Although a complete estate plan can sometimes consist of many different documents, almost every estate plan will include either a Will, a Trust, or both. When I meet with clients to discuss their estate planning needs, they usually have one or both of the following goals in mind: 1) provide guardianship for their minor children in the event of their own premature death, and 2) put a plan in place to distribute their assets upon their death. With proper planning, these goals can be accomplished with a Will or a Trust.
By definition, a Will is a document through which a person provides instructions for the management of his or her estate after his or her death. Through a properly drafted Will, a person can provide instructions for final burial, for guardianship of a minor child, and for distribution of property.
A Trust is defined as a fiduciary relationship in which one party, known as the Trustor (the person creating the Trust), gives another party, the Trustee, the right to hold legal title to property or other assets for the benefit of a third party, the Beneficiary. There are two general types of Trusts - a Living Trust, and a Testamentary Trust. A Living Trust is effective during the Trustor's lifetime, whereas a Testamentary Trust is effective only upon the Trustor's death.
To properly determine whether a Will or a Trust is an appropriate estate planning document, it is important to understand the advantages of each.
The advantages of a Will are:
1) A Will is typically less expensive than a Trust.
2) A Will can be used to appoint a guardian for a minor child, whereas a Trust cannot. For that reason, if a Trust is necessary, the clients' estate plan will also usually include a simple Will, also called a "Pour-Over Will." This is another reason a Will is less expensive than a Trust.
The advantages of a Trust are:
1) A Trust can be used to avoid Probate. Probate is the process of taking the decedent's Will into Probate Court and seeking court approval to carry out the wishes that are expressed in the Will. Depending on the size and complexity of one's estate, the probate process can be expensive and time-consuming. A Trust, on the other hand, does not require court involvement upon the death of the Trustor.
2) A Trust can be used to control the Trustor's assets beyond his or her death. Since a Trust can "own" property, a Trust can exist beyond the Trustor's death, whereas a Will ceases to exist once the probate process is completed and the decedent's assets are distributed. So, a family cottage or other asset can be preserved for use by future generations through a Trust.
3) A Trust can be used to control when beneficiaries receive their inheritance. If parents want their children to receive their inheritance at age 25, for example, instead of at age 18, a Trust must be used. By law, beneficiaries are entitled to their inheritance through a Will at age 18.
4) A Trust is not public record, whereas a Will becomes public record once it is filed in Probate Court.
5) A Trust can be used to limit inheritance, or death, taxes.
Before deciding whether to use a Will or a Trust as part of your estate plan, it is important to determine your goals, and then to choose the estate planning document that will best help you achieve those goals. To learn more about this topic, or to schedule an appointment, please visit my website at http://www.toburenlaw.com/.
Tuesday, July 1, 2014
Tuesday, April 29, 2014
Estate Planning Basics: Why Married Couples Should Not Use a Joint Will
What is a Joint Will?
A joint will is a single document that is created by two or more people (usually husband and wife) who want to leave all of their property to each other, with the remainder being distributed upon the survivor's death. Since a joint will has to be agreed upon and signed by both creators, it is treated as a contract, and therefore both parties have to agree to modify or revoke the will. Therefore, a joint will cannot be amdended or revoked once the first spouse dies.
What are disadvantages of a Joint Will?
The main disadvantage of a joint will, and the reason I never recommend a joint will to a client, is that it cannot be amended or revoked after the first spouse dies. This presents a problem when the first spouse dies, and the surviving spouse wants to change the will - due to remarriage, or simply due to a change in life circumstances.
As an example, let's assume that Dave and Jill are married, and in 1995 they created a joint will, whereby they left everything to each other, and then once they both pass, the remainder is to be distributed evenly between their two children. In 2010, Jill died, so Dave became the sole owner of their estate. In 2015, Dave gets remarried, to Becky. Dave has a much larger estate than Becky, including the house that he and Jill had purchased years before, so Dave wants to modify his will to leave part of his estate to his new wife.
But, Dave cannot modify his original will because it became non-modifiable and irrevocable upon Jill's death. Since Dave cannot change his original will, he decides to create a new will, which divides his estate evenly between Becky and his two children. So, Dave's estate is now divided three ways instead of two. When Dave dies, his two children will have a breach of contract claim under the first will since they are intended beneficiaries of that will (which is a contract).
As another example, let's assume that Dave and Jill have the same two children, Bill and Steve. After Jill died in 2010, Steve was in a car accident and is now incapacitated. All of his medical and day-to-day expenses are now covered by Medicaid. Under Medicaid law, almost all of any money Steve inherits has to be turned over to Medicaid to cover his expenses. So, Dave should change his will so Steve does not inherit half of his estate, but he cannot do so because the will became non-modifiable when Jill died.
