DEARBORN —When it comes to estate planning, specifically wills and trusts, many people fail to recognize its integral role and would rather use joint tenancy to distribute assets and escape Probate Court.
That’s the view of a local estate planning attorney who spoke to The AANews.
“By that I mean instead of using proper estate planning documents like a will or a trust, they tend to transfer assets to their beneficiaries during their lifetimes by putting their beneficiaries on titles of their assets, such as their home or their bank account,” said Hameed Dakroub of Dakroub Law Group, PLLC.
However, he said many drawbacks arise from joint tenancy. If the beneficiaries have creditors or judgments opposing them or are undergoing divorce, liens could be allotted to the assets. Creditors can even push for the sale of a house “in order to get the beneficiaries’ interest in the asset.”
The second disadvantage of joint tenancy involves bank accounts. Dakroub said the beneficiary a person chooses will have the right to withdraw from a joint account and that creditors could possibly pursue the money in it.
“[The third] pitfall is that the right of survivorship trumps anything you say in the will,” he said. “For example, this means that if you have arranged in your estate planning documents for every asset of yours to go to your only child, and if you share a joint account with someone else, the assets in the joint account will go to that other person regardless of what the estate planning documents say, and the child will not receive your share of the asset in that joint account.”
The benefit of preparing estate planning documents in advance
Dakroub said preparing estate planning documents ahead of time tends to be the safest route because people can assign assets to whomever they choose and even select how and when these properties should be divided.
He said some may choose to give assets to their beneficiaries instantly. Others may keep them in trust until the recipients reach a specific age. While the rest may like to “keep the assets in a lifetime trust for the beneficiaries’ benefit and protection.”
He added that preparing estate planning documents in advance can aid with estate and income tax planning and that avoiding Probate Court with trusts would be guaranteed.
Passing away “intestate”
According to Dakroub, when people pass away without any estate planning documents, they are deemed to have died “intestate”— basically voiceless.
“This means that the administration of [their] estate will likely have to go through Probate Court and the court will divide [their] assets according to the laws of the state of Michigan, without any exceptions,” he said.
“For example, let’s say that you have a child that you worry about inheriting large sums of your assets,” he said. “Or a child that has a gambling addiction and you would prefer that the child not receive your assets outright… In those situations, you will not have any say with regards to whom your assets are going to be given to and how they will be divided.”
Also, being intestate risks having someone they dislike or even distrust hired as their personal representative to manage estates because anyone could apply for that position.
“[It can be someone they] did not want to be appointed,” he said, adding that there’s also a risk of having someone unwelcome selected as the guardian of their children.
Trusts vs. wills
Trusts avoid probate court because they arrange what, how and when the assets will be passed to beneficiaries. If the trust is unchangeable, it may not be part of the taxable estate and so taxes decline upon death.
“Common misconceptions about trusts are that only wealthy individuals need them,” Dakroub said. “That is completely false. If you have minor children, you need a trust. If you want to maintain flexibility with regard to the disposition of your assets, you need a trust. If you want to maintain privacy, you need a trust. If you want to plan for estate, income or other potential taxes, you need a trust. If you want to have creditor protection, you need a trust.”
Wills don’t avoid Probate Court and become public documents through the court system. They lack the ease of trusts, especially when it comes to distributing assets to beneficiaries at specific ages.
Wills also don’t allow that or the safekeeping of assets in a lifetime trust to protect beneficiaries against creditors.
“Estate assets in a will only get distributed after passing,” Dakroub said. “What that means is that when you pass away, your assets get distributed to your beneficiaries right away, pending the Probate Court process.… You still have to go through Probate Court, which can be a time-consuming process… before the administration of your estate is complete.”
Those making out a will have to pay Probate Court fees and the price of hiring an attorney to assist in the process.
“Although wills are better than not having an estate plan in general, they are not the best estate planning tools,” Dakroub said. “Trusts are certainly the better alternative because of the aforementioned reasons and because you can avoid Probate Court with private estate administration in accordance with your trust.”
How can an estate planning attorney help?
“Essentially, the main point of estate planning is to plan for what happens to you, your loved ones and your assets after you pass away,” Dakroub said. “Typical questions involve basic information gathering, the types of assets the client owns, asking clients to whom they want their assets distributed, how they would want them distributed and the types of assets the client owns.”
After going through a series of questions, an attorney uses the information to map out an estate plan in agreement with a client’s requests.
“We then schedule a signing conference where the client comes in and signs their estate planning documents,” Dakroub said. “It’s that simple.”
He said it’s meant to be a comforting process, since clients walk out protecting themselves, their families and their assets.
To learn more, call Dakroub Law Group, PLLC at (313) 401-4488 or visit www.dakroublaw.com. The firm is located at 23400 Michigan Avenue, Suite 110 in Dearborn.