Kalamazoo Estate Planning - Trusts




Our Estate Planning and Elder Law Attorney:

Michael A. Hettinger




Battle Creek


Three Rivers














A trust is an agreement between one person (the grantor) and another (the trustee) to hold, invest, and utilize an asset or assets for the benefit of another person (the beneficiary). The same person can be the grantor, the trustee, and the beneficiary of a single trust. Trusts are an integral part of many estate plans. The many and varied uses of trusts are limitless. Some of the more common uses are to avoid the probate system, minimize or eliminate death taxes, provide for the support of a minor or mentally incompetent person, and avoid public records from being created regarding the financial position of an individual, a business, or a family.

The Probate Court system is the "failure to plan" court system. Assets which pass through intestacy (assets which pass from someone without a will are said to pass intestate) or through a will pass through probate. In general, probate proceedings create a public record. An estate which requires significant probate of its assets is usually far more expensive to administer than one which does not require the intervention of the Probate Court. This is only common sense. Someone has to pay the judge's salary and the courthouse utility bill.

When a person dies, his or her estate is liable for paying death taxes. The estate tax system is a marginal system much the same as the income tax system. The rates, however, are much higher. A tax system is said to be marginal when the applicable tax rate starts low and gradually moves higher. The estate tax rate starts at 18% and finishes at 55%. This means that in many estates the government takes more than half of the assets being left to take care of a person's family.

Each person is given a lifetime credit toward death taxes. This credit can be applied to either gifts made during lifetime or assets left to others after death. Currently, this credit allows a person to gift or bequeath $5,250,000 without paying death taxes. Additionally, all assets which pass to a spouse are exempt from death taxes at the time they pass to the spouse. A good estate plan maximizes the use of the lifetime credit in conjunction with the marital exemption in order to minimize the death taxes involved in passing property to the next generation.

Using a trust to receive the assets which are gifted or bequeathed to a minor avoids the use of a Probate Court appointed conservatorship. In a trusteeship, the trustee appointed by the person establishing the trust (the grantor) receives, invests, and utilizes the minor's assets in accordance with the wishes of the grantor. The trustee owes an obligation to the minor (the beneficiary) to administer the trust according to the grantor's wishes. The trustee does not need permission to spend money for the benefit of the minor. The trustee disburses the trust assets to the minor at a time predetermined by the grantor, usually when the beneficiary has reached an age by which he or she is more able to manage his or her financial affairs.

Utilizing a trust, instead of the Probate Court, to pass assets at death minimizes or eliminates the creation of a public record. The majority of estate proceedings in a Probate Court are made a public record. By using a trust to pass assets at death, no public record is created.

Trusts can be revocable or irrevocable. As a general rule, assets which are held by a revocable trust are considered to be owned by the grantor. The income from a revocable trust which either retains the income generated by its assets or distributes the income to the grantor (a grantor trust in which the grantor is also the beneficiary) is taxable to the grantor.

An irrevocable trust is frequently used to remove assets from the grantor's estate for death tax purposes. Examples of irrevocable trusts are the irrevocable life insurance trust and the charitable remainder trust. An irrevocable life insurance trust holds a life insurance policy as its primary or sole asset. When properly created and administered, an irrevocable life insurance trust prevents the proceeds from a life insurance policy from being taxed in the grantor's estate for death tax purposes.

A charitable remainder trust is one which pays the income to a beneficiary or beneficiaries (including the grantor) for a period of time and then distributes the principal to a predetermined charitable organization. The grantor of a charitable remainder trust generally receives a current income tax deduction and also a charitable deduction for death tax purposes.