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2016

Estate & Financial Services YOUR NORTHERN MICHIGAN GUIDE TO A SECURE FINANCIAL FUTURE

Good news for charitable giving

Mortgages: LOW

Family trusts: ARE

Strategies FOR NEW COTTAGE TAX LAW

Boat insurance:

Should A PROFESSIONAL MANAGE YOUR TRUST?

Growing FINANCIAL PROWESS OF WOMEN

DOWN-PAYMENTS, NOW

THEY RIGHT FOR YOU?

WHAT TO KNOW

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Three generations and counting—on you. At a certain level of wealth, one’s needs and desires invariably change. The merits of a family foundation become clearer. Philanthropy, and the values it imparts to younger generations, takes on greater meaning. And the balance between family wealth and family harmony becomes ever more important. Issues relevant to multigenerational wealth are best served by an advisor with long-term financial stability, unimpeachable integrity and fiduciary competence. In short, the Family Office at Greenleaf Trust. We listen to, guide and educate your family, with the scale to deliver and the culture to serve at the highest benchmarks. We know family matters—in every meaning. Call us to learn more.

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NAVIGATING CHANGE IN COTTAGE TAX LAW

are not uncapped through successive generations. But trusts are not ideal to use for creating a plan to manage a cottage.

As if passing a family cottage from one generation to the next isn’t emotionally and financially tricky enough, Michigan’s tax laws keep evolving, sometimes leaving families scrambling to reshape the carefully thought-out transition plans they’d just written (legal fees noted).

How so? For one thing, if the trust owns the cottage, the individuals are not able to deduct property taxes. Also, family groups tend to want a more democratic process for making decisions, but a trust tends to be more autocratic, with fewer people managing.

Such is the case this year for families that chose to manage a family cottage through a limited liability corporation. A change in state tax law prevented LLCs from having access to an important inheritance tax provision that allowed families to pass cottages to successive generations without increasing the property tax rate. Dan Penning, a cottage law attorney, helps us understand the situation and explains what families with LLC cottage plans can do in response—and how LLCs can still be an effective part of the strategy. Give us a flyover of the situation cottage LLC families find themselves in. A Michigan tax law change that went into effect on December 31, 2014, allowed certain family members including parents, to pass property to their children without uncapping the property tax. That is, the property would continue to be taxed at the rate the parents had been paying, which could be based on the property value of decades ago. But the tax law change did not allow LLCs to take advantage of that change, so when the parents came to hold less than 50 percent of the LLC, the property tax would be uncapped, meaning the property would be reevaluated at today’s real estate rates and the tax could increase significantly.

So, were all of those families who had chosen to manage their cottage inheritance through LLCs left in the lurch? Yes, it seemed to present families with a really unfortunate choice: Have a great plan and no tax advantage or have a great tax advantage and no plan.

Where does the LLC come into play? You marry up the LLC and the trust. When the parents pass, the trustee of the trust enters into an administrative agreement with the LLC, which is where the operating agreement resides—things like how expenses will be handled, how management decisions will be made, rules about use. So the trust assigns administration of the cottage to the LLC. And the ownership percentages of the LLC match the ownership percentages of the trust.

What is the path to the “and” solution, not the “or” solution for cottage LLCs? Yes, well, it was an intellectual challenge to figure what we could do to capture the best of both worlds. The new law forced us to resurrect an old tool, the trust, which historically was how many families handled cottage ownership. The trust has continuous ownership of the cottage, so the taxes

That sounds complicated. Retooling the plan is not as bad as you’d think. You are just taking legal title out of the LLC, and the operating agreement for the LLC is already in place. It’s really only a few changes to make the LLC sync up with the trust. You are not doing the whole thing over, so from cost standpoint, it’s much less than the original plan.—J.S.

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COTTAGE LAW

·

ESTATE PLANNING

·

BUSINESS SUCCESSION

They don’t care about a cottage succession plan. Yet. Designing a smart plan for passing on the family cottage prevents unpleasant disputes and confusion now and in the future. Dan Penning is the Northern Michigan Cottage Law expert who helps families keep the cottage carefree.

