of Attorney in place. This document would have made clear his wishes with regard to medical treatment. It would have empowered his trusted loved ones to make critical health care decisions during his incapacity, without the stress of having to guess what decisions Jim would have wanted. 2

Tragically, Jim passed away shortly thereafter, and unfortunately for his loved ones, their grief over his sudden demise was just the beginning of their issues, because, as mentioned earlier, Jim never completed an estate plan.

As a result, his wife was forced into a messy and complicated legal battle with Jim’s former business partners over the division of his practice. Legal bills quickly began piling up. When a settlement finally was reached, Jim’s wife ended up with only a fraction of what she could have potentially had for a secure lifestyle.

From bad to worse; squabbling siblings tear at the fabric of a family.

Eventually Jim’s wife passed away as well, also without an estate plan.

Having no secure estate plan in place, such as a Revocable Living Trust and Pour-Over Will, Jim and his wife had now unwittingly subjected their family to their state government’s ‘estate plan’ for them; namely, Probate Court.

Once the proceedings began, it did not take long for matters to turn very ugly. Because Jim and his wife left no clear directions regarding who would manage his estate, the Probate Court Judge assigned to their case simply followed state law and appointed Jim’s eldest son, who had a well-documented history of gambling and substance abuse issues, as the administrator of the estate.

Jim’s two daughters, furious at the decision, hired their own separate attorneys and challenged their brother’s appointment in court.

The resulting legal bills were extraordinary. By the time the probate process was over and the assets were finally divided, a large portion went straight into the pockets of the various attorneys who had represented Jim’s children. To top it off, the meager amount which was left of Jim’s once formidable estate was squandered by Jim’s irresponsible son at the casino.

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We hear this story every day.

We hear some variation of this story every day.

If you are interested in learning more about how to prevent these kinds of catastrophes in your family, then keep reading. This booklet will show you the basics of estate planning.

It is our hope that this information serves you and your family well.

Sincerely,

The Shea Aiello legal team

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Incapacity Planning: How a simple, affordable document can save your family thousands.

When people think about estate planning, they normally think of planning for death. They think about a crumpled-up Will shoved in a bottom dresser drawer, dictating how the person’s worldly possessions should be divided.

But few realize that estate planning is also about planning for incapacity.

What do we mean by that?

What would happen if you were to suffer from an accident or sudden, unforeseen illness, rendering you unconscious or otherwise unable to manage your affairs?

Who would make medical decisions for you? What kind of decisions would you want them to make? What kind of decisions would you NOT want them to make?

Who would pay your bills, manage your financial life, or run your business? If you are married, your spouse could potentially handle some of these issues, but what if they are also incapacitated?

Powers of Attorney can help you plan for incapacity.

There are two documents that we recommend that our clients implement to plan for incapacity:

The Financial Power of Attorney

The Health Care Power of

Attorney

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Both documents work largely the same. You will appoint an agent, such as a trusted family member or friend, who can make financial and/or medical decisions for you while you are alive, but incapacitated. You will probably also want to name a few backup agents, who can act if your first choice is unable or unwilling. Each document will have a list of “Powers” that your agent has. Most standard Financial Power of Attorney documents let your agent pay your taxes, manage your bank accounts, and pick up your mail, among other responsibilities. The Health Care Power of Attorney will have directives to your agent on what to do in certain scenarios. Examples include your wishes should you be placed on life support—would you want your doctor to have the authority to make a decision based on his medical opinion? Perhaps you would prefer to put the decision solely in the hands of a trusted agent of your choosing; or perhaps a combination of the two. What happens if you do not get these documents in place? Terri Schivao’s story is a cautionary tale about why you should have these documents. Terri was a normal, 27-year-old woman from an ordinary middle-class American family. Then on February 25, 1990, she suffered medical complications resulting from poor dieting and went into a permanent coma. From that point onward, her family became embroiled in a legal struggle that cost an untold amount of money.

