Most residents of Michigan who have reached middle age have heard the term “estate plan” many times, but most people who have heard this term do not understand its meaning. The term “estate plan” can have many different meanings depending upon the financial situation of the person using the term, but estate planning has one universal meaning: it is a plan that determines how a person’s assets will be distributed when that person dies or becomes incapacitated.
The first steps in creating an estate plan
Because an estate plan involves the distribution of assets, the most useful initial step in creating an estate plan is to make an inventory of a person’s assets, along with their estimated fair market value. Assets that should be included in the inventory are real estate, cars, stocks, bonds, life insurance, pensions and debts, works of art, and assets with unique value such as antiques.
After the inventory is drafted, an attorney should be asked to draft a will that carries out the will maker’s (the “testator”) instructions about distributing the assets. An attorney’s assistance is required for this step because wills must follow certain formal requirements that are set forth in the state’s statutes.
Essential provisions in a will
The will control the distribution of the testator’s assets, but it can also serve other uses. Many people are survived by minor children or grandchildren. A testator may wish to include special provisions in the will, such as a trust, to ensure that assets that are distributed to minors will not be wasted before the beneficiary reaches maturity. A will can also be used to distribute the testator’s interest in pension funds, retirement accounts, and similar assets. A properly drawn will may allow the testators beneficiaries to avoid a lengthy and expensive probate proceeding in dividing the testator’s assets. A will is also used to appoint an executor, the person who will supervise paying the testator’s debts and distributing the assets.
Minimizing estate taxes
The federal government and many states impose a tax on the passing of assets at death. These taxes are frequently called “death taxes” by their opponents, but their correct name is “estate taxes.” The federal tax threshold is $11 million, that is, no estate is owed unless the net estate passed to beneficiaries exceeds that amount. The Michigan legislature is currently considering legislation that would repeal the state’s estate tax.
An experienced estate planning attorney can be helpful even for the smallest estates. Anyone wondering about drafting a will and wants to treat potential heirs fairly may wish to consult an attorney who specializes in helping people at all income levels to draft an estate plan.