Planning for Individuals. For Business. For Tomorrow. penninggroup.com

Traverse Magazine interviewed Dan about Cottage Law. PAGE EFS- 67

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Dan Penning DETROIT | GRAND RAPIDS | TRAVERSE CITY

ATTORNEY & COTTAGE LAW EXPERT

8/3/16 2:57 PM


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MORTGAGES:

IT’S A BETTER TIME THAN YOU THINK Since the financial crash of 2008 and the tighter financial regulations that followed, the media has made much of tough new rules that lenders must meet when qualifying people for mortgages. But Greg Quick, senior vice president at Traverse City State Bank, encourages potential homebuyers to not be dissuaded by those reports and to check out the possibilities. “Yes, underwriting guidelines have tightened up and it’s more difficult to get a loan, but not overly so.” Quick says. A key point for many homebuyers is to not be spooked by word of high down payment requirements for mortgages. There are widely available low-down-payment options for many types of buyers. “For first-time buyers, the government sponsored enterprises—Fannie Mae and Freddie Mac—have a 3 percent down payment program available, and if you are a veteran or can qualify for a rural development loan, you have a zero percent down payment,” Quick says. Also working in the favor of potential homebuyers are the low interest rates available. “We are still near historic lows,” Quick says of rates in the high-2 percent to mid-3 percent lenders are offering. Quick’s “it’s better than you might think” take on mortgage loans is especially good to hear when set against the high prices for rental homes and apartments in Traverse City and other desirable Northern Michigan towns. “Overall, with the rates this low, when you compare to a rent scenario, a fixedrate mortgage for 30 years tends to be a very favorable comparison,” he says. And, while rents will go up over the coming years, a fi xed-rate mortgage payment will not. —J.S.

GOOD NEWS FOR CHARITABLE GIVING If you are 70.5 years old or older, you are subject to an IRS requirement that mandates you to take a minimum amount of money out of your retirement account—and pay taxes on it when you take the dispersal. “But many people are in a financial situation where they don’t really need that payout; they are doing financially fine without it, and they are annoyed they have to pay taxes on the money they would otherwise leave in their accounts,” explains Brian Ursu, president of Intentional Wealth Advisors. This year there is a small silver lining in the U.S. tax code for people in this situation and who also give to charity. Congress made permanent a tax break that had been very ephemeral in past years, and that is, money withdrawn from the retirement account is completely exempt from taxes if it is donated to a charity. Ursu shares an example of how it could work. Let’s say a 72-year-old woman has a $100,000 IRA and she regularly gives $3,500 to her church each year. Because of her age and the tax formula, tax law requires she take out at least $3,650 (called a required minimum distribution) from her $100,000 IRA. Under the nowpermanent tax break, she could donate some or all of that $3,650 to the church and the donated amount would be entirely tax exempt. By contrast, she would pay taxes on the entire amount of the required minimum distribution (aka RMD) and may be able to deduct some of the church contributions only if she

itemizes her deductions on her tax return, instead of taking the standard deduction. In addition, her Adjusted Gross Income would be higher if she didn’t donate to charity from her IRA, thereby increasing the amount of her social security benefits that would be taxable. Here’s the backstory: The Great Recession was in full swing in the late-aughts, and the nation’s nonprofit charities were spiraling into a dark abyss because donations had fallen so far. To inspire giving, Congress hatched a plan. They agreed to give a special tax break to people required to take the minimum distribution from their retirement accounts—the amount would be entirely tax free if donated. But there was a devil in one of the details. “The tax-break opportunity was not announced until just a couple of weeks remained in the year, and by then the vast majority of people had already given the money they intended to give,” Ursu says. And for whatever reason, as the years moved forward, Congress never made the tax break permanent, but it did each year reinstate the tax break at the end of the year. By making the tax break permanent, people can now plan confidently that it will be in place until Congress decides to change the tax code again. This article should not be construed as giving tax advice and individuals should consult with a tax advisor before making any decisions.—J.S.

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COMMITTED TO DOWNTOWN Smith Haughey is proud to have served Traverse City and the surrounding region for over 25 years. We are honored to be a part of the city’s vibrant downtown and look forward to partnering with and serving you for another 25 years and beyond!