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The issue was whether to carry out the decision of her husband to remove Terri's feeding tube that provided life support, or to follow Terri’s parent’s wishes to keep her on the feeding tube in the hope she would recover. Her family went through 15 years of legal battles before Terri was finally taken off life support in 2005. A simple document could have saved Terri’s family unforetold expenses and given Terri dignity. This emotional and financial turmoil could have been avoided with a Health Care Power of Attorney- a document that costs a minimal amount of money. Further, Terri could have made clear to her family and medical professionals what her wishes were involving long-term life support. To be fair, this is a rather extreme example. Should you or someone you know end up in a similar situation as Ms. Schiavo, it may not garner the attention of the government, the news media, or the Supreme Court. But our loved ones will still be experiencing the same issues and potential turmoil. For example, without having Powers of Attorney in place, your loved ones will have to go to court to argue for the right to make decisions for you. They will also now be guessing what decisions you would have wanted them to make, as they have no instructions or guidance from you. And ultimately, a Probate Court Judge, based on the laws written by our government and as argued by Lawyers, will have the final say. Most would probably agree that your health, both medically and financially speaking, is far too important to leave to chance. These are very personal issues. If you agree, take control of the process and do not allow the court system the power to dictate your circumstances to you, likely knowing nothing about your family dynamics and individual preferences.

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Close friends and partners not allowed. Here is something to consider: often the person the court places in charge is within the family, and the law defines ‘family’ as blood. However, we suspect that some reading this information would instead consider a close friend or domestic companion as their nearest and dearest ‘family’ member. And for many, they would much rather have their close friend or domestic companion be in charge of making some of the most intimate decisions that can be made on one’s behalf. Your young adult child is incapacitated. Who will make the student loan payments? Who needs Power of Attorney documents? We believe the answer is anyone over the age of 18. Why? Because life is unpredictable. At any given moment any of us could find ourselves in a situation where we are not able to care for our own affairs for an extended period of time. Who would pay your bills? Or even open your mail? Here is an example. We had a young client who went in for surgery without a Financial Power of Attorney signed. While he was laid out on the hospital bed, his student loan company sold his debt to another student loan company, disrupting the automatic payments he had setup. He had no way of knowing or doing anything about it. As a result, he nearly defaulted on his loans. Most people would say he did not need Powers of Attorney; he is just a kid. But again, we cannot predict when these documents will be needed. Do you have college-age children? Do not get shut out of the decision-making process. Here is another situation involving young people that you may not have considered. Imagine you have an adult child who’s between the age of 18 and 24. 8

The law says your child is an adult at age 18. Socially, many of us do not look at it that way anymore. Many parents continue to help their adult children well into their twenties, either with bills, housing, or college tuition. So, there is this disconnect between society and the law, because if your adult child becomes incapacitated tomorrow, you don’t have a say in the decision-making process. Although it is something that no parent wants to consider, it is possible for your child to become incapacitated due to an accident or medical condition. What is more likely, however, is that your adult child may travel for an extended period – either out of the state or out of the country. If you need to make a financial decision for them while they are gone, you could be unable to do so without proper planning. So, in short, are we suggesting that your adult child needs Powers of Attorney? Yes, absolutely. Consider your own parents. Lastly, think about your parents. As they get older, the likelihood of them losing their decision-making capacity – due to mental and or physical deterioration – is only going to increase. If your parents have no Powers of Attorney in place, you (and your siblings) could be at a loss to help them pay their bills and make medical decisions in line with their wishes. Again, these are situations that we see unfolding every day in our offices. Therefore we urge you and your loved ones to enact both Financial and Health Care Power of Attorney documents as soon as possible. We believe that doing so can save an untold amount of money, time, and stress.

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Last Will and Testament

Revocable Living Trust

Planning for Death: Keep your family intact and pass on a legacy. So far, we have talked about planning for incapacity. Now, let’s talk about planning for death. The two principal documents we will be talking about are the Last Will and Testament (“Will”) and the Revocable Living Trust (“Trust”). Essentially, the Will leaves instructions to the probate court as to how to distribute your assets at your passing, whereas the Trust actually distributes your assets privately, outside of Probate Court. Here is an easy way to think about it: a Trust, in most cases, is simply an improved and more effective Will. What happens without at least a Will in place? There are some important questions that you should be asking yourself if you do not have an estate plan in place. Should you die today: Who is going to be in charge of where your money goes? Who is going to be in charge of where your valuables go? Who would be responsible for managing your assets and watching over your other possessions if you have minor children or dependents?

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If you are married, your assets will probably pass directly to your spouse at your passing. However, if you were single or were the last surviving spouse, the answers to these questions lead to a different path: Your state’s intestate succession laws will control the situation. Simply put, our government has made laws deciding who is important in your life, and who is worthy of receiving your possessions. A Probate Court Judge, interpreting these laws, will ultimately determine who gets your assets and when they will receive them. So just think about it:

- Would you like for your distant and/or possibly irresponsible relatives to inherit any portion of your estate?

