March 2022 Newsletter
To my Family and Friends,
Around the Office this Month.
I can do it myself. I received a call this month from a gentleman referred to me by a senior center where I do my seminars. He said he was told he needed a quit claim deed from his parents to avoid probate when they died.
He said that he had researched quit claim deeds on the internet, that he drafted a deed from his parents to himself, sent it to the Register of Deeds Office, but it was rejected. (Not Surprising).
He asked me if he could read the deed to me over the phone. Then I could tell him what was wrong with the deed so he could record it. (He obviously does not understand how I make a living.)
I asked him if the deed was from his mom and dad to him. He said yes. I told him he was very lucky the Register of Deeds had not recorded the deed. The deed, as drafted by him, created two major problems.
A deed is effective the day it is signed. When his parents signed the deed, they conveyed their legal interest in the property to their son. Since they no longer owned the property, they were not entitled to the Principal Residence Exemption of up to 18 mills. (A mill is $1 of tax for each $1,000 of taxable value of the home.) To get the exemption, you must be a Michigan resident who both owns and occupies the residence as a principal residence. The parents no longer owned the property once they signed the deed. This deed will cost them more than a $1,000 in property taxes every year they live in the home. (I know what you are thinking: don’t date the deed. However, to be valid, the deed must be notarized and it is illegal for a notary to sign a document where the date is blank.)
The caller said the home was worth about $150,000 but had only cost his parents $10,000 in the 1950s. I explained that his deed as drafted was creating a gift from his parents to him. When you receive a gift, your “cost basis” is the cost basis of the giver. In this case, that is $10,000. If he sells the house after his parents are deceased for $175,000, then he will be taxed on a gain of $165,000. ($175,000 minus $10,000 equals $165,000). If the caller had used a “Ladybird” deed, the transfer of title to the property would have taken place on the death of the second of the parents. That is an inheritance and not a gift. He would get a ”step-up in the cost basis” to the value on the date of death of the second parent. If he then sold, there would be no gain and therefore no tax. (Sale price $175,000 minus the step-up in cost basis to $175,000 equals zero gain.)
He decided he would have me draw up a “Ladybird deed”.
The Bank wanted to help me. I received a call from a client whose husband died last year. She was at her bank. She was taking a copy of her Durable Power of Attorney for Financial Matters along with a copy of her husband’s death certificate to explain that her son would now be her agent/power of attorney. Her banker told her that the banker needed the original of her power of attorney. My client no longer had the original copy of her power of attorney so she called me for help. I knew that, since she was competent, that I could prepare another document for her to sign but first I advised the banker that the power of attorney has a provision indicating that the bank could accept a faxed, scanned or photocopy without any repercussions. The banker said the bank requires that the banker make a photocopy of an original document with the raised notary seal. That seems like overkill but is doable for most people. However, it would be a problem if the original is lost and the person making the power of attorney is no longer competent to sign another one.
What the banker said next was concerning and could potentially cause a problem for my client. The banker told my client that it “would be better if she added the children as joint owners of the bank account rather than naming them as her agent in the power of attorney”. If you have been to my seminars, you have heard me advise against this. If you add someone as a joint owner, and they later get into financial trouble, their creditors can legally take your money out of the joint account to get paid. By adding your children as joint owners, you open that account to all your children’s creditors. I advised the banker that what she was telling my client, and potentially others that visit their bank, was very bad legal advice. She said it was not bad legal advice because “I have all my children on my accounts”. (So that makes it good advice?)
I will not say “never” make your children joint on a bank account but remember if you do then you open the account up for all your children’s creditors. If you feel you do need a joint account for a specific purpose (like a funeral), then do not keep more money in the account than you need for that purpose. That way you limit your risk of having a joint account.
Who will pay for the funeral? The above story reminded me of a client who died six years ago. He had a trust and every asset he owned that had a title was titled in the trust. His estate was more than a million dollars. He did not have a wife or children; his heirs were siblings, nieces and nephews. I was quickly advised that none of his heirs had the funds to pay for his funeral. The successor trustee could not access any trust assets until they had a death certificate to show the banks and brokers. This problem is identical when there is no trust for the decedent but all assets had beneficiaries. Beneficiaries (like heirs) cannot access funds until they have a death certificate to show the bank, broker or insurance company. We finally solved the problem when I volunteered to pay for the funeral knowing I would be reimbursed in the future.
Your estate plan should include a plan to pay for your funeral. Here are some options:
Plan and prepay for your funeral at the funeral home. Have the funds deposited in the Michigan Funeral Directors Association Master Escrow Plan. That way you know the money will be there when it is needed.
Prepay for the funeral with the money to be used to purchase either an insurance policy or an annuity. Either one would pay a death benefit when the funds are needed.
If you have an existing life insurance policy, then, at the time of death, the beneficiary of the life insurance policy can sign an assignment of a portion of the life insurance proceeds needed to pay for the funeral. The funeral home will accept the assignment for payment knowing payment will come in a week or two.
Estimate the cost of your funeral and place the funds in a joint account with a family member who will access the funds to pay for the funeral in the future. Since the account is joint, no death certificate will be needed to withdraw funds. Limit the size of the account to just what is needed for the funeral. That limits the risk of having a joint account.
Seminars
Seminars are currently scheduled for 2022. I am returning to Northville, Plymouth, Westland and adding Dearborn Heights. Please see our website, www.gfalawfirm.com, to view our updated list of seminar dates and times.
Reviews/Feedback
We are so pleased to help you with your estate planning needs. The best way to receive new clients is through referrals from you. In addition, there are people out there searching for someone to help them. They feel comfortable calling an attorney that has a 5-star rating and details of client experiences. If I may, I will continue to ask all of my clients who have not done so yet, to provide a Google Review for me. Not only will it give me more positive reviews, it may help someone out, that doesn’t have a referral available, find an excellent resource...me! It is easy to do and takes very little time. Thank you!! (Please note: It may have you sign into your Google account if you haven’t already)
Simply type “Gary Allen attorney” and hopefully my information should pop up (if it doesn’t, call me).
On the right of your screen are gold stars and the number of Google reviews I have. Click on the google reviews and it will take you to my reviews.
Then in the top right corner it says in blue “Write a review”. Click on that to provide a review.
Please feel free to share this newsletter with your friends and family.
Very truly yours,
Gary