Month: June 2011

What is a Michigan Estate?

June 26, 2011 /

As a Grand Rapids, Michigan estate planning attorney, I field all sorts of calls and conversations about estate planning and probate. I also receive calls and questions about areas of law outside my practice area and I am happy to refer those folks to colleagues I trust explicitly to handle the matter well.  I had just such a call this past week.  Why, you may ask, would I use that story to start a post about having a Michigan estate?  Well, as we were wrapping up the call the nice lady said “I really like you and you can be sure that I will call you for estate planning if I ever have an estate.”

I have news for her and everyone else . . . we ALL have estates.  Sure, some are bigger and some are smaller . . . it is not necessarily the vision we may conjure up of rolling green hills with a stately colonial mansion set atop a hill with horses grazing in a field nearby.  Although that sounds nice!  So that begs the question – what is an “estate” for probate and estate planning purposes?

There are actually two “estates” that matter in this context – (1) your Michigan probate estate, and (2) your federal estate tax estate.  In this post I will tackle the first one.

First, make sure you understand what probate is and the context(s) in which you may find yourself (or your loved ones) dealing with it.  If you are unsure, you can read my post on it by clicking here.

So, what makes up a probate estate?  I would start by considering the value of everything you own.  Oh yeah, do not deduct any debt owed on what you own.  That’s right – no deduction.  Why is that?  Because according to Michigan law, the value of assets that must be reported to the probate court is the “fair market value.”  Yes, you can list any “encumbrance” (close to “debt,” but technically not the same), but as far as the inventory fee with the probate court, such “encumbrance” will not be deducted.

Ok, so you’ve added everything up.  Is it a bigger number than you thought?  For most people it is.  Now, you will be happy to know that several common ways of owning assets will keep them out of your probate estate.  If you have any of the following, it will not be part of your probate estate:

  • Jointly owned property (bank accounts and marital homes are the most common in this category).  Note: this only works as long as there is more than 1 joint owner . . . because if there isn’t, it is no longer jointly owned.
  • Beneficiary designated assets – IF the person designated is still alive and is at least 18 years old (retirement accounts and life insurance are the most common in this category)
  • Assets owned by a trust.  Note: just having a trust is not enough . . . it must own the property (you can read more about that in my previous posts by clicking here and here)

So there you have it.  The basics of a Michigan probate estate.  Keep in mind, this is just a basic overview.  It is more complex when you “dig down into it,” which is why I recommend meeting with an attorney who really focuses on estate planning so you can fully understand your specific situation.

Stay tuned as next time I will share what makes up your federal estate tax estate.  That one is not one you want to miss . . . I guarantee you will discover some BIG surprises in that one.  And if you’re ready to make sure that your “estate” is taken care of and that it is done in a way that is unique to who you are, then call us at 616-827-7596 to schedule your Peace of Mind Planning Session.

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.

A Small Business Horror Story

June 19, 2011 /

From time to time I will reference the blog posts of some of my colleagues.  In this case, the story was so typical of similar ones I’ve experienced and the post was so well written, I’m reproducing it here with permission.   The author is Business Lawyer Gina Bongiovi of the Bongiovi Law Firm in Las Vegas, NV.  If you or someone you know owns or plans to start a business in Las Vegas, I strongly recommend contacting Gina.  As a Grand Rapids, MI business lawyer I assure you that these same situations crop up here in West Michigan.  Enjoy the post and please share your thoughts with a comment.

When I sign a new monthly retainer client, I always conduct what I call a “legal checkup” on the business.  I review the company’s formation, licensing, employee or contractor agreements, lease agreements, service agreements, etc. to find ways I can better protect the company and its owners.


Wait, let me clarify.  I *request* these documents in order to review them.  Often, it takes the owners a while to gather all the information to give me and sometimes they simply ignore my requests, preferring that I instead put out fires.  While I’m great at putting out fires, my real value lies in working proactively – modifying these documents to better protect the company before a fire breaks out.


One particular client was in an LLC with another person.  We’ll call them Jack and Bill.*  Jack requested the initial meeting with me, apparently without telling Bill.  Bill walked in during our meeting, demanded to know “who the hell” I was, and threw a fit, yelling at the top of his lungs that “we don’t need no &*%$ attorney!”  Following that outburst, I gently asked Jack to send me a copy of the company’s operating agreement.  He said it was the one that came with the corporate binder he got when he formed the company and he had no idea where the binder even was.  Seeing the writing on the wall, that this partnership was going to crumble sooner rather than later, I made a more urgent request to see the operating agreement.  And I requested the operating agreement every few days for the next two months with no response.


A month ago, Jack called to say Bill was leaving the company.  I again asked for the operating agreement to make sure Bill’s exit was in compliance with its terms.  I also suggested that Bill be removed as a signer on all company bank accounts as soon as humanly possible.  No response.