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Advertorial

INCAPACITY: WHAT’S IN YOUR DURABLE POWER OF ATTORNEY? By: Attorney Cortney S. Danbrook

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A single tear falls from his cheek as he struggles to find the word. A missed mortgage payment, a transposed number, a forgotten appointment, silent confusion. The signs of decreasing competency or typical age-related changes? We are independent and stubborn creatures by nature, born knowing what is best for us and dead set against someone making decisions on our behalf. Out of fear we will burden our family, and in an effort to maintain control over our life, we brush off and cover up cognitive impairments. Denial and secrecy make it difficult to determine if and when an individual can no longer manage their daily responsibilities. Incapacity is never black and white. It is a slippery slope fraught with emotion. We live in fear of losing our freedom, and those around us wonder if they are jumping to conclusions. By definition, an incapacitated individual “is impaired by reason of mental illness, mental deficiency, physical illness or disability, chronic use of drugs, chronic intoxication, or other cause, not including minority, to the extent of lacking sufficient understanding or capacity to make or communicate informed decisions.” MCL 700.1105(a) A well-crafted legal definition that translates poorly into real life. None of us are equipped to evaluate someone’s mental competency, but if we don’t, who is? Who is protecting us from ourselves? Unfortunately, it often takes a significant financial loss before a cognitive deficiency is discovered. Having the right tools in place can not

only avoid formal court appointment of a conservator, but protect us from being vulnerable to financial exploitation. A Durable Power of Attorney is one such tool. An invaluable document that gives us the power to decide who we want making financial decisions for us and the ability to control how and when our incapacity is triggered. By defining incapacity and the steps needed to prove it, a Durable Power of Attorney serves as a roadmap for determining incapacity without the necessity of judicial intervention. It will always be a delicate balance between respecting an individual’s independence and protecting that individual from financial vulnerabilities. However, it is time to re-think our approach to incapacity. It is no longer about losing control, it’s about keeping it. The first step in maintaining that control is to ensure you have a properly drafted Durable Power of Attorney in place that clearly defines incapacity. Whether you executed your Durable Power of Attorney five years ago, you are appointed in a friend or family member’s documents, or you are a trusted advisor to individuals with diminishing capacity; you should frequently review the document to ensure you understand how incapacity will be triggered. For some, incapacity may be a slow, gradual decline. For others, it will happen unexpectedly. While we may not have control over when we will be affected by incapacity, we can control how our personal and financial affairs will be managed and who will manage our affairs when we are no longer able to.

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THE GROWING FINANCIAL PROWESS OF WOMEN Researchers focused on America’s financial and investing trends have been reporting that women are on the financial rise. Some of the impact will happen down the road as young women move forward in their careers (in college today 1.35 women graduate to every 1 man), and some of the impact is happening now, as women experience widowhood and divorce and are forced to take command of their finances. We asked Heather Boivin, a financial advisor with Edward Jones, to share her perspective on this important trend. What are some of the forces leading women to take a greater role in financial decisionmaking? Well, a number of things. For one, a lot of roles in families are moving around. They’re not as gender-based any more. Men can stay home and be with the kids and women can pursue a career. Or a woman can pursue a higher power career than her spouse. Of women who earn more than $100,000, 70 percent of them earn more than their spouse. But also, many women have no choice. The average woman is widowed by age 67 and lives 16 to 18 years after her spouse dies. More broadly, our research shows that twothirds of women between ages 40 and 79 have had some sort of life crisis, like divorce or widowhood—that prompts them to take control of their financial future. So women are in control of a lot of the nation’s family assets. Yes. Of private wealth, 61 percent is controlled by women! But also, historically, when people look at the traditionalist generation, the World War II generation, they tended to make it seem that the man was making the

financial decisions, when in reality the women were running the households and determining the spending. And when planning, that person is the most important member whose behavior will determine what a couple will have in retirement. So women have all along had control of finances, but now they are taking a more prominent role in the planning side. Do you see some general differences in how women approach the whole financial planning process compared to men? We see women tend to be looking for somebody who is more of a financial life coach, someone who can know their unique needs and who is willing to take the time to educate them. They want somebody who will guide them through estate planning, social security, and take a holistic approach to the process. I find women like to ask lots of questions, really want to understand the process and get comfortable with it. We’re also seeing that women view their money differently. Obviously each individual is different, but men tend to view finances as building wealth, whereas women want to know more

about what finances can do for their security, for their loved ones, ... will it put my kids through school … those kinds of things. How do men and women invest differently? One interesting thing, men tend to take greater risk early in their investing and then become more conservative over time, and women tend to invest conservatively early and then take on more risk over time. But beyond that, women tend to be more patient. Statistically speaking, women tend to give investments a longer chance to perform. And that equates to women statistically having better returns in their portfolios. They are willing to wait. How about some advice? I think the most important part is finding somebody you can communicate with, someone who will listen and not assume you are like everybody else. If you feel like you are not being heard, you are in the wrong place. The relationship makes the difference. But really, communication is what it comes down to for any age and gender. What else? Well, it’s wildly obvious, but get started early, when time is on your side. It only takes a little if you have a lot of time and it takes a lot if you have a little time. It’s difficult to play catch-up.—J.S.