Are there any advantages to a Joint Will?
Although I strongly discourage use of a joint will, there are some benefits to a joint will as opposed to separate wills. The first advantage is cost. In most circumstances, it should cost less for a married couple to create one will as opposed to two wills. The other advantage is that a joint will prevents the surviving spouse from changing his or her mind about the final distribution of assets after the first spouse dies. But, as the examples above illustrate, the disadvantages of a joint will far outweigh the advantages, and for that reason, I would not recommend the use of a joint will.
What is the alternative to a Joint Will?
For a married couple, the alternative to a joint will is for each spouse to have separate wills, or to use a trust. The decision to use a will or trust can be complicated depending on family circumstances, the size of the estate, and the goals the clients want to accomplish. Before deciding to use a will or a trust, be sure to meet with an attorney you trust who will explain the differences between the two documents, and the advantages and disadvantages of each.
To learn more about this and other Estate Planning topics, please visit my website at www.toburenlaw.com.
A joint will is a single document that is created by two or more people (usually husband and wife) who want to leave all of their property to each other, with the remainder being distributed upon the survivor's death. Since a joint will has to be agreed upon and signed by both creators, it is treated as a contract, and therefore both parties have to agree to modify or revoke the will. Therefore, a joint will cannot be amdended or revoked once the first spouse dies.
What are disadvantages of a Joint Will?
The main disadvantage of a joint will, and the reason I never recommend a joint will to a client, is that it cannot be amended or revoked after the first spouse dies. This presents a problem when the first spouse dies, and the surviving spouse wants to change the will - due to remarriage, or simply due to a change in life circumstances.
As an example, let's assume that Dave and Jill are married, and in 1995 they created a joint will, whereby they left everything to each other, and then once they both pass, the remainder is to be distributed evenly between their two children. In 2010, Jill died, so Dave became the sole owner of their estate. In 2015, Dave gets remarried, to Becky. Dave has a much larger estate than Becky, including the house that he and Jill had purchased years before, so Dave wants to modify his will to leave part of his estate to his new wife.
But, Dave cannot modify his original will because it became non-modifiable and irrevocable upon Jill's death. Since Dave cannot change his original will, he decides to create a new will, which divides his estate evenly between Becky and his two children. So, Dave's estate is now divided three ways instead of two. When Dave dies, his two children will have a breach of contract claim under the first will since they are intended beneficiaries of that will (which is a contract).
As another example, let's assume that Dave and Jill have the same two children, Bill and Steve. After Jill died in 2010, Steve was in a car accident and is now incapacitated. All of his medical and day-to-day expenses are now covered by Medicaid. Under Medicaid law, almost all of any money Steve inherits has to be turned over to Medicaid to cover his expenses. So, Dave should change his will so Steve does not inherit half of his estate, but he cannot do so because the will became non-modifiable when Jill died.
Are there any advantages to a Joint Will?
Although I strongly discourage use of a joint will, there are some benefits to a joint will as opposed to separate wills. The first advantage is cost. In most circumstances, it should cost less for a married couple to create one will as opposed to two wills. The other advantage is that a joint will prevents the surviving spouse from changing his or her mind about the final distribution of assets after the first spouse dies. But, as the examples above illustrate, the disadvantages of a joint will far outweigh the advantages, and for that reason, I would not recommend the use of a joint will.
What is the alternative to a Joint Will?
For a married couple, the alternative to a joint will is for each spouse to have separate wills, or to use a trust. The decision to use a will or trust can be complicated depending on family circumstances, the size of the estate, and the goals the clients want to accomplish. Before deciding to use a will or a trust, be sure to meet with an attorney you trust who will explain the differences between the two documents, and the advantages and disadvantages of each.
To learn more about this and other Estate Planning topics, please visit my website at www.toburenlaw.com.
Tuesday, March 11, 2014
Estate Planning Basics: Using Life Insurance to Fund a Business Buy-Sell Agreement
A common issue facing small business owners, and one that is not often planned for, is how to transition ownership of a small business upon the death of one of the owners. The most common form of small business now is the Limited Liability Company, or LLC. In an LLC form of business, the owners are called members, and each member usually owns a percentage of the business. Although less common, a small business can also be formed as a corporation, where ownership is divided into shares.
When a small business is formed, the owners usually fund the business by investing their own money, or by taking out a small business loan. During the early years, the owners will often make additional investments -or take out additional loans - to cover losses, and as the business grows over time and becomes profitable, the owners will share in the profits, usually in proportion to each owner's respective investment in the business.