- Would you want your 18-year-old child to inherit your entire estate outright (rather than in installments or when he/she is older and more responsible?)

While a judge may be perfectly competent, the fact remains that he or she likely does not know you (or your relationships). We believe that you are a much better alternative to making decisions than the court. Want to keep Grandma’s jewelry off of the auction block? An important point to remember is that probate court judges cannot understand an item’s intrinsic value. Imagine you are heading home from work one evening. As you pull into your driveway, you notice that your home is on fire. Everyone has made it out ok, even the pets. However, the fire fighters are outside, desperately battling the flames. They inform you that they are willing to run in and grab one or two of your most prized possessions before all is lost. What do you ask them to rescue?

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Chances are, you are probably not asking them to grab the HD TV or the 8-Slice Toaster. You are asking them to grab the family photos, Grandpa’s letters, Dad’s stamp collection, or Grandma’s jewelry. Items that may not have a lot of market value but have incredible sentimental value to you and your family and, as such, are considered ‘irreplaceable’. Now imagine that you suddenly pass away tomorrow – without a Will and Trust in place. By default, the Probate Court is going to put some sort of dollar value on these treasured family assets, and consequently sell them in an estate sale. How much value would you imagine a judge would put on those family photos or grandpa’s letters? Thus when you think about the disposal of your assets at your passing, you should think more expansively than just your bank account or 401k. Those items are important of course, but most of us likely also have possessions that have far more intrinsic value to us and our family. Items that define our family’s history. Even the smallest of items can tear apart a family. A good example of this is what we at our firm call the “Deer Antler Story.” A father, believing that he did not need an estate plan, never implemented one. He imagined that because his estate was relatively modest by his standards, “everything would just work itself out”. Unfortunately, he forgot to think about his deer antlers, which had enormous sentimental value to his son and daughter, despite having little dollar value. The thought never crossed his mind that he needed to have an estate plan in place so that his children wouldn’t fight over the antlers. Eventually, he died, with no instructions to his children on how to divide his personal items. His son and daughter began to fight over the antlers. Over time, the fight became more bitter and pronounced. Eventually, the son and daughter stopped speaking to one another and ended their relationship – all over a pair of antlers probably worth $500, but of the utmost importance to each of them. These are issues faced by every single American family. So you need to think about who is going to inherit your family’s most treasured assets, and plan for it. Do not just hope that everything will work itself out. It often does not.

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Guardianship: what happens to the minor children in your family? Now let’s talk about children. A very important question that you should be asking yourself is: “what’s going to happen to the minor children in my family should something happen to my spouse and I?” Without an estate plan, a

judge will decide who has the responsibility of taking care of the children. Would you be comfortable with the prospect of leaving the care of your minor children to the discretion of a judge who has almost certainly never met you? Fortunately, with at least a Will in place, parents can leave instructions telling the Probate Court who they wish to appoint as a child’s legal guardian. You pass away. Who controls the situation? And who picks up the tab? To recap, without at least a Will in place, you are giving:

Judges… Lawyers… and possibly distant or irresponsible relatives…

…a high degree of control over your assets and the guardianship of your children when you die.

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Then, these assets will pass to your beneficiaries outside of Probate Court

Life Insurance

Bank Accounts

Real Estate

In the absence of a Will, your estate will pay an average of about $8,000 in probate court fees. And that’s before estate taxes, which can be as high as 40% of your estate. Unfortunately, the system has little regard for the fact that you have faithfully paid taxes for all of your working life. Once you die, the system will come back for more. So what are your options? At minimum, you need to have a Will. A Will gives the Probate Court direction with regard to the guardianship of your children and the distribution of your possessions. It is a cost-effective way to make sure your most prized possessions do not end up in the wrong hands. Think of it as protecting your legacy here on Earth. However, we recommend getting a Will and a Trust. So what is a Trust? A Trust is a legal entity that you create, much like a company. During your lifetime, you will have to place assets into your Trust (such as real estate, bank accounts, life insurance plans, etc.). Then, when you pass away, assets placed into the Trust will bypass Probate Court and will be distributed privately to the beneficiaries you name in the trust document (e.g. mom, dad, Aunt Carol, your best friend).

