Some of the most common questions we receive from estate planning clients are regarding which assets should be owned by or payable to their Revocable Living Trust.  The process of transferring assets into a Revocable Living Trust during life or upon death is known as “funding” the Trust.  The Revocable Living Trust funding process is a crucial, yet often overlooked, step in the estate planning process. Properly titling and setting up beneficiary designations on your bank accounts, investments, and other assets ensures that if you become incapacitated during life, or pass away, your relatives are able to handle your affairs without initiating a probate court proceeding.  Since every estate planning situation is different, if you have specific questions about whether or not your assets are properly held in order to avoid probate, you should consult with your estate planning attorney.  With that being said, the following are some general considerations to make when determining ownership and beneficiary designations if your estate plan is complete and includes a Revocable Living Trust Agreement.
 
How do I fund the Trust?
 
Funding your Revocable Living Trust is the last step in the estate planning process and it is done after your Revocable Living Trust is executed and in existence.   This includes making sure that all of your assets are properly designated so that they will either pass to your Revocable Living Trust or a living beneficiary when you pass away.  The key item to remember is that if an asset is owned by an individual and not by their Revocable Living Trust, or their Revocable Living Trust is not the named beneficiary of the asset, that asset will require probate when the individual dies, even if they have a Will and a Trust.
Therefore, it is important that when you meet with your estate planning attorney, you disclose all of your real estate ownership interests, business ownership interests, and the types of accounts in which you hold your liquid and investment assets.  At the end of the estate planning process, Williams & Knack, P.C. provides you with a letter detailing the necessary steps to fund your Revocable Living Trust that are tailored to your specific situation, and follows your wishes in terms of how property is to be distributed to your beneficiaries upon your death. 
 
When should I fund the Trust?
 
The answer is right away, but many people have questions about whether assets need to be owned by their Revocable Living Trust while they are still living.  Generally, the answer is typically no, unless your situation includes special circumstances.  Remember that properly funding your Revocable Living Trust requires proper beneficiary designations and that does not necessarily mean that there will be any change in account ownership.  The instructions our firm provides in the letter referenced above will properly accomplish funding the Trust, but only if they are followed completely and accurately.
 
Are there any assets that should not be put into the Trust when I die?
 
The answer to this question depends on your financial and family situation, but generally we do not recommend naming a Revocable Living Trust as a beneficiary of any IRA, 401(k), or other “qualified” retirement funds and annuities. The reason for this recommendation is there are significant income tax advantages to naming your spouse, your adult children, or other persons as the beneficiaries of these types of accounts.  A living beneficiary can continue to defer the distribution and withdraw the balance of these accounts slowly over a period of years.  The amount they will be required to withdraw is based on certain factors including your age when you die and the beneficiary’s current age, life expectancy, and the beneficiary’s relationship to you as the account owner.  Alternatively, if you name your Revocable Living Trust as the beneficiary of this account, when you die, the Trustee will likely be required to liquidate and distribute the funds in the account within five years from the date of your death.  The assets in the account will then be taxed all at once, and as a consequence, will be subject to the higher taxation rates for Trusts. Furthermore, the assets will not be able to earn interest, dividends and capital gains, compounding tax free.       
Something to keep in mind, however, is that if your situation includes minor children or a special Trust for amenities for a beneficiary with a disability or if it is not your intention to have your beneficiary have complete access to the funds immediately upon your death, this recommendation would not apply to you.
 
Conclusion
 
 
As indicated, funding your Revocable Living Trust is specific to your own personal, family, and financial situation.   In addition, if you obtain a new account or a new piece of property, you need to take the steps to fund your Revocable Living Trust (or designate a beneficiary) with those accounts and assets as well.  We recommend that you confirm your beneficiary designations at least every few years to make sure that none of your assets will fall to probate.  If you have questions regarding funding your Revocable Living Trust and designating beneficiaries, please do not hesitate to contact our office directly.   