As the revenue and profits grow over time, so to does the value of the business. Whereas the initial value of the business was equal only to the investments made by the owners, the value of a successful business can quickly grow into the millions of dollars, especially when profits and assets such as buildings, equipment, patents and/or trademarks are factored in. And while it is indeed great for the value of the business to grow, challenges arise when one of the owners dies and the spouse and/or other heirs of the deceased owner want to collect on their share of the business. The following example will help illustrate the challenges small business owners and their families face upon the death of one of the owners:
Let's assume that Dave and Bob start a software business, with each owning 50% of the company. Dave and Bob form the business under Michigan law as an LLC, and both invest $10,000 of their own money. They also agree to split any profits 50/50. Over the course of many years, Dave and Bob build a highly profitable business, based primarily on a software program that they developed that is used extensively in the medical industry.
After fifteen years in business, Dave dies very unexpectedly, leaving behind a wife and three children, as well as two mortgages and significant amounts of personal debt that helped fund his family's lifestyle. He also leaves behind a business partner who is now on his own running the business. Because Dave and his wife had a Trust in place, his wife is set to inherit his half of the business. Dave's wife, however, is a school teacher who has no interest in running a business. His three children are still living at home and are too young to help run the business.
Dave's wife decides that the only way for her to survive financially is to sell her share of the business, and Bob decides that he wants to buy Dave's half of the business, as opposed to selling his half or bringing on a new partner. The business is appraised at $5,000,000. In order to buy the business, Bob would have to come up with half that amount, $2,500,000. Bob's challenge is that he also has significant personal debt, and he cannot come up with enough cash to buy out Dave's wife. With no other choice, Bob decides to bring on a new business partner.
The example above is very common with small businesses, and one potential solution is to fund a Buy-Sell Agreement with Life Insurance. In this example, Dave would have taken out a life insurance policy on Bob's life, and Bob would have taken out a life insurance policy on Dave's life, with the proceeds to be used by the surviving owner to purchase the deceased owner's share of the business. As the business grew through the years, Bob and Dave could have increased the value of the policies. Bob and Dave also could have signed a Buy-Sell Agreement when they started the business, stating that upon the death of either, the business would be appraised and the surviving owner would have the first opportunity to buy the business. The life insurance proceeds on the deceased owner's life would then have covered most, if not all, of the purchase price.
In our example, if Bob had a life insurance policy on Dave's life, he could have used the proceeds to buy the business, thus avoiding the unwanted necessity of bringing on a new business partner. Dave's wife could have sold her share of the business to Bob, and she could have used the proceeds of the sale to pay off the mortgages, put her kids through college, etc.
One other advantage of using life insurance to fund a Buy-Sell Agreement is that the value of the insurance proceeds is not included in the decedent's estate for estate tax purposes. As long as the insurance policy was taken out on the life of the decedent, and the proceeds are used strictly as payment to the decedent's estate for his or her ownership share of the business, the proceeds are not taxable.
In our example, and for many small business owners, a Buy-Sell Agreement funded by life insurance is a great way to protect the surviving owner's interest in the business, as well as a great way to protect the family of the deceased owner. To learn more about this and other Estate Planning topics, please visit my website at http://www.toburenlaw.com/
When a small business is formed, the owners usually fund the business by investing their own money, or by taking out a small business loan. During the early years, the owners will often make additional investments -or take out additional loans - to cover losses, and as the business grows over time and becomes profitable, the owners will share in the profits, usually in proportion to each owner's respective investment in the business.
As the revenue and profits grow over time, so to does the value of the business. Whereas the initial value of the business was equal only to the investments made by the owners, the value of a successful business can quickly grow into the millions of dollars, especially when profits and assets such as buildings, equipment, patents and/or trademarks are factored in. And while it is indeed great for the value of the business to grow, challenges arise when one of the owners dies and the spouse and/or other heirs of the deceased owner want to collect on their share of the business. The following example will help illustrate the challenges small business owners and their families face upon the death of one of the owners:
Let's assume that Dave and Bob start a software business, with each owning 50% of the company. Dave and Bob form the business under Michigan law as an LLC, and both invest $10,000 of their own money. They also agree to split any profits 50/50. Over the course of many years, Dave and Bob build a highly profitable business, based primarily on a software program that they developed that is used extensively in the medical industry.
After fifteen years in business, Dave dies very unexpectedly, leaving behind a wife and three children, as well as two mortgages and significant amounts of personal debt that helped fund his family's lifestyle. He also leaves behind a business partner who is now on his own running the business. Because Dave and his wife had a Trust in place, his wife is set to inherit his half of the business. Dave's wife, however, is a school teacher who has no interest in running a business. His three children are still living at home and are too young to help run the business.