First, place assets into your Trust during your lifetime

YOUR TRUST

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That is one major advantage of the Trust over the Will – it is private (whereas passing a Will through Probate Court is a public process). Assets passed through a Trust also avoid costly probate court fees. Next, you can also designate when your beneficiaries will get your distributions (all at your death or at a determined time in the future: age 21, college graduation, age 30, etc.). We understand that many would not be comfortable giving their 18-year-old everything they own. So, you can appoint trustees to manage the shares for your children (or other beneficiaries) until they are old enough to manage their shares on their own. Trusts can also allow for sophisticated tax planning as well as planning for beneficiaries who have special needs. A Trust doesn’t eliminate the need for a Will. In this scenario, imagine that you forgot to put certain assets into the Trust while you were still living. These individual out-of-trust assets would be subject to the probate process. However, if in addition to your trust, you have a complementary document known as a Pour-Over Will, it can instruct the Probate Court to move these assets into the Trust where they can be privately distributed. While it is not an optimal scenario, it certainly can provide a layer of protection that otherwise would not exist. Thus, having a Pour-Over Will and a Trust together will give you the greatest control over your estate at your passing. Avoid

Probate Court

Control the distribution of your assets

Control who gets your children

Tax Planning

Trust + Will Yes Yes Yes Yes

Will No Sort of Yes No

No Documents No No No No

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First things being first, plan for incapacity. While there are undeniably great benefits to implementing your estate plan in a comprehensive manner, when that is not possible, we strongly urge you to start with the creation of Financial and Health Care Powers of Attorney. These are the simplest, and most inexpensive of all the documents we have discussed here, but they can save you and your loved ones countless amounts of time, stress, and money. However, if you are concerned about leaving behind a legacy, we urge you to get a Will done as well. Just remember that a Will without a Trust is limited in what it can provide for you and your family. For the most comprehensive and we believe thorough estate planning strategy, we would urge you to consider Financial and Health Care Powers of Attorney, a Pour-Over Will, and a Trust. Such documents, in conjunction, have proven time and again to provide a secure estate plan for thousands of our clients, providing reassurance that what they have worked for will reach the hands of those they have worked for, as efficiently and effectively as possible.

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Good

• Financial and Health Care Powers of Attorney

Better

• Financial and Health Care Powers of Attorney

• Last Will

Best

• Financial and Health Care Powers of Attorney

• Pour-Over Will

• Trust

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CONTACT INFORMATION

Call us at one of the numbers below to schedule a complementary consultation with an estate planning

attorney.

We will review your current estate planning strategy or discuss establishing a new strategy. The review meeting is complementary and comes with no charge or obligation.

Schedule a complementary consultation:

Metro Detroit: Southfield – Clinton Township – Romeo – Taylor

Call 248-354-0224

Eastern & Western Michigan Ann Arbor – Tecumseh – Grand Rapids – Kalamazoo – Lansing

Call 734-222-0206

Northern Michigan Midland – Bay City – Saginaw – Flint

Call 989-839-4341

Upper Peninsula Traverse City – Sault Ste. Marie – Muskegon

Call 248-354-0224

Have a question first? Email us at info@sadplaw.com

Visit us on the web at www.sadplaw.com 17

About our firm. Shea Aiello, PLLC has built a reputation for excellence. The firm is AV-rated by Martindale-Hubbell, the best known peer-review rating system for attorneys; an “AV” rating indicates a high level of skill and ethics. Each of the firm’s named partners has been honored as a top Michigan Attorney by such popular publications and associations as Super Lawyers, Hour Magazine, and DB Business. The firm’s litigation department is a national leader in the areas of complex commercial/insurance disputes, personal injury, and medical/legal malpractice, winning multiple million-dollar settlements and jury verdicts throughout the country. The firm’s estate and business planning department has grown to become one of the largest in Michigan, servicing over 3,000 clients per year. Our Philosophy We have a unique philosophy to providing legal services. We believe that legal services are too expensive because Lawyers have rigged the game, so that you only go to see them when you’re in crisis. And when you’re in crisis, they can charge you exorbitant fees. Think of it like the cost of a major surgery as compared to a routine checkup. We’re trying to change the way legal services are offered to mimic the family physician. We want to perform preventive and proactive care so that you can avoid lawsuits and unnecessary disputes. This relationship-based approach is more affordable for our clients, and more enjoyable for our attorneys.

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