Michigan trusts offer solutions that no other estate planning tools can provide.
However, trusts need to be properly selected, drafted, and established to provide any benefit. Failing to do so will quickly create more harm than good.
The Michigan trust attorneys at Mall Malisow & Cooney have over a century of combined legal experience, utilizing trusts to create the future that clients like you are looking for.
Let us identify the most important types of trusts in Michigan and help you understand how each one works.
The Advantages of Trusts for Michigan Estate Planning
When it comes to providing benefits like avoiding probate, protecting assets, planning for long-term care, minimizing taxes, preserving eligibility for government benefits, and managing wealth for future generations, Michigan trusts are without equal.
Let our Michigan trust attorneys help you understand these and other benefits of trusts so you can make informed decisions about estate planning to accomplish your unique goals.
Avoiding probate
For many clients, the primary motivation for establishing a trust is to avoid probate. People generally dislike probate because it is often time-consuming, expensive, and can cause significant stress and conflict for the deceased person’s loved ones.
However, a properly funded trust allows an individual to transfer assets privately and efficiently, often with limited probate court involvement.
Greater privacy
Because wills are filed publicly after death, they are accessible to anyone. This can feel like an invasion of privacy to the family, as well as draw the attention of unwelcome parties such as disinherited relatives, debt collectors, or even financial predators. However, trusts remain confidential documents accessible only to parties with a legal right to review them.
More control
Trusts allow greater control over how and when assets are distributed. For example, trust provisions can provide for minor children, young adults, or individuals who may be financially inexperienced or vulnerable.
Increased protection
Trusts can protect assets from various parties that many wish to avoid, such as creditors or divorcing spouses. They can also provide protection against irresponsible spending, especially when structured as irrevocable or discretionary trusts.
Tax advantages
Many trusts allow Michigan residents to enjoy sophisticated tax planning, particularly when dealing with large estates, life insurance, charitable giving, or retirement accounts.
Incapacity planning options
Having your trust include an incapacity plan allows you to choose someone in advance to make medical and financial decisions on your behalf if you become unable to.
This lets you ensure that your assets are managed according to your wishes, maintain control over when the plan is enacted, and can protect your assets from creditors or aid in long-term care planning.
If you need help choosing the right trusts to match your estate planning needs, let our Michigan trust attorneys help.
Revocable Living Trusts in Michigan
A revocable living trust is the most common type of trust used in Michigan estate planning. As the name suggests, revocable trusts can be changed, amended, or revoked entirely during the grantor’s lifetime.
The Michigan Trust Code allows revocable living trusts to serve several purposes.
The primary purpose that people use them for is avoiding probate, which they can accomplish as long as the assets are properly titled or transferred into the trust.
They also allow for a seamless transition of managing finances if the person who created the trust (the “grantor”) becomes incapacitated. When this occurs, a successor trustee (someone appointed within the trust document) steps in to manage the assets without the need for court oversight.
Additionally, revocable living trusts offer flexibility and control, since they allow the grantor to continue to buy, sell, or gift assets at will.
Most importantly, revocable living trusts provide detailed instructions on how assets should be distributed after death, including staggered distributions for beneficiaries, educational provisions, spendthrift protections, or charitable gifts.
However, it should be noted that revocable living trusts do not offer creditor protection during the grantor’s lifetime, since the grantor maintains control of the trust during that time.
They also do not shield assets from long-term care spend-down requirements for Medicaid purposes.
Still, for most Michigan families, the revocable living trust is the cornerstone of an effective estate plan. Our Michigan trust attorneys are ready to set up a revocable living trust that meets your needs and accomplishes your goals.
Irrevocable Trusts
Unlike revocable trusts, irrevocable trusts cannot be modified or revoked once they are created, except in limited circumstances permitted under Michigan law or through court-approved trust modification procedures.
The core idea behind their unchangeable nature is that the grantor gives up control in exchange for enhanced protection and planning opportunities.
These protections and opportunities include:
Asset protection
Transferring assets into an irrevocable trust can shield them from certain creditors or legal judgments, as long as the transfer was not made fraudulently or with improper intent.
Medicaid planning
Placing assets in an irrevocable trust may help an individual qualify for long-term care benefits after the Medicaid five-year lookback period.
Tax benefits
Irrevocable trusts can reduce estate taxes, something that high-net-worth individuals with large estates especially enjoy.
Greater control
These trusts also allow for controlled distribution of wealth. For example, a trust may direct that assets remain protected for the lifetime of a child or grandchild, or that they’re available only for health, education, maintenance, and support.
Let our Michigan trust lawyers set up an irrevocable trust that helps create the future you want for you and your family.
Michigan Special Needs Trusts
If you’re caring for a loved one in Michigan with disabilities and want to ensure they’re provided for on into the future, a special needs trust (SNT) can help.
Federal law allows an individual with special needs to benefit from trust assets while still preserving eligibility for essential government benefits like Medicaid.
Additionally, a properly drafted special needs trust allows assets to be used for the beneficiary’s supplemental needs without jeopardizing benefits. These needs may include:
- Education
- Therapies
- Transportation
- Recreation
- Specialized equipment
Michigan allows for two major types of special needs trusts: first-party and third-party.
First Party Special Needs Trusts
Also called a Medicaid Payback Trust, a First Party Special Needs Trust is funded with the beneficiary’s own assets, which often include assets from a settlement, savings, or from an inheritance.
These trusts allow beneficiaries to use funds for care and quality of life expenses during their lifetime. However, they must include a Medicaid payback provision to reimburse the state with any remaining assets after the beneficiary’s death.