Dave's wife decides that the only way for her to survive financially is to sell her share of the business, and Bob decides that he wants to buy Dave's half of the business, as opposed to selling his half or bringing on a new partner. The business is appraised at $5,000,000. In order to buy the business, Bob would have to come up with half that amount, $2,500,000. Bob's challenge is that he also has significant personal debt, and he cannot come up with enough cash to buy out Dave's wife. With no other choice, Bob decides to bring on a new business partner.
The example above is very common with small businesses, and one potential solution is to fund a Buy-Sell Agreement with Life Insurance. In this example, Dave would have taken out a life insurance policy on Bob's life, and Bob would have taken out a life insurance policy on Dave's life, with the proceeds to be used by the surviving owner to purchase the deceased owner's share of the business. As the business grew through the years, Bob and Dave could have increased the value of the policies. Bob and Dave also could have signed a Buy-Sell Agreement when they started the business, stating that upon the death of either, the business would be appraised and the surviving owner would have the first opportunity to buy the business. The life insurance proceeds on the deceased owner's life would then have covered most, if not all, of the purchase price.
In our example, if Bob had a life insurance policy on Dave's life, he could have used the proceeds to buy the business, thus avoiding the unwanted necessity of bringing on a new business partner. Dave's wife could have sold her share of the business to Bob, and she could have used the proceeds of the sale to pay off the mortgages, put her kids through college, etc.
One other advantage of using life insurance to fund a Buy-Sell Agreement is that the value of the insurance proceeds is not included in the decedent's estate for estate tax purposes. As long as the insurance policy was taken out on the life of the decedent, and the proceeds are used strictly as payment to the decedent's estate for his or her ownership share of the business, the proceeds are not taxable.
In our example, and for many small business owners, a Buy-Sell Agreement funded by life insurance is a great way to protect the surviving owner's interest in the business, as well as a great way to protect the family of the deceased owner. To learn more about this and other Estate Planning topics, please visit my website at http://www.toburenlaw.com/
Tuesday, January 21, 2014
Michigan Family Law: If Parents are Divorced, which Parent is Entitled to the Tax Exemption for the Children?
As we move into 2014 and prepare to file our income tax returns, divorced or separated parents of minor children often wonder - or fight over - which parent gets to claim the dependency tax exemption for the children. If the parents file a joint return, this is not an issue. However, if the parents file separate returns, only one parent can claim each child, and this can mean a significant difference in the amount of taxes that are owed.
In order for a child dependency tax exemption to be available to either parent, the child must be a "qualifying child." Once it is determined that there is a qualifying child, the second step in the process is to determine which parent is entitled to the tax exemption.
1) Qualifying Child
Parents have a qualifying child if the following requirements are met:
- The parents must be divorced, legally separated, or have lived apart for the last six months of the year.
- The child must be the taxpayer's son, daughter, stepson, or stepdaughter.
- The child must have lived with one or both parents for more than half the year, and with the parent claiming the exemption for more time than with the other parent.
- The child must be under age 19, or if the child is a full time student, under age 24. (There is no age limitation if the child is permanently disabled).
- Both parents combined must have provided more than half the child's financial support during the year.
2) Which Parent is entitled to the Tax Exemption?
As a general rule, if the child meets the requirements of a "qualifying child," the parent who has physical custody of the child for more than half the year is the custodial parent and is entitled to claim the dependency exemption. If the child is not a qualifying child, neither parent can take the tax exemption.
Parents often think that the tax exemption belongs to the parent who provides more financial support for the child. This is not the case, as the determination is based on physical custody, as outlined above.
There are also exceptions to the general rule that the parent with physical custody for more than half the year is entitled to the exemption. The first exception is that the custodial parent can agree to release the exemption to the non-custodial parent as part of a negotiated divorce settlement. For example, the custodial parent may agree to more parenting time, or more spousal support, in exchange for releasing the tax exemption to the non-custodial parent.
The second exception to the general rule is that the court may award the non-custodial parent the tax exemption. The Michigan Court of Appeals has ruled that Michigan state courts have the authority to deviate from the general rule, although the criteria for making that decision have not been clearly established.
Although not directly related to the question of which parent is entitled to the tax exemption, it is also important to note for income tax reporting purposes that child support payments are not tax deductible for the payer, and the parent receiving payment does not have to claim the payments as income.
To learn more about this topic, please visit my website at http://www.toburenlaw.com/my-blog/
Thursday, December 12, 2013
Michigan Family Law: How to Modify an Existing Custody Order
In cases where a previous custody order has been established, whether because of divorce or even if the parents of a child were never married, several criteria must be met before a court will modify that existing custody order.
