John D. Erdevig, Attorney. Wills

What is a trust?

Living Trust -- what most people ask about: A living trust or revocable grantor trust is a legal entity that can own property. It is an entity that you form during your lifetime with a signed document similar to a will. A trustee manages the trust. Sometimes it is said that certain assets have been transferred to the trustee, rather than to the trust. The first trustee you name in that document is typically you. But then you also usually name a family member so that if you should become disabled or die before them there is less chance of a gap in the management of the trust’s assets. (For a discussion of trusts in a will for the support of abled but still maturing young adult children, see ”Trust in will, for children.”) Living trusts can be kept simple, but still require more attention and maintenance as compared to, say, completing a stand-alone will. Your follow-up with your will might be as simple as pulling it out of a drawer for review every few years, or when there is a significant event like a death in your family. For a trust to work, some care must be taken to title newly acquired property in the name of the trust, and for the trustee to show on many occasions that the trustee is signing on behalf of the trust, for example. It might be helpful to think of a trust as similar to a corporation, and the trustee as like the governing board of the corporation.

Probate avoidance, the most common reason cited for wanting a trust: Trusts are often sold as a surefire way to avoid probate and as the only way to minimize probate. Probate is the court-based process for determining what property is owned by a deceased person, what legitimate debts can still be claimed against that property, and then who receives what and in what shares. If the person left a will, then the will is proven to be the last will made by the person while competent, and property is distributed according to your will. If you die without a will, there is a formula for distribution of your property that favors close relatives based on social science survey data. What probate definitely is not is a black hole where "the government gets my money" or a judge arbitrarily decides who gets what. Still, the amount of property that might be subject to the probate process should normally be minimized to save money and time. The amount of a deceased person’s property subject to probate can be minimized by various means besides setting up a living trust -- see the last paragraph of this topic. Also, probate can be a tolerable or even a necessary thing. Sometimes it resembles post-death trust estate settlement, but with a few interactions with a court clerk who appears to just stamp documents, with no judge or courtroom in sight. Even when not desirable, probate is not always the costly and protracted ”nightmare” of urban legend, particularly in Washtenaw County, where almost all of my practice is located. Some sad tales of probate delay, poor interactions with staff, even corruption or incompetence, makes the rounds among clients and attorneys, however. Know that circumstances that complicate probate can also complicate post-death trust settlement, even winding up in court either way. So the appropriate question is whether the burden of maintaining a living trust throughout one’s lifetime is worth the attempt to avoid probate completely. Usually, for most of my clients, there needs to be another reason besides probate avoidance, before a living trust seems appropriate to commit to.

Important reasons for having a living trust, or using other legal tools, include: maintaining eligibility for certain public benefits, avoiding Medicaid estate recovery, delaying or minimizing certain taxes - taxes that do not trouble the majority of estates - or managing changeable family situations after your death or disability. In these cases, sometimes there is no substitute for the way a living trust can collect various assets under the control of a trustee after your death or disability. See ”Do I Need a Trust?”

How can probate be minimized without using a living trust? The most common way is to designate beneficiaries on certain assets. This is done on forms provided by each financial institution or insurer, or by your employee benefits office that manages an asset such as life insurance or retirement funds. Some forms allow you to name successors in case your primary beneficiary dies before you do. Beyond that, the forms can be somewhat limiting, however, and solutions involving a will or a trust must be looked at. Have a lawyer go over your choices, and analyze unanticipated sequences of death and their impact on your beneficiary form instructions.

Legal plan coverage
for simple estate planning documents

Most common legal plans offered as an employment benefit cover simple wills, individual or couple.

Testamentary trusts (a contingent trust within a will) guarding funds for the support of dependent children through young adulthood, are covered. Probate-avoidance living trusts are covered, but are generally not cost-effective nor practical for John’s client population. Non-trust methods of minimizing probate involvement, cost and delay will be discussed. Tax advice and tax-avoidance drafting are not covered, and tax-sensitive matters will be referred out.

Many employment-based legal plans cover financial Powers of Attorney, to delay or avoid the need to obtain a conservatorship to manage an incompetent’s estate. Powers can become effective immediately (e.g. to allow a spouse to manage one’s affairs while one is absent from the country), or upon certification of two doctors that one cannot manage one’s own financial affairs, due to a medical condition.

Many employment-based legal plans cover a health care power, known in Michigan as a Designation of Patient Advocate. They also frequently cover “Living Will” Guidelines - Advance Health Care Directives, including end-of-life and funeral instructions.

John Erdevig encourages everyone with a legal plan to contact its administrators to learn more about what coverage is available and opportunities to persue these legal services.