Last week Jack called in a panic.  While he was at the bank removing Bill as a signer on the account, Bill was at a different branch, withdrawing $21,000 in cash from the company’s checking account.


Because Bill was still a signer on the account, the bank had no choice but to give him the money.


Because the operating agreement didn’t restrict an LLC member’s ability to take money out of the account, Bill didn’t breach any agreement.


And because Bill pulled the money out in cash, there was no way to stop payment.


Jack’s only option would be to file a lawsuit against Bill, hope that he wins, and then hope that he could collect the money.  Of course, a lawsuit would drag on for months and more likely years, tying up company resources in what is probably a losing battle.  Plus, even if Bill lost, he could file bankruptcy and then the company would have lost the original $21,000, plus attorney fees, plus time lost while embroiled in a lawsuit.


Lessons learned:


1) make sure your operating agreement is thorough and addresses issues like when a member can take money out of the account,


2) if someone leaves the company, remove them from the bank account IMMEDIATELY.  Unless you notify the bank that someone is no longer an owner, the banker has no way of knowing not to give an owner access to company funds.


* Names have been changed to protect the innocent.


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.

A Creative Idea for “Supercharging” Your IRA – Part 2

June 12, 2011 /

Ok, so you read my previous post about the incredible legacy you can create by “Supercharging” your IRA.  The logical questions are: what are the drawbacks to the “traditional” approach to IRA beneficiary planning and how do I do the “supercharged” strategy?  Well, I’m glad you asked.  That is what this post is about.

So, how is IRA beneficiary planning typically done and what are the drawbacks?  Usually, a married couple will name each other as the beneficiary of their IRAs.  This is done for many reasons, two of the most common being love and the additional “rollover” options provided to a surviving spouse by the tax code.  Yet, there is a problem . . . spouses are usually near the same age.  That means when the first spouse dies, the “stretch” tax deferral period of the deceased’s spouse’s IRA will typically be rather short.  This goes against the goal of many IRA holders’ desire to maximize the “stretch” period to take full advantage of the tax-deferred growth of their IRA after their passing.

One option is to name a person from a younger generation as the beneficiary of the IRA.  There’s a problem with that too . . . the surviving spouse is left out of enjoying the “fruits of labor” from the IRA.  The “Supercharged IRA” strategy mentioned above is the way to have your cake and eat it too.

In this strategy, a younger person is named as the beneficiary of the IRA.  Or better yet, an IRA Legacy Trust for the benefit of younger people is named so that you can not only maximize the “stretch” tax-deferral period but also make sure the IRA proceeds are asset protected for future generations (from creditors, predators, divorce and poor spending habits).  As mentioned in my previous post, the required minimum distributions from the IRA are used to purchase a permanent life insurance policy on the life of the IRA holder with the spouse named as the primary beneficiary (or better yet, an Irrevocable Life Insurance Trust purchases and holds the policy so that it is asset protected from the insured’s creditors, predators and potential divorce).

What is accomplished?  The IRA tax-deferral stretch is much greater because a younger person is beneficiary and the surviving spouse doesn’t miss the IRA benefits because he or she receives the insurance proceeds, which can be much greater than the IRA due to leveraging the life insurance premium.  An additional benefit of this strategy is that it can be used for non-traditional couples and single individuals.

Make sure to discuss this strategy with a financial adviser, life insurance agent and estate planning attorney who are familiar with it and accustom to the mechanics of implementing it in your situation.

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.

A Creative Idea for “Supercharging” Your IRA – Part 1

June 5, 2011 /

As a Grand Rapids, MI estate planning attorney, I regularly help individuals and families plan for how to transfer their IRA accounts according to the legacy they want to leave.  One scenario that provides an incredible opportunity is when you don’t need the required minimum distributions (RMDs) for living expenses.  If you don’t need your traditional IRA funds to live on during retirement, you may be focused on building up this nest egg for your children or other loved ones and be tempted to avoid taking any withdrawals from it. After all, the larger your IRA is, the larger your children’s inheritance will be, right?

Unfortunately, this isn’t necessarily the case. After age 70½  you must take RMDs annually. If you don’t, you’ll owe a 50% penalty on the amount you should have taken but didn’t — in addition to any ordinary income tax you owe. So, for example, if your RMD was $12,000 for a given calendar year, you would owe a $6,000 penalty. That’s $6,000 that would go to “Uncle Sam” rather than to a loved one or charity.

A much better option can be to take the RMD, pay the ordinary income tax on it and use the remaining amount to pay the premium on a life insurance policy.  This strategy can “supercharge” your retirement plan by providing a way to maximize the “stretch out” of RMD payments after your death, lengthening the tax deferral period. The longer the RMDs are “stretched out,” the longer the IRA assets can grow tax deferred.  Then you can use the RMD payments to leverage the benefits of life insurance to greatly increase the ultimate amount received by your loved ones, charities or others.

Curious how it works and how you can use it?  Stay tuned . . . I will cover that in a future blog post.

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.