The first requirement is to prove that proper cause exists, or that a change in circumstances has occurred that would make a custody modification appropriate. If one of those two criteria is met, the court will then determine whether either or both parents has an established custodial environment with the child; this determination will allow the court to decide the burden of proof that must be met to change custody. Once the burden of proof has been established, it will be applied to the Child Custody Act Best Interests of the Child factors. This analysis is outlined below.
The burden of proof necessary to prove proper cause or a change in circumstances is "preponderance of the evidence." This is the lowest legal standard, and it means that the petitioner - the person asking for a custody change - has to merely prove that it is more likely than not that one of these two criteria can be met.
1) Proper Cause - In order to prove proper cause, the petitioner must prove - by a preponderance of the evidence - that one or more appropriate grounds exist that could have or have had a significant effect on the child's life. Although Michigan law does not establish a rule for what constitutes proper cause, the courts will look at the Child Custody Act Best Interests of the Child factors, which are outlined below. Each of these factors relates to the parents' ability to provide appropriate love, guidance, and discipline to the child.
The first requirement is to prove that proper cause exists, or that a change in circumstances has occurred that would make a custody modification appropriate. If one of those two criteria is met, the court will then determine whether either or both parents has an established custodial environment with the child; this determination will allow the court to decide the burden of proof that must be met to change custody. Once the burden of proof has been established, it will be applied to the Child Custody Act Best Interests of the Child factors. This analysis is outlined below.
Is there proper cause or a change in circumstances to justify a child custody change?
The burden of proof necessary to prove proper cause or a change in circumstances is "preponderance of the evidence." This is the lowest legal standard, and it means that the petitioner - the person asking for a custody change - has to merely prove that it is more likely than not that one of these two criteria can be met.
1) Proper Cause - In order to prove proper cause, the petitioner must prove - by a preponderance of the evidence - that one or more appropriate grounds exist that could have or have had a significant effect on the child's life. Although Michigan law does not establish a rule for what constitutes proper cause, the courts will look at the Child Custody Act Best Interests of the Child factors, which are outlined below. Each of these factors relates to the parents' ability to provide appropriate love, guidance, and discipline to the child.
2) Change in Circumstances - In order to prove a change in circumstances, the petitioner must prove - again by a preponderance of the evidence - that, since the entry of the current custody order, conditions surrounding the child, which could have an effect on the child, have materially changed. It's important to note that the court will only look at events that have happened since the existing custody order was entered - the court will not look at events that happened prior to that order. These events must also be more than normal life changes that every child experiences. For example, a child becoming more involved in extra curricular activities as he enters high school would be considered a normal life change, not a change in circumstances that would warrant a custody change.
If at least one of the two criteria outlined above is met, the court will then determine whether either or both parents has an established custodial environment with the child.
Does either parent, or do both parents, have an established custodial environment with the child?
A parent, or both parents, has an established custodial environment with the child if, over an appreciable amount of time, the child looks to the parent in that environment for love, guidance, and support. In making this determination, the court will consider the age of the child and the physical environment. Although the size and condition of the home may be a factor, it will not be the only factor considered.
The burden the petitioner has to meet to change custody is based on whether or not the other parent has an established custodial environment with the child. For example, if Dad files a motion to change custody, and the court determines that Mom has en established custodial environment with the child, then Dad has to prove by clear and convincing evidence that a change is in the best interests of the child. Clear and Convincing Evidence is the highest legal standard, and requires the petitioner to prove his case almost to a complete certainty. If Mom does not have an established custodial environment with the child, then Dad has to prove his case by a preponderance of the evidence, which was discussed above.
Is a child custody change in the best interests of the child?
The Child Custody Act established 12 factors the court will look at when determining if a change in custody is in the best interests of the child. Based on the Established Custodial Environment analysis above, these factors will have to be proved by either a preponderance of the evidence, or by clear and convincing evidence. The court does not have to make a conclusion as to which parent each factor favors, but the court must at least make an assessment of the applicability of each factor.
The 12 Best Interests of the Child factors are:
1) The love, affection, and emotional ties between the parties involved and the child.
2) The capacity of the parties to give the child love, affection, and guidance; to support the child's education and to raise the child in his or her religion.
3) The ability of the parties to provide food, clothing, medical care, etc.
4) The length of time the child has lived in a stable, satisfactory environment.
5) The permanence, as a family unit, of the existing or proposed custodial home.
6) The moral fitness of the parties involved.
7) The home, school, and community record of the child.
8) The mental and physical health of the parties involved.
9) The reasonable preference of the child, if the court considers the child to be of sufficient age to express preference.
10) The willingness of each parent to encourage a relationship between the child and the other parent.
11) Domestic violence.
12) Any other relevant factor.
