Month: March 2011

Is Life Insurance Asset Protected in Michigan?

March 27, 2011 /

As a Grand Rapids, Michigan estate planning and asset protection attorney I’ve been asked several times, “Is life insurance protected from my creditors?”  And sometimes it’s more specific, “is the cash value of life insurance protected from my creditors.”

Well, the answer is maybe yes, maybe no.  You see, there is a seeming incompatibility between the statutory law and the case law (court-based law) in Michigan.  In MCL 500.2207(1) it says that the proceeds of any life insurance policy payable to the wife, husband or children of the insured or to a trust for their benefit, including the cash value thereof, is exempt from claims of the insured’s creditors (read it by clicking here).

Seems to be pretty clear, right?  Wrong.  There are a couple of cases in Michigan where creditors were allowed to garnish the cash value of the insured’s (debtor’s) life insurance policy.  The cases are:

  • Chrysler First Business Credit Corporation v. Rotenberg v John Hancock Mutual Life Insurance Co., 789 F. Supp 870 (1992) – read it by clicking here.
  • Schenck Boncher & Prasher v. Vanderlaan, 2003 Mich. App. Lexis 2082 (2003) – read it by clicking here

Well that sort of muddies the water, doesn’t it?  And if you go back to MCL 500.2207(1) and read it in the context of 500.2207(2), you could read “cash value” to reference not the cash value during the insured’s lifetime, but rather only the cash value component of the proceeds after the insured’s death.

Here’s the kicker . . . there IS a way to fully protect life insurance cash value from creditors.  That is the topic of a future blog post, so make sure to check back regularly.

And if you (or your client/customer) can’t wait that long.  Call us at 616-827-7596 to schedule a Peace of Mind Planning Session to discover how to asset protect and tax-proof your life insurance and create a lasting legacy for generations to come.

Michael Lichterman is an estate planning and business planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™.  This goes beyond merely planning for finances – it’s about who your are and what’s important to you.  He focuses on estate and asset protection planning for  the “experienced” generation, the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses and pet planning.  He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients – many of which have become great friends.

Tips On Keeping Your Michigan Estate Out Of Court

March 20, 2011 /

As a Michigan Wills, Trusts and Estate Lawyer, one of my main goals is to help my clients avoid or manage conflict, either now or after a tragedy (death or incapacity).  This goal is one that I feel “traditional” estate planning pays less attention to than is deserved.  It is an area where the “counselor” part of “attorney and counselor at law” becomes keenly important.

Why?  Because the alternative in many cases is a costly lawsuit and/or hurt feelings.  For example, I recently ran across this article, which hints at the results of poorly counseled estate planning and gives real examples of what can lead to problems mentioned above.  And notice that the article is written by an estate litigation attorney.  These are “real life” examples.

As the article points out, many seemingly “benign” decisions can potentially lead to disastrous results if they are not the result of proper counseling and planning.

Here are just a few of the examples the article author gives as leading to courthouse controversy over estates:

  • Do It Yourself (DIY) estate planning – you can read my previous blog post about DIY planning here.
  • Not having even a basic estate plan.  Without this, you are left with the State of Michigan’s plan for you.  A court will decide who gets what and who makes your healthcare decisions.
  • Picking the wrong person to be in charge.  Many families pick certain people out of a sense of obligation, not based on how well they would perform the task for which they were chosen.

I encourage you to read the rest of the examples given in the article.  And if you’re ready to take steps to make sure your legacy isn’t left to squabbling and undesired court involvement, call us at 616-827-7596.

Michael Lichterman is an estate planning and business planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™.  This goes beyond merely planning for finances – it’s about who your are and what’s important to you.  He focuses on estate and asset protection planning for  the “experienced” generation, the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses and pet planning.  He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients – many of which have become great friends.

 

Asset Protection with Discretionary Trusts

March 13, 2011 /

Many Grand Rapids families that I talk with have never considered anything other than giving their assets to their family outright – it could be immediately when they pass away or at some later age.  As a Grand Rapids, Michigan estate planning attorney I consider it my privilege to let them know the downside to that approach and what can be gained by putting some restrictions in their Michigan will or trust.

I came across an excellent example in a recent Michigan Court of Appeals case (read it here).  The basics of the case are this: the beneficiary of the trust had been jailed and the State of Michigan was seeking reimbursement for those costs from the trust.  Guess what?  They couldn’t get to the trust assets!  Why?  Because it was a “discretionary” trust.

What is a discretionary trust?  It is a trust that does not distribute the assets outright, but rather leaves the decisions on what is distributed and when it’s distributed to the discretion of the trustee.  You can find the Michigan Trust Code definition here (MCL 700.7103(d)).  You see, because the “inheritance” is not given outright to the beneficiary and the beneficiary does not have a right to demand that the trustee give him or her any of the trust assets, the trust assets are not considered the beneficiary’s assets.

The best part – even though the trust assets aren’t considered the beneficiary’s assets, the beneficiary can benefit from the trust in the trustee’s discretion as guided by the trust language itself.  Think of it this way . . . by setting up your trust this way you are benefiting your family and at the same time protecting them from creditors, predators, divorce and possibly their own poor spending habits.  Now THAT is truly creating a legacy.

Call us at 616-827-7596 to discover how you can provide these incredible benefits to your family!

Michael Lichterman is an estate planning and business planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™.  This goes beyond merely planning for finances – it’s about who your are and what’s important to you.  He focuses on estate and asset protection planning for  the “experienced” generation, the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses and pet planning.  He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients – many of which have become great friends.

Michigan LLC Charging Order Asset Protection

March 6, 2011 /

So you’ve read my post about charging orders against Michigan LLCs and are thinking, “so what?!”   Well, the key is not so much what it is, but whether it is the only remedy a creditor may have or just one of many.

Much review and comment has been made about a 2010 Florida case, Olmstead v FTC, 44 So 3d 76, and the effect it may have on the level of asset protection provided by a Single-Member Limited Liability Company.  Why?  Because the court determined that, under Florida law, a creditor is not limited to a charging order as a means of collecting on the judgment.  That could mean the creditor could “step into the shoes” of the LLC Member, effectively taking all ownership in the company and directing it as the creditor sees fit.  I think all Michigan LLC owners can agree, that’s a bad thing.

Well, Michigan business attorneys and the Michigan legislature were listening to the scuttlebutt.  What came out of it was a change to Michigan law via a 2010 amendment to the Michigan Limited Liability Company Act (the MLLCA).  Section 507 (MCL 450.4507) of the MLLCA now makes it clear that the charging order is the “exclusive remedy” by which a judgment creditor of a Member may satisfy a judgment out of a Member’s membership interest.

And THAT is a good thing for asset protection.  It limits the creditor to distributions from the LLC.  No distributions = nothing to the creditor.  And the creditor is not able to have any say in the LLC’s actions . . . it leaves the Member in control of the company.  And that is a great thing for Michigan business owners!

Important Note: there is still some belief that a court could find that a charging order is not the only remedy in certain circumstances involving a single-member LLC.   Make sure to meet with a Michigan business lawyer before making any decisions.

Michael Lichterman is a relationship-based business attorney who leverages his business, marketing and legal knowledge to help business owners and entrepreneurs create a Foundation for Business Success™.  This goes beyond merely drafting a set of documents – it’s about  proactively preparing the business and the business owner for continued growth while remembering the “human side” of running a business.  He best serves small business owners (less than 50 employees) and entrepreneurs.  He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients  and their businesses – many of which have become great friends and trusted confidants.