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You know where you want to go. Let’s talk about how we can help you get there.

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The Simonton-HanosekMangum Team 333 West Grandview Parkway, Suite 300 Traverse City, Michigan 49684 Supervisory Office 8425 Pulsar Place, Suite 200 Columbus, Ohio 43240 231.922.6825 877.296.3152 toll free 614.441.4187 fax richard_simonton@ml.com fa.ml.com/theshmteam

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Estate & Financial Services Trusts, whenit properly “We want to passdrafted, easily, to family,role and canstay playin anthe important in to be affordable for future keeping wealth in your family for generations.” generations to come.

Trusts 5 Toolsare of Tools. Cottage Protection Trusts do more for you and your family than meets the eye. For many they

At LJPR, we know that the Family provide for probate-free transfer of Cottage is aaplace full of memories assets to your beneficiaries. For some, and timeless traditions. We want each they provide method of asset moment you aspend at the cottage management during a period of to be free of the burden of worrying incapacity. Others staying find thatinthey about the cottage your family. Whether your cottage has beentaxes in provide protections from estate the for decades, you are just andfamily additional threats toorthe financial beginning the traditions of owning long-term well being of their family. a cottage, we willbenefits help you plan for the Trusts provide that extend well future of your cottage and, hopefully, beyond traditional financial planning. help keep it in your family for future generations to enjoy. • Trust Planning. Review how proper trust planning can protect assets 1. Revocable Living Trust:family avoids from creditors, divorcing probate, allows control,spouses privacy.and Very estate taxation. simple and flexible while the grantors are alive. Requires separate tax return Integrated Wealth Management. Build accounting after death of the • and a team of professionals that work grantors. Currently allows step-up together of trust creation, in basis. for Willpurposes create prospective asset management property tax reset.and tax advisory with a primary advisor that understands your 2. Limited Liability Company (LLC): specific family dynamics and intentions. avoids probate if structured with a and or trust. Allowsfamily control Stewardship. Safely maintain • buy-sell and governance ofofcottage. Requires values for purposes protecting separate taxthe return. Property tax legacies and financial health of your reset prospectively avoidable. family is members. 3. Operating Agreement: contract for Comprehensive Services Structure. • operation of family cottage. Chose to work with an organization that can provide not only the planning 4. Lady Bird Deed: Extremely simple needed for allows your specific situation, but a deed that for probate-free group that execute on planning Does transfer tocan residual beneficiaries. recommendations for you and your not provide control. family. 5. Dynasty Trust: An irrevocable life trust that ‘endows’ the Build Trust. Working closely with a trust • insurance operations of the family cottage. advisor can provide significant benefits to Provides andfrom estateyour familyan asincome-tax wealth transfers one tax free pool fornext. funding the cottage generation to the operations after the death of the Grantors.

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Protecting the Keeping it in the Family Family Cottage: Protecting family wealth for generations to come A DIFFERENT KIND OF ASSET

