By Matthew V. Piwowar – Not a week goes by that I do not hear someone state one of these myths as if it were a fact. Often exclaiming their family attorney or CPA as the source of their so-called wisdom. Sadly, the probate, bankruptcy, and tax courts are full of the families of people who mistakenly believed these myths. Here are the top six Living Trust & Probate myths:
“I Can Safely and Legally Avoid Probate Without a Living Trust.”
Incorrect. Only a trust can legally and safely ensure your family does not have to endure the probate process after you die. The other methods and “short cuts” have significant risks. Some are of questionable legality, others avoid probate but subject your family and assets to risks far worse than probate. Still others may cause your family to pay income or property taxes that could have been avoided. Any time assets are transferred directly between family (before or after death), it is always subject to challenge by creditors, the government, or family. These probate avoidance short cuts can subject your assets, your legacy, and your family to many dangers. If your attorney or CPA don’t understand all these dangers, how can they protect you from them? Only a living trust can avoid all these risk legally and safely.
“Only Rich People Need Living Trusts.”
Incorrect. The less you have, the more important it is to protect it. Only a trust can protect your assets and family during your disability and after your death. A living trust protects against scams, creditors, divorce, predators, family legal disputes, taxes, bad decisions, and much more. The question is not how much do you have, but rather how much do you love your family? If you love your family and want to protect them, then you need a living trust. Most importantly, a living trust with a disability plan protects you from abuse during the years of long-term care.
“Living Trusts Are Only For Avoiding Estate Taxes”
Incorrect. Advisors who think the only reason for a trust is to avoid the Estate Tax (death tax) are simply uneducated about the uses and benefits of a living trust. They typically are unaware of the risks of using the old “probate avoidance short cuts”. They are doing their clients a disservice by advising on an area of law they don’t understand. A living trust has many other benefits. It can protect you and your assets while you are disabled. It can protect your children and grandchildren if they are disabled or in financial or legal trouble. For example, if your child dies shortly after you, your trust protects your assets for your minor grandchildren.
Even if the Estate Tax was your only concern, are you willing to roll the dice that both the Federal and State tax laws will never change before you die? Did you know the current estate tax exemption automatically decreases on January 1, 2026? Will you die before then? Are you going to remember to track all the future changes in the law? Do you know for sure in which state you will die? Only the law in effect on the date you die controls what happens to your estate and family. Will you have the correct estate plan in place when it counts? With a simple Last Will you are stuck with whatever law is in effect when you die or become incompetent. You can’t change your Last Will or ownership of your assets after you are incompetent.
“All I Need Is a Last Will and Power of Attorney.”
Incorrect. A Last Will guarantees that your estate goes to Probate Court. Your Will provides no protection for your children or grandchildren during or after probate. A Last Will guarantees that you give the final determination of what happens to your estate to a judge. Your family may have to wait years for the probate process and pay thousands of dollars in court costs and legal fees. The entire process is public and open to challenge. If you are married, you family gets to go through the process twice, once when you die and again for your spouse. Once your estate is in probate, it is subject to all your creditors and legal fees. When it comes out of probate, it is subject to all your family’s creditors, predators and legal problems.
Both the Last Will and Power of Attorney only authorize your agents to make decisions. There are no detailed instructions for your agent. They do not tell them how you want your agents to handle unforeseen circumstances. A Power of Attorney is basically a blank check for the agent. Its a list of authorizations for your agent with no instructions, no safe guards, and no limitations. If you put all your children on a Power of Attorney, you virtually guarantee a dispute after you become disabled. Leave some kids off the Power of Attorney, and you may have hurt feelings and disharmony before you become disabled. Only a living trust with detailed instructions for your Disability Trustees can resolve all of these family issues.
“My Spouse Gets Everything When I Am Disabled or Die.”
Incorrect. Your spouse does not automatically take control of your assets when you become disabled, or die. There could be disputes over who will be your legal guardian and the division of your assets upon your death. Without a Last Will the State of Michigan decides who gets your assets. As much as half of your estate will not go to your spouse, but rather to your children or your parents. Without a proper disability plan and estate plan, your spouse could end up in a confrontation with other family members, including your adult children (even from prior relationships). This is especially the case if you own a family business. A power of attorney is not a long-term care plan. A power of attorney does not grant full legal guardianship to the agent. It only grants the agent authority to do specific actions on your behalf. Full legal guardianship is much more than that. Even if your spouse gains control of everything when you die, what happens when your spouse dies? A living trust with a disability plan takes all the decisions about your assets and long-term care away from the courts and gives control to you.
“Putting Your Children’s Names On Everything Is All You Need To Do .”
Incorrect. This is a lesson in unintended consequences. Adding your children to your bank accounts, investment accounts, and real estate does not always work to prevent legal confrontations between family members, or with creditors. More importantly, it often creates unintended negative consequences for you and your children. There is no way to add your children as owners of your assets for only estate planning purposes. If they own it, then they own it. Therefore, if your children have problems with creditors, bankruptcy, divorce, or the IRS, then your assets are at risk. Your assets are subject to all the risks in the lives of your children.
Ownership of your assets can also harm your children and grandchildren. If your children apply for Medicaid or governmental benefits such as college financial aid for their kids, they will be disqualified because they must include your assets on their application (or leave them off and commit fraud). If you are sued because someone is injured on your property or in a car accident, your children could be liable because they are owners of the land and vehicle. When your children become co-owners with their siblings, they could be liable for their siblings’ actions and guests on the property.
If not done correctly it can all backfire on you. Medicaid can undo any asset transfer for five years. In addition, there are several types of deeds and each one has different legal consequences. If you use the wrong deed, you could be disqualified for Medicaid. The wrong deed may also cause your share of the property to still go to probate. The list of unintended legal consequences goes on and on. Only an experienced estate planning attorney can advise you on all of them. Worst of all, if your child dies before you, your entire plan falls apart and you may be too old to fix it. If you are on Medicaid you may lose your benefits and all your property. If your children have a fatal accident, terminal illness, or go into assisted living before you, then you could lose everything.
Don’t Believe the Myths – Don’t Do-It-Yourself
Estate and disability planning impacts every aspect of your life; your spouse, children and grandchildren, your life savings, everything you own, and even your personal health and control over your own body. It is a complex area of the law. It is impacted by property law, tax law, family law, Medicaid law, business law, and probate law. To do it yourself and rely on myths makes no sense. To rely on a general practice attorney is like asking your general practice doctor to perform brain surgery.
Before you select an attorney, do your research, make sure he/she is an estate planning attorney with substantial experience with complex living trusts and disability planning. Before hiring an estate planning attorney always ask how many living trusts they prepare each month. Ask how many weeks they spend each year solely on continued estate planning legal education. Make sure they do not use hourly billing. Your relationship with your estate planning attorney should be like that of your doctor or financial advisor. It should be a life long relationship with someone who you trust and confide in through the years. You should take your time selecting your estate planning attorney and ask your financial advisor, CPA, friends and family for referrals and meet with them in person before deciding to hire them.
Matthew V. Piwowar is a trusts and estate planning attorney based in metro Grand Rapids, Michigan and he is a member of the State Bar of Michigan, the National Network of Estate Planning Attorneys and the Michigan Forum of Estate Planners. He provides estate planning services statewide, from Kalamazoo to St. Ignace and Grandville to Ann Arbor.