Conclusion
The first step in deciding if a child custody change is appropriate is to determine if proper cause exists, or if there is a change in circumstances that would support making such a change. The legal standard to evaluate this first step is preponderance of the evidence. If the court determines that there is proper cause or a change in circumstances, the second step is to determine if either or both parents has an established custodial environment with the child. The answer to that second question will determine whether the Child Custody Act Best Interests of the Child factors are evaluated based on clear and convincing evidence or preponderance of the evidence. Once that determination is made, the court will apply the appropriate standard to each of the Best Interests factors to decide whether or not to grant a child custody change.
To learn more about this topic, or to schedule an appointment, please visit my website at http://www.toburenlaw.com/
If at least one of the two criteria outlined above is met, the court will then determine whether either or both parents has an established custodial environment with the child.
Does either parent, or do both parents, have an established custodial environment with the child?
A parent, or both parents, has an established custodial environment with the child if, over an appreciable amount of time, the child looks to the parent in that environment for love, guidance, and support. In making this determination, the court will consider the age of the child and the physical environment. Although the size and condition of the home may be a factor, it will not be the only factor considered.
The burden the petitioner has to meet to change custody is based on whether or not the other parent has an established custodial environment with the child. For example, if Dad files a motion to change custody, and the court determines that Mom has en established custodial environment with the child, then Dad has to prove by clear and convincing evidence that a change is in the best interests of the child. Clear and Convincing Evidence is the highest legal standard, and requires the petitioner to prove his case almost to a complete certainty. If Mom does not have an established custodial environment with the child, then Dad has to prove his case by a preponderance of the evidence, which was discussed above.
Is a child custody change in the best interests of the child?
The Child Custody Act established 12 factors the court will look at when determining if a change in custody is in the best interests of the child. Based on the Established Custodial Environment analysis above, these factors will have to be proved by either a preponderance of the evidence, or by clear and convincing evidence. The court does not have to make a conclusion as to which parent each factor favors, but the court must at least make an assessment of the applicability of each factor.
The 12 Best Interests of the Child factors are:
1) The love, affection, and emotional ties between the parties involved and the child.
2) The capacity of the parties to give the child love, affection, and guidance; to support the child's education and to raise the child in his or her religion.
3) The ability of the parties to provide food, clothing, medical care, etc.
4) The length of time the child has lived in a stable, satisfactory environment.
5) The permanence, as a family unit, of the existing or proposed custodial home.
6) The moral fitness of the parties involved.
7) The home, school, and community record of the child.
8) The mental and physical health of the parties involved.
9) The reasonable preference of the child, if the court considers the child to be of sufficient age to express preference.
10) The willingness of each parent to encourage a relationship between the child and the other parent.
11) Domestic violence.
12) Any other relevant factor.
Conclusion
The first step in deciding if a child custody change is appropriate is to determine if proper cause exists, or if there is a change in circumstances that would support making such a change. The legal standard to evaluate this first step is preponderance of the evidence. If the court determines that there is proper cause or a change in circumstances, the second step is to determine if either or both parents has an established custodial environment with the child. The answer to that second question will determine whether the Child Custody Act Best Interests of the Child factors are evaluated based on clear and convincing evidence or preponderance of the evidence. Once that determination is made, the court will apply the appropriate standard to each of the Best Interests factors to decide whether or not to grant a child custody change.
To learn more about this topic, or to schedule an appointment, please visit my website at http://www.toburenlaw.com/
Friday, November 8, 2013
Estate Planning Basics: Estate Planning for Blended Families
In a previous post, I discussed the top three reasons you may need a will or trust to protect you, your assets, and your family (See: http://www.toburenlaw.blogspot.com/2013/08/estate-planning-basics-top-3-reasons.html). One of those top three reasons is because you want to decide, instead of allowing a court to decide, how to distribute your assets upon your death. This topic is especially important, and challenging, for a blended family, which is a family in which one or both parents has children from a previous relationship.
Perhaps the best way to illustrate the estate planning challenge for blended families is with an example. Let's say that Bob and Jill were recently married. Bob has two adult children from a previous marriage, and Jill has one adult child from a previous marriage. Bob and Jill live in a house that Bob owns. Because they were both married previously, all of their other assets - bank accounts, investment accounts, vehicles, etc. - are also owned individually.
When Bob and Jill decide to create their estate plan, they agree that their primary goal is to provide for the surviving spouse for the remainder of his or her life, with the remainder of Bob's assets, including the house, passing to his children, and the remainder of Jill's assets passing to her child. In other words, if Bob dies first, he wants Jill to have use of his house for the rest of her life. Upon Jill's death, Bob wants the house sold and the proceeds split between his own children.