Often, people or companies that rent real estate get into trouble with a tenant.  There are numerous problems that can arise as a landlord – both with residential tenants and commercial tenants.  A landlord should have the proper protection by having a professionally drafted, case-specific lease that conforms with state, county, and municipal regulations and statutes.  There are many things that need to be present in most – if not every – lease agreement.  This includes items such as a description of the premises, rent amount, payment specifics, the county where a collection or eviction suit can be brought, etc.  In addition, every piece of real estate is unique and comes with its unique set of concerns and issues.  If there is a specific issue with a certain piece of property, it needs to be addressed in the lease.  A lease needs to function as both a sword and a shield.  It needs to protect the parties, both proactively when the other party does not perform and defensively when the other party attempts to come after (them) owner/landlord under the lease. A bit confusing – can you name the parties?
 
Landlords much too often use a boilerplate lease that they find on the internet, receive from a realtor, friend, or wrote themselves.  While it is certainly better to have something instead of nothing, the leases that we see that are not properly drafted can be dangerously lacking.  One example that we have seen recently is a commercial lease that did not include a default provision.  The lease neither defined what it meant for the tenant to be in default of the lease, nor did it dictate the landlord’s available remedies. This left the landlord vulnerable when the tenant ceased making rent payments. 
 
It is important for a landlord to protect itself by building certain items into its lease agreement. Michigan law requires that a residential lease contain certain specific lanaguge. Michigan law also requires that the landlord and tenant have an inventory checklist and itemized list of damages.  All of these documents work together to allow the landlord remedies from the tenant, as well as protect the landlord if a tenant attempts to make a claim that is not within the purview of the lease. All of these documents work together to allow the landlord remedies from the tenant, as well as protect the landlord if a tenant attempts to make a claim that is not within the purview of the lease.
 
Another bad situation that is made worse by having a poorly drafted lease is when a residential lease is used with a commercial tenant.  We have seen this situation too often, which can be detrimental to a landlord when there is an issue with a tenant.  There are certain items that need to be included or addressed in a commercial lease that would not be present in a boilerplate residential lease.  There will also be items included in a residential lease that should not be included in a commercial lease.  It is also important to ensure that any kind of extension of or amendment to the lease is in writing signed by both parties.
 
There are very specific Michigan statutes regarding what needs to be included in a lease.  When a lease is sourced online or is a fill-in-the-blank type lease, these items are missed.  This can be fatal to the landlord when attempting to evict or collect from a tenant for breach of the lease.  One specific example is that pursuant to MCL §554.603, the landlord must inform the tenant of the name and address of the financial institution where the security deposit is held.  The statute specifies the language, in 12-point boldface font, which must be included in a lease. 
 
On the flip side of what we have discussed thus far, there are also many things that can go wrong as a tenant.  If a landlord does not perform as they are supposed to, such as not making repairs or paying property taxes, the tenant needs to ensure there are protections in the lease to allow them to force the landlord to perform and give the tenant remedies if the landlord does not do what he is supposed to do.
 
If a proper lease is not used, both parties could end up in a long, expensive court battle.  It is well worth the time and money up front to have a professionally drafted lease prepared to protect everyone involved.  It certainly makes things much easier when an issue arises.

Estate Tax Portability represents the single biggest change in the Federal Estate Tax since 1986. Understanding the workings of Portability could have huge financial implications for your heirs – an impact just as significant - if not more so – than your previous estate planning prior to the advent of Portability. Portability was added to the Federal Tax Code in 2011 as a temporary measure that was made permanent in later legislation.
 
Portability comes into play upon the death of the first spouse to die. It is the ability of a surviving spouse to utilize the unused Federal Estate Tax Exclusion of his or her deceased spouse by filing a timely Federal Estate Tax Return (Form 706) for his or her deceased spouse. Practically speaking, the Personal Representative of the deceased spouse’s estate chooses whether to utilize the Federal Estate Tax exclusion amount for the deceased spouse ($5,450,000 in 2015), or transfer the Deceased Spouse’s Unused Exclusion (DSUE) amount to the surviving spouse.
 
It is very common for a spouse to die with an estate less that the Federal Estate Tax Exclusion amount, which is $5,450,000, indexed annually for inflation. In these situations, the surviving spouse will not normally file a Federal Estate Tax Return for his or her deceased spouse because there is no Federal Estate Tax payable. However, if there is a possibility that the surviving spouse will have in excess of the Federal Estate Tax Exclusion in the year of his or her death, it is imperative that the surviving spouse file a Federal Estate Tax Return for the deceased spouse by the deadline for filing the return.
 
