Do I need a Michigan Revocable Living Trust?
There are 3 main reasons to set up a revocable living trust in Michigan. If any 1 of the 3 applies to you, a trust can be a great estate planning tool. But if none of the 3 apply, why go through the time and expense of setting up a complicated legal document that is ultimately unnecessary?
Before jumping into the reasons to set up a trust, what do I mean by a “revocable living trust?” For this type of trust, you retain complete control over your assets while you are still alive; and you can amend or revoke the trust at any time. Because of that, the assets in the trust are still available to your creditors, and it is mainly an estate planning tool for after you pass away.
(The other common type of trust is an irrevocable trust where you give up control of your assets while you are still alive – in exchange for your creditors not being able to touch the assets. But that’s another article for another day.)
Now, on to the reasons to set up a Michigan Revocable Living Trust…
- Tax Planning (aka, How to Avoid the Federal Estate Tax)
First, a revocable trust can be a great tax planning tool. 20 years ago, the federal estate tax exemption was only $600,000. Which meant that your heirs would have to pay an estate tax of up to 55% on the value of your assets above $600,000. Until 2001, over 50,000 estates in America were paying the tax every year. Trusts were very common back then, with all kinds of fancy credit shelter tax planning to try and exclude as many assets as possible from the federal estate tax.
But in 2018, the current federal estate tax exemption is $11.18 MILLION dollars, and it is portable between spouses. So a married couple would need over $20 million dollars in assets before they had to worry about the federal estate tax. It is estimated that only 1,800 estates in all of the United States will have to pay the tax in 2018. As a result, setting up a trust for tax planning purposes no longer impacts 99.99% of the people reading this article.
- Beneficiary Distributions (aka, How to Protect Your Kids From Themselves)
Second, if you are concerned about how your assets will impact your beneficiaries, a revocable trust can put conditions and limitations on how your money will be distributed.
The most common example when to set up a trust is if you have young children and also have a large life insurance policy on yourself. If something were to happen and you didn’t have a trust, your children would receive all of the life insurance money at age 18. By naming your trust as the beneficiary of the life insurance policy, you can put conditions on when they will receive the money – such as ½ at 25, ½ at 30, with the money to be used only for things like college or medical bills before that.
There are also many scenarios where you may have very good reasons to put distribution restrictions in your trust even for adult children. Examples include addiction situations where you know the money will be spent quickly on destructive life choices, or you want the trust assets to be given out in equal monthly installments over time, or you have a special needs child that will need government assistance.
Getting to know you and talking through your wishes for the future is the most personally rewarding thing I do as an attorney, and there are a million and one different reasons why a trust may be necessary here. But if you have beneficiaries who you trust to properly handle their inheritance right away, there are likely simpler ways than a trust to transfer your assets.
- Probate Court Avoidance (aka, How to Avoid a Bunch of Paperwork)
Finally, a revocable living trust can be a great way to avoid the time and expense of opening up a probate estate. But there are many times when all your assets will pass outside probate court even without having a trust.
In Michigan, with only minor advanced planning, all of the following types of assets will automatically pass outside probate court:
- Any assets owned jointly with someone else, such as a bank account or real estate.
- Anything with a named beneficiary attached to it, such as 401(k)s, IRAs, life insurance policies, or brokerage accounts.
- Any vehicles valued under $60,000 (and boats valued under $100,000) that will go to your spouse or children.
- Up to $24,000 in cash or personal property.
- Any businesses you own that have a transfer on death beneficiary designation.
- Any real estate that has a “remainder beneficiary” named in the deed.
The reality is that for the majority of my estate planning clients, all it takes is for you to do a little homework to make sure your beneficiary designations are all up to date – along with our help to easily prepare a new deed for your house – and all of your assets are going to pass outside probate court without a trust!
SO, DO I NEED A REVOCABLE LIVING TRUST IN MICHIGAN OR NOT?
There are many reasons why a Michigan Revocable Living Trust may be necessary for you, and my law firm still prepares a lot of revocable trusts for our Michigan clients. But I also don’t believe in selling you something that you don’t need.
If the federal estate tax is not a concern, you are fine with your beneficiaries receiving your assets right away on your passing, and your assets are going to pass outside probate court anyway – no, you probably don’t need a trust.
If you would like to schedule a no-obligation meeting with attorney Adam Zuwerink to discuss whether a revocable trust makes sense as part of your estate plan, give us a call at 231-457-4235, or drop me a note at firstname.lastname@example.org