Under this scenario, Bob and Jill cannot accomplish their goals with a will. If Bob left the house and his other assets to Jill through his will, Jill would become the sole owner of those assets upon Bob's death. At that time, she would no longer have any obligation to leave Bob's assets to Bob's children upon her own death. If she chose, for whatever reason, not to follow Bob's wishes, she could create a new will, leaving everything to her own children. Under this scenario, Bob's children would inherit nothing from their father.
Even without factoring in the house, it would be extremely difficult for Bob and Jill to accomplish their goals with a will. Let's assume that Bob's other assets (not including the house) have a value of $500,000, made up of a checking account, a savings account, a retirement account, and mutual funds. Bob would still like to provide for Jill for the remainder of her life if Bob was to die first. Upon Jill's death, he again wants the remainder of his assets to pass to his own children.
Similar to the scenario above with the house, if Bob left his other assets to Jill, she would inherit those assets outright, and she would be able to change her own will so that Bob's children would inherit nothing from her. Although a will can be written in a number of different ways, there is just not a good option when planning for blended families. Let's say Bob creates a will that says, "Upon my death, I leave half my estate to my wife, with the other half being divided among my children." What if, due to a drop in the stock market, at the time of Bob's death, the estate is only worth $300,000, instead of $500,000? Now, Jill may not inherit as much as Bob thought she would, and she may not have enough money to live comfortably for the remainder of her life.
Let's change the scenario above and say that Bob writes his will as follows: "Upon my death, I leave my wife $400,000, with the remainder divided evenly between my two children." Here, Bob plans to leave his wife $400,000, and each of his two kids $50,000. But, if Bob lives several more years, and at the time of his death, the estate is worth $1.2 million, Jill would still inherit $400,000, but each of Bob's children would inherit $400,000. Again, Bob's true intentions have not been carried out.
Since a will is not the best option for Bob and Jill (and their blended family) to accomplish their estate planning goals, Bob and Jill should each create a revocable living trust (RLT). A RLT will allow Bob and Jill to provide for the surviving spouse while also passing the remainder to each spouse's own children. Going back to the original example where Bob owns the house, Bob could set up a trust that would allow Jill to remain in the house for the remainder of her life. In this scenario, the trust would own the house, and when Jill eventually dies, the trust could sell the house and split the proceeds between Bob's children. Since Jill would not become the owner of the house upon Bob's death, she also could not use her own will to pass the house to her children.
Similarly, Bob's other assets, which currently total $500,000, could be put into a trust and could be used for Jill's benefit for the remainder of her life, with the remainder passing to Bob's children upon her death. To ensure that the money was spent properly, a trustee would oversee how the money is spent. The trust could also have specific provisions that outline how the money could be spent.
Blended families are becoming more common, and they prevent unique estate planning challenges. To learn more about this topic, or to schedule an appointment to discuss your estate planning goals, please visit my website at www.toburenlaw.com.
Perhaps the best way to illustrate the estate planning challenge for blended families is with an example. Let's say that Bob and Jill were recently married. Bob has two adult children from a previous marriage, and Jill has one adult child from a previous marriage. Bob and Jill live in a house that Bob owns. Because they were both married previously, all of their other assets - bank accounts, investment accounts, vehicles, etc. - are also owned individually.
When Bob and Jill decide to create their estate plan, they agree that their primary goal is to provide for the surviving spouse for the remainder of his or her life, with the remainder of Bob's assets, including the house, passing to his children, and the remainder of Jill's assets passing to her child. In other words, if Bob dies first, he wants Jill to have use of his house for the rest of her life. Upon Jill's death, Bob wants the house sold and the proceeds split between his own children.
Under this scenario, Bob and Jill cannot accomplish their goals with a will. If Bob left the house and his other assets to Jill through his will, Jill would become the sole owner of those assets upon Bob's death. At that time, she would no longer have any obligation to leave Bob's assets to Bob's children upon her own death. If she chose, for whatever reason, not to follow Bob's wishes, she could create a new will, leaving everything to her own children. Under this scenario, Bob's children would inherit nothing from their father.
Even without factoring in the house, it would be extremely difficult for Bob and Jill to accomplish their goals with a will. Let's assume that Bob's other assets (not including the house) have a value of $500,000, made up of a checking account, a savings account, a retirement account, and mutual funds. Bob would still like to provide for Jill for the remainder of her life if Bob was to die first. Upon Jill's death, he again wants the remainder of his assets to pass to his own children.
Similar to the scenario above with the house, if Bob left his other assets to Jill, she would inherit those assets outright, and she would be able to change her own will so that Bob's children would inherit nothing from her. Although a will can be written in a number of different ways, there is just not a good option when planning for blended families. Let's say Bob creates a will that says, "Upon my death, I leave half my estate to my wife, with the other half being divided among my children." What if, due to a drop in the stock market, at the time of Bob's death, the estate is only worth $300,000, instead of $500,000? Now, Jill may not inherit as much as Bob thought she would, and she may not have enough money to live comfortably for the remainder of her life.