The following situation highlights the need to file a Federal Estate Tax return upon the death of a spouse even when the estate is less that the Federal Estate Tax Exclusion amount:
John was killed in a tragic car accident in 2014 when a large truck rear ended him. An Estate was opened in the county Probate Court in the county John lived in at his death. John’s surviving spouse, Linda, had herself appointed Personal Representative by the county Probate Court. John’s Estate for Probate purposes was $400,000 and for Estate Tax Purposes was $610,000 because life insurance on John’s life is includible for Federal Estate Tax purposes.
 
Linda did not file a Federal Estate Tax return for John by the due date, which is nine months following John’s death. The reason that Linda did not file a Federal Estate Tax return is that there was no Federal Estate payable upon John’s Estate. Subsequent to John’s death, John’s Estate filed a wrongful death lawsuit against the driver of the truck. The case ultimately settled in 2016 for $12,000,000. Of the $12,000,000, $8,900,000 went to Linda as surviving spouse. It may be safely assumed that when Linda dies, her estate will well exceed the Estate Tax Exclusion in the year of her death. She will have John’s estate plus her own estate, which today equals approximately $9,510,000.
 
If John’s Estate had filed a Federal Estate Tax return, it would have automatically elected for Linda to utilize John’s unused Federal Estate Tax Exclusion up to the amount of portability needed, $4,820,000 ($5,430,000 - $610,000). In addition, Linda will have her own federal estate tax lifetime exclusion in the year of her death.
 
In the above example, filing a Federal Estate Tax return within nine months of John’s death would have saved the surviving spouse’s heirs at least $820,000.
 
* Names have been changed to protect confidentiality.

With the recent rise in popularity of microbreweries in Michigan, there has been an increase in small businesses/entrepreneurs entering the hospitality industry. In addition to other off-site distributors of alcoholic beverages, such as gas stations and liquor stores, many on-site providers of alcohol such as restaurants, bars and hotels rely on the ability to do so for a significant portion of their profits. Thus, in starting a hospitality business, it is necessary to have some background knowledge of liquor law and the licensing regulations with which to comply. The law in this area varies from state to state, so specific knowledge of Michigan law is necessary if the business operates in Michigan.
 
The Three-Tier System
In Michigan, distribution of liquor, beer, wine and other spirits is handled by three distinct parties: 1) the manufacturer; 2) the wholesaler; and 3) the retailer. The second party, the wholesaler, is the State of Michigan, which acts as a middleman between the manufacturer and the retailer. One reason for this is to prevent manufacturers from creating exclusivity agreements with bars or stores. Other reasons include the ability to regulate liquor prices for taxation and to ensure compliance with licensing requirements.
 
Typically, a business (or person involved in a business) that serves as a manufacturer cannot serve or even have an interest in a retailer, and vice versa. The result of this is to prevent large breweries from opening their own retail stores which only sell their products. At the small business level, however, this can cause unique problems when it comes to ownership or ownership interests in a manufacturer or retailer. For example, if a client was looking to open a bar (a retailer), but also leases a commercial building to a microbrewery (a manufacturer), the State of Michigan would likely deny this client a liquor license for their new bar because of this “three-tier” conflict of interest.
 
There are some exceptions to this three-tier rule built into the Michigan Liquor Code. Specific manufacturers such as microbreweries, micro-distilleries and small wineries are allowed to serve their own products to customers for on-site consumption at their brewing or distilling facilities. The rub here is that these business structures are subject to quota limits in terms of how much of their product they can produce under Michigan law.
 
