THE LIVING TRUST

On April 1, 2000 the Estates and Protected Individuals Code, or EPIC for simplicity, became effective in Michigan. Trusts are not authorized by EPIC but are interpreted by proceedings under that code. This Article focuses on some general aspects of trusts and not contested proceedings under EPIC that may involve a trust.

EPIC has special provisions for court supervision of trust estates when issues arise in their administration. Most trusts are fully administered with no court involvement. This article will not directly relate to EPIC because it covers concepts of making a trust.

Because the trust instrument is such a common estate-planning document, this article provides a simplistic overview of the living trust. It will provide the reader with some basic information about trusts. The decision to have a trust should be made only after careful consideration and consultation with reliable resources.

A living trust is an estate-planning device that is not necessary for all estate plans. Unless there are one or more significant benefits to the individual, a trust will not be recommended by the planner. There are numerous advantages and disadvantages beyond the scope of this article. Only some will be mentioned.

Many people believe that a living trust avoids probate and therefore reduces the costs associated with one’s death. While this is true on its face, when the cost of establishing the trust is considered it may not be true. 

Establishing a living trust costs far more than making a will. Additional costs are incurred in transferring assets to the trust. These expenses are immediate and can easily exceed probate costs in small estates or uncomplicated estates.

Estate planning can be complicated and difficult to understand. There are many arrangements and documents that are available for estate plans. For example, joint ownership of assets, like homes, bank accounts, and corporate stocks.

Also, beneficiary designations are used in insurance policies and retirement accounts. Other estate plan arrangements can include the decision to have no will or to make a will. Lastly, there are many different types of trust agreements.

Each of these arrangements and devices has advantages and disadvantages. It depends on the situation where each is to be utilized. To know which to use requires accurate legal, and perhaps, tax related, advice so you can make an informed decision.

What is a living trust? In simplest terms, it is a contract that effectively transfers title to one or more assets. It is a written expression of one’s desires as to the management of assets during his or her lifetime and a direction to whom the assets pass upon the maker’s death.

The person making the trust is called a “grantor.” The assets are given to a manager called a “trustee” who manages and uses the assets for the benefit of named persons or organizations called “beneficiaries.”

A living trust is also often called a Revocable Grantor trust. It differs from a testamentary trust in that the testamentary trust is created in a will and is funded by assets in the decedent’s estate after death.

With a living trust, the grantor can make it revocable and changeable or irrevocable and not changeable. If revocable, the grantor can change or cancel the trust at anytime while living and competent and thereby have all assets returned. If the trust is irrevocable, assets transferred to the trust remain until all terms as originally drafted are fulfilled.

In most revocable grantor trusts, the grantor is the sole beneficiary for life and is the trustee. When the grantor dies, the trust either terminates and all assets are distributed as set forth in the trust; or the trust continues as the document directs. Usually the grantor’s heirs are designated as the beneficiaries. But anyone or any organization can be a beneficiary.

There are no statutory requirements for making a living trust in Michigan. However, the attorney drafting the trust will require the document to be witnessed and usually to be notarized. Notarization enables recording of the document with the register of deeds in the unlikely event recording becomes necessary to clear title to real estate. The trustee also signs the document.

For the person whose estate or circumstances warrant the complexities of a living trust such a document can be very appealing and well justified. With this document a grantor can set forth a plan for his or her assets to cover situations while alive as well as after death.

The grantor can accomplish almost any financial protective purpose, secure tax savings, and provide financial support for self, immediate family, or others presently and after death. The grantor can also direct a trustee to take over the trust management upon the grantor’s disability. This would eliminate the necessity of having a court appointed conservator.

There are disadvantages to living trusts also. Some include that assets must be transferred to the to trust to avoid probate; a trust requires formal administration by a trustee; trustees are paid for their services; and professional trustees are paid based upon a percentage of the estate plus certain extra costs. Trusts can also create problems with Medicaid eligibility.

Reliable information about trusts can come from your attorney who should provide the best source of identifying disadvantages as well as advantages. But information can also be obtained from the Legal Hotline for Older Michiganians (1-800-347-5297); the State Bar of Michigan (1-800-948-1442), including a lawyer referral service; and sometimes from seminars like those sponsored by attorneys or brokerage companies.

Be aware of any person coming to your door or telephoning you to sell you a trust kit. These individuals are usually salespersons and not attorneys. They do not have the knowledge or legal background to give proper advice. Their goal is to sell a kit at a very high cost, most of which must be paid at the initial visit.

Sometimes these trust kit salespersons make statements that imply the probate court has sent them or authorized their calling. The Newaygo County Probate Court does not authorize or send anyone to another’s home for purposes of discussing, endorsing, or making a trust or a will. Report such persons immediately to the Sheriff's Office.