Let's change the scenario above and say that Bob writes his will as follows: "Upon my death, I leave my wife $400,000, with the remainder divided evenly between my two children." Here, Bob plans to leave his wife $400,000, and each of his two kids $50,000. But, if Bob lives several more years, and at the time of his death, the estate is worth $1.2 million, Jill would still inherit $400,000, but each of Bob's children would inherit $400,000. Again, Bob's true intentions have not been carried out.
Since a will is not the best option for Bob and Jill (and their blended family) to accomplish their estate planning goals, Bob and Jill should each create a revocable living trust (RLT). A RLT will allow Bob and Jill to provide for the surviving spouse while also passing the remainder to each spouse's own children. Going back to the original example where Bob owns the house, Bob could set up a trust that would allow Jill to remain in the house for the remainder of her life. In this scenario, the trust would own the house, and when Jill eventually dies, the trust could sell the house and split the proceeds between Bob's children. Since Jill would not become the owner of the house upon Bob's death, she also could not use her own will to pass the house to her children.
Similarly, Bob's other assets, which currently total $500,000, could be put into a trust and could be used for Jill's benefit for the remainder of her life, with the remainder passing to Bob's children upon her death. To ensure that the money was spent properly, a trustee would oversee how the money is spent. The trust could also have specific provisions that outline how the money could be spent.
Blended families are becoming more common, and they prevent unique estate planning challenges. To learn more about this topic, or to schedule an appointment to discuss your estate planning goals, please visit my website at www.toburenlaw.com.
Thursday, October 31, 2013
Michigan Family Law: Grandparenting Time
Can Grandparents successfully petition a court to enforce visitation rights with their grandchildren?
Prior to 2003, in Michigan, grandparents could successfully seek an order for grandparenting time with their grandchildren if they could prove it was in the best interests of their grandchildren to spend time with their grandparents. Per that statute, if a child custody dispute between the parents was pending before a court, the grandparents could file a petition and be awarded visitation with their grandchildren, even if the parents objected.
In 2003, the Michigan Supreme Court ruled that the existing Michigan law was unconstitutional because it did not give deference to the preference of fit parents. In other words, the existing law did not presume that fit parents would make the best decision for their own children. The Michigan Supreme Court decision was in line with an earlier United States Supreme Court decision that overturned a similar Washington law on the grounds that fit parents have a Constitutional right to raise their children in accordance with the law, and without interference by the government, or by others.
Following the invalidation of the existing law, Michigan passed a new law in 2005 that established specific criteria that had to be met before grandparents could be awarded grandparenting time. The new law, MCL 722.27b(1), established six circumstances under which grandparenting time may be awarded:
1) an action for divorce, separate maintenance, or annulment involving the child's parents is pending before the court;
2) the child's parents are divorced, separated under a judgment of separate maintenance, or have had their marriage annulled;
3) the child's parent who is a child of the grandparents is deceased;
4) the child's parents have never been married, they are not residing in the same household, and paternity has been established;
5) legal custody of the child has been given to a person other than the child's parent or the child is placed outside of and does not reside in the home of a parent; or
6) in the year preceding the commencement of the action for grandparenting time, the grandparent provided an established custodial environment for the child, whether or not the grandparent had custody under a court order.
The other key component of the statute, and maybe the key component, is that the statute creates a presumption that a fit parent's decision to deny grandparenting time does not create a substantial risk of harm to the grandchildren. Whereas the old statute, as mentioned above, only required proof that grandparenting time would be in the best interests of the children, the new statute requires grandparents to prove that denying grandparenting time would negatively impact the grandchildren's mental, physical, or emotional well-being. The new 2005 statute also forbids grandparents from filing more than once every two years.
This new statute has been upheld as constitutional by the Michigan Court of Appeals on the grounds that grandparents do not have a fundamental constitutional right to a relationship with their grandchildren, and that grandchildren likewise do not have a fundamental constitutional right to a relationship with their grandparents. As mentioned above, the new Michigan statute gives great deference to fit parents' right to choose how to raise their own children; part of that right is to choose who their own children do, or do not, have a relationship with.
The practical effect of this new statute, and the Michigan Court of Appeals determination that the statute is constitutional, is that grandparenting time is almost never awarded in Michigan. Although the new 2005 statute provides six circumstances in which grandparenting time may be awarded, judges in Michigan usually honor the right of parents to make that decision for their own children.
To learn more about this topic, please visit my website at www.toburenlaw.com.
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