Licensing Requirements
In order to operate as a manufacturer or retailer in the state of Michigan, a business must obtain the necessary license(s) from the Michigan Liquor Control Commission (“MLCC”). Depending on the type of business, the requisite license may be subject to a quota. The quota system limits the number of licenses that are available in each municipality, which is population-dependent. Most licenses in Michigan are also freely transferable. However, it is often very difficult to obtain these licenses. If all licenses in a municipality (up to the quota) have already been issued by the MLCC, purchasing one from an existing business is typically very expensive. A business may also hold any number of these licenses. These licenses include:
 
  1. Class C license - Permits a business such as a bar to sell beer, wine and spirits (including liquor) for on-premise consumption. There is one Class C license available per every 1,500 people in a given municipality.
  2. “Resort 550” – A transferable license for hotel resorts allowing the sale of beer, wine and spirits (including liquor) for on-premise consumption. The name commonly used for this type of license stems from the initial issuance of 550 of these licenses by the MLCC.
  3. Specially Designated Distributor (SDD) license – Allows a business such a gas station or grocery to sell packaged spirits (including liquor) for off-premise consumption. There is one SDD license available per every 3,000 people in a given municipality.
  4. Specially Designated Merchant (SDM) license – This is similar to an SDD license, but allows the business to sell beer or wine. SDM licenses are not subject to quota, and can be applied for by filling out an application with the MLCC. An SDM license is often held in conjunction with an SDD license, if the business can acquire one.
  5. There are also separate licenses for manufacturers, including breweries, microbreweries, small winemakers and small distilleries.
 
Action Step: Applying for a License
Whether the license is obtained from the MLCC directly or purchased from an existing business, the prospective license holder must file an application with the MLCC. Since this application could make or break your prospective business venture, it is very important to consult with a business attorney or a liquor law specialist before beginning to expend time and money in a business venture that will require a liquor license of any type. It is all too common for an entrepreneur to spend significant money and time to secure all the other facets of the business and then be denied a liquor license. Depending on the type of business and the license sought, there are many unique concerns that a business owner may face. Having an attorney with knowledge and experience in this area is very important.  It can mean the difference between acceptance or denial of your application.

The untimely and unforeseen death of music superstar Prince has brought a lot of attention to the basic question, “What happens when someone dies without a Will?”  As most of our readers have probably heard, Prince appears to have died without any estate planning documents in place.
 
Answering the question posed by this article is not as straightforward as one may assume and generally the answer is typically “it depends.”  How assets, accounts and policies are distributed after death depends on a variety of factors including whether the asset, account or policy had a joint owner or a designated beneficiary.  Additionally, estate planning and Probate law can also vary dramatically from state to state. This article will describe intestate succession in Michigan.  Intestate succession is the legal term for the process of distributing an individual’s assets through Probate upon death when there is no Last Will and Testament or Living Trust.
 
A Probate Estate must be opened in Probate Court. The Probate Estate distributes all property that is owned solely by the individual, meaning there is not a co-owner with rights of survivorship or a beneficiary. A few examples of property that would require Probate include real estate, bank accounts, and retirement accounts without designated living beneficiaries.  This list is by no means inclusive, but provides an idea of some of the types of assets that would end up in Probate Court.
 
Individuals often assume that if they are married, their entire estate will automatically be inherited by their spouse. In Michigan, this is not the case.  If the individual who died has children, grandchildren, or parents living at the time the individual dies, a portion of the individual’s estate will pass to the children of the individual.  If the individual has no children or grandchildren, but one or both parents are alive, the surviving parents inherit a portion of the estate.  If the individual does not have a surviving spouse, children, grandchildren, or parents, the distributions begin to get more complicated.  Generally speaking, the simplified version of the order of relatives who would inherit if there is no surviving spouse, children, grandchildren, or parents is as follows:
 
 
  • Siblings, or nieces and nephews if a sibling is no longer living;
  • Aunts and uncles, or cousins if the aunts and uncles are no longer living. 

 

The specific percentage each relative would inherit depends specifically on the family composition of the individual on the date of his or her death.
 
The example of Prince’s estate is extreme and his estate will take many years to resolve.  We should keep in mind that estate planning is not only for the wealthy.  Probate can be very costly for the administration of an estate, and disagreements can dominate the process.  Additionally, having only a Will does not avoid Probate.  What is needed for a proper estate plan varies greatly based on individual circumstances. If you have questions regarding the estate planning process and how to avoid Probate, please do not hesitate to contact us directly.