Estate Planning 101:
How to protect your family, build a legacy, and find
peace of mind.
Shea Aiello
A Professional Limited Liability Company
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 .......................................................... 2
Incapacity Planning: How a simple, affordable document can save
your family thousands .......................................................................................... 5
Planning for Death: Keep your family intact and pass on a legacy ........... 10
1
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 welldocumented 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.
3
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
4
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
5
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 middleclass 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.
6
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.
7
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.
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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.
SEE PAGE 17 FOR OUR CONTACT INFORMATION
9
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”).
Last Will and
Testament
Revocable
Living 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?
10
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-yearold 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?
11
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.
12
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.
13
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).
YOUR TRUST
Bank
Accounts
Real
Estate
Life
Insurance
14
First, place assets into your
Trust during your lifetime
Then, these assets will pass to your
beneficiaries outside of Probate Court
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.
Good
Better
Best
• Financial and
Health Care
Powers of
Attorney
• Financial and
Health Care
Powers of
Attorney
• Last Will
• Financial and
Health Care
Powers of
Attorney
• Pour-Over
Will
• Trust
SEE THE NEXT PAGE FOR OUR CONTACT INFORMATION
16
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 [email protected]
Visit us on the web at www.sadplaw.com
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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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