Additionally, it is essential to carefully word the terms of the trust to ensure the funds are not applied to needs already met through government assistance.
Third-Party Special Needs Trusts
A Third Party Special Needs Trust is funded by assets belonging to someone else, such as parents, grandparents, or other family members and does not require Medicaid payback.
These are useful for parents planning for the future care of a child with disabilities, allowing them to preserve and manage funds throughout the beneficiary’s lifetime.
However, it’s essential that the Estates and Protected Individuals Code is followed to meet legal requirements and regulations. That means the trust must be carefully drafted, since improper distributions can inadvertently disqualify the beneficiary from receiving benefits.
Choose our Michigan trust lawyers to ensure your trust is properly drafted to effectively provide for your loved ones.
Irrevocable Life Insurance Trusts
An Irrevocable Life Insurance Trust can allow you to avoid estate taxes, protect important assets, and ensure proper distribution of assets to beneficiaries.
Commonly known as an ILIT, these are basically specialized irrevocable trusts that are used to manage life insurance proceeds in a way that will not be included in the taxable portion of the estate.
When an Irrevocable Life Insurance Trust is properly structured, the trust owns the life insurance policy, not the individual. That means the policy is not included in the grantor’s taxable estate, allowing the death benefits to pass to beneficiaries free of estate tax.
While estate tax concerns are less common for most Michigan residents due to high federal exemption levels, Irrevocable Life Insurance Trusts are often important for individuals who own large life insurance policies or who want to protect the proceeds from creditors or divorcing spouses.
Irrevocable Life Insurance Trusts also allow for structured distribution over time, which lets trustees use them to prevent lump-sum payouts that may be quickly spent. Thus, they can be valuable for individuals with young or financially inexperienced beneficiaries.
Mall Malisow & Cooney understand how to use Irrevocable Life Insurance Trusts as part of a holistic estate planning approach to help you accomplish your goals.
IRA Trusts
Many Michigan families use IRA trusts to control how beneficiaries receive inherited retirement funds after their death.
An IRA trust provides protection from creditors, divorce, or mismanagement, while also ensuring that distributions follow federal rules. This is particularly useful for beneficiaries who are minors, have disabilities, or have poor financial judgment.
How they work is relatively simple: The grantor names a trust as the beneficiary of his or her IRA and spells out exactly how they want the assets to be handled. All types of IRAs can be used for IRA Trusts, including simple IRAs, SEP, and Roth IRAs.
However, retirement distribution rules are technical and frequently updated. Thus, IRA trust planning requires careful legal drafting to ensure compliance with IRS guidelines, which our Michigan trust attorneys have decades of experience meeting.
Charitable Trusts
Charitable Trusts allow individuals to support charitable organizations while also receiving potential tax benefits and maintaining control over how charitable gifts are made.
Michigan recognizes several forms of charitable trusts. Two common types of charitable trusts include the Charitable Remainder Trust (CRT) and the Charitable Lead Trust (CLT).
Charitable Remainder Trust
A Charitable Remainder Trust allows the grantor or another individual to receive income from the trust for life or a set number of years, after which the remaining assets pass to charity.
These trusts can reduce capital gains taxes when appreciated assets are placed in the trust and then sold by the trustee.
Charitable Lead Trust
On the other hand, a Charitable Lead Trust provides income to a charity only for a set period of time, after which the remaining assets pass to family members or other beneficiaries.
Regardless of the type of trust, however, Michigan charitable trusts must adhere to state trust law and federal tax requirements, making the guidance from our Michigan trust attorneys essential.
Trust Funding and Administration
A trust is only as effective as its funding.
That means the grantor of a trust must properly retitle assets into the trust’s name or assign ownership rights appropriately after creating the trust. This may include transferring bank accounts, investment accounts, real estate, business interests, and other property.
Once this has been accomplished, the trustee then needs to make sure they meet fiduciary duties and oversight expectations found in the Michigan Trust Code.
For example, trustees must act in the best interests of beneficiaries, follow the terms of the trust, keep records, provide required notices, and manage assets prudently.
Trustee responsibilities include:
- Investing the trust assets
- Understanding the beneficiary’s needs
- Following the trust’s terms
- Meticulously maintaining financial records
- Keeping up-to-date with relevant public benefit rules and laws
- Filing taxes
- Making distributions in behalf of the beneficiary without jeopardizing their eligibility for programs like SSI and Medicaid
Michigan also allows beneficiaries to have rights to trust information and may even be able to challenge trustee actions in some circumstances.
Knowing all that’s involved in funding and administering a trust, it’s important to utilize the help and guidance that our Michigan trust lawyers provide to effectively handle all of your responsibilities and help avoid issues.
Work With the Experienced Michigan Trust Attorneys
While Michigan trusts can be powerful tools, they must be drafted with care and precision.
Our experienced Michigan trust attorneys at Mall Malisow & Cooney ensure full compliance with the Michigan Trust Code, IRS regulations, Medicaid eligibility rules, and other state and federal laws.
Our professional guidance helps clients like you choose the right type of trusts, avoid unintended tax consequences, protect vulnerable beneficiaries, and ensure that your assets pass smoothly to the next generation.
Contact Our Michigan Trust Attorneys
For help with trusts that utilize a personalized, holistic approach to estate planning, turn to our Michigan trust attorneys at Mall Malisow & Cooney.
We’ll patiently listen to you, fully understand your situation and goals, and identify the right blend of legal tools that will be utilized to protect your loved ones and your legacy.
Get started today by calling 248-538-1800 today, or fill out our contact form.