Who Will Make Your Decisions?

by Jerrold Bartholomew

Perhaps the most important lesson an estate planning attorney can convey to a client is that your end-of-life decisions will be made for you-and possibly expose your estate to significant and unnecessary expense-unless you create legally enforceable estate plan documents. Without a clear expression of your wishes, some of your most important decisions may be made by a family member, a stranger, or a probate judge who may have no idea what your real wishes were. This can lead to increased costs, family disagreements, and other forms of waste. Several types of legal documents can help you and your family avoid these problems:

  • A medical power of attorney is used to appoint someone to make your medical decisions and provide that person with guidance regarding your wishes.
  • A financial power of attorney appoints someone to make your financial decisions. There are many different types of financial powers of attorney with significant differences between them. For example, whether your agent has the power to make gifts to others can have tax implications, as well as expose your estate to risk. On the other hand, without gifting authority, Medicaid planning can become more difficult.
  • A living will can provide detailed instructions for how you wish to be treated during disability.
  • A will is a set of instructions to the probate court for the distribution of your estate. This is one area that causes some financial loss to many families. The probate process is time-consuming and often expensive. It is not uncommon for the cost of administration to equal 4-8% of the value of an estate. In this economy many people are putting off their estate plans. A failure to plan altogether will almost certainly result in much more in the way of expense down the road.
  • A revocable living trust is a document that provides instructions and authority to another person for handling your estate both during your lifetime and after your passing. Because the trust agreement is revocable, you can make changes to the agreement or remove property from the trust at any time before your death. A revocable living trust is useful for avoiding probate only and does nothing to protect against creditors or the cost of long-term care.
  • An irrevocable trust is a set of instructions regarding your estate that generally cannot be changed by the creator of the trust in at least one way. So, for example, a trust would be irrevocable if the creator of the trust could not receive any principal placed in the trust.

If you should die or become disabled without at least some of these documents in place, it is very likely that your family will need to seek authority from a probate court to make decisions for you. The probate court has a number of procedures and powers that correspond in many respects to the estate plan documents listed above. In Michigan, the court receives its jurisdiction over these matter from the Estate and Protected Individuals Code, MCL 700.1101:

  • A conservatorship is a procedure of the probate court in which a person is appointed to have authority over your property. The conservator must make regular accountings of your trust property
  • A guardianship is a procedure by which the court establishes a decision-maker related to issues concerning your physical well-being, such as your medical care and where you live.
  • A protective order can be granted that will provide authority for a specific action having to do with your estate, such as the transfer of your home.
  • An estate of a deceased person can be distributed to creditors and heirs by means of probate. This procedure will generally take at least six months and cost at least 4-8% of the value of the estate. In the alternative, a trust administration will generally be less time-consuming and expensive and can be handled in a more discrete manner.

The difficulties with going to the probate court are many. First of all, the process will be much more time- consuming and expensive. Secondly, probate proceedings are generally public matters, though they often deal with subjects that are precisely things that people would prefer to keep private. But above all, it is very difficult for a probate judge to know exactly what a person may have wanted. And the judge must err on the side of safety and caution. The approach is understandable, and it is certainly not an error on the part of the judge who must be cautious, but it can nonetheless be costly when long-term care or disability issues are being handled and, more to the point, differ from what the protected person may have wanted.

One final point about decision-making: failure to execute proper estate plan documents will leave you in the default position. That is, your estate and your decisions will be governed by the state’s default rules. That is usually not a good position to be in for tax purposes and it is almost always disastrous when it comes to disability planning.

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