There are times when prudent trust planning be atdone generations in Leon LaBrecque, JD, CPA, CFP®, CFA, is sittingneeds on histodock his cottage on Torch advance. Families a tremendous amount of work to accumulate assets, Lake. He’s wearinghave swimdone trunks and shades, and is doing what lots of professionals do: build while alsowork building familycall cottage. Howatcan tryingbusinesses, to squeeze in a little whilelasting havingmemories what mostatofthe us would “playtime” the this becottage. protected for futureisgenerations toon enjoy? family LaBrecque making notes a pad, “I’m working on a succession plan for Trusts not are afartool. tool right that provides safety and to the assets held by your a cottage fromAmine, here on Torch,” sayssecurity LaBrecque, who’s been a practicing family for the benefit of the next generation. Keeping wealth in the family involves attorney for over 30 years. “Great grandpa bought it in 1910, and it’s been in the family for expertise that goes planning. A simple allocation of generations.” certain tax three generations. I’mbeyond workingtraditional on a plan to keep it in the family for three more credits can keep wealth growing within a family trust for generations without Northern Michigan is filled with vacation homes, including those of LaBrecque and successive estate taxation. For families looking to protect family wealth from his clients. LaBrecque heads the wealth management firm, LJPR, LLC. “We lookestate at all taxation, as client’s well aswealth, divorce and other issues, a trust can and serve asBut a aspects of our everything fromfinancial investments to estate planning taxes. tremendous long-term tool. A trust can fund expenses relating to family cottages, one thing stands out, both for many of my clients and myself: we consider the cottage like provide income to beneficiaries, and fund college tuitions while also providing a a family heirloom. We want it to pass easily, to stay in the family, and to be affordable for protective ‘wrapper’ around assets and properties for the benefit of your beneficiaries. future generations.” Working with a professional trustee is equally as important and beneficial for those With more than just estate planning skills in the toolkit, LJPR looks at multiple aspects involved in order to ensure that assets are administered properly and prudently of cottage protection: Efficient transfer on death of the primary owners, attention to taxes, without the administrative burden on your family members. and an issue that LaBrecque sees frequently ignored, funding. “I’ve had many cases where Generationally-based trust planning involves a process for managing wealth and the the family takes adequate preparation to legally transfer the cottage, but leave the kids sadfinancial well-being of families. A sense of stewardship is essential for families who dled with mortgages and operating expenses. Many times, the next generation can’t afford seek to transition both wealth and values to future generations. Let us be your guide. the upkeep, and family members are forced to sell.” At Old Mission Investment and Trust, we firmly believe in a value proposition that To cover the expenses, LJPR uses an ‘endowment model’. “When we manage funds involves your entire family. As a combined organization uniquely positioned as both for a foundation, we create an endowment, or a continuous stream of income to support an investment management firm and a private trust company, we serve as the center theour endowment’s purpose. TheHaving same principle to a cottage: have enough money of clients’ financial lives. a trustedapplies counselor with a working relationship set aside to keep the cottage operating and to alleviate the heirs from costs.” As a fee-only with you and your family allows consistency during a period of time when consistency advisor, this endowment usuallywealth takes the form of quality, low integrating risk and lowthe costcomplexities investments. is desired and valued. Family stewardship is about Another common issue is governance. “I’m working on another cottage right now, where the of tax management, financial and estate planning, and investment management. first generation died, leavingto it to the three children. The both problem childfamily suddenly Allow us the opportunity serve as your counselor nowis the andoldest for your in thinks it’s hers, and she, by virtue of seniority, can have it whenever she wants. To prevent that, the future. weCan use an LLC to provide governance and control.” LaBrecque said that plan might you imagine having a longstanding relationship in place witha typical a company that include a trust or lady-bird deed, an LLC to hold the cottage, and some form of endowment. knows you, your spouse and your family at a time when ‘change’ was something your Torch Lake is beautiful despitecan. the heat wave. LaBrecque gestures down to the south, family didn’t need? We certainly “I worked hard to get this, and I want my kids and their kids to enjoy it like I have. I figure if I can reduce uncertainty in their lives about the cottage, I can keep it for what it is: a Advertorial family heirloom.” 2016 | Estate & Financial Services EFS 75

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Friends throughout our region support the Grand Traverse Regional Land Conservancy because of a strong interest in our land, our water, our wildlife and our future. “When we began considering end of life contributions, we recognized it was a way to make a lasting difference above and beyond our annual support. We believe planned giving is a great opportunity to protect land for future generations, and it is imperitive that this land be available for all the people that love this area.” - Wayne & Ruthanne Kladder Planning for a conservation legacy offers the satisfaction of supporting a vital cause, the excitement of knowing your gift will make a positive impact and – in many cases – substantial financial benefits to you and/or another beneficiary through tax advantages or life income. Many arrange planned gifts to ensure their vision and annual support can last well into the future. We will work closely with your financial advisor to design a gift planning option that will meet your personal, financial and charitable goals, all while safeguarding the region’s most special places for future generations. For more information, contact Anthony Rupard, Director of Development, at 231-929-7911, or arupard@gtrlc.org.

Find us online. Meet us in person. ProutFinancialDesign.com

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IS A TRUST RIGHT FOR YOU? The idea of preserving family wealth echoes a sensibility from the early 1900s, when we envisioned people like the Carnegies and the Rockefellers taking steps to protect the immense assets they amassed during America’s industrial glory years. Such families often relied on trusts to create the shelter that protected estates from inheritance taxes and ensured that such family changes as divorce, poor financial management or lawsuits would not pose a threat to the core assets of the estate. But trusts are not only for America’s über rich. This legal shelter can be appropriate for people of relatively average means who have worked hard, saved and want to know the financial base they have built will be protected after they are gone, and the years bring what may, explains Christopher Lamb, principal and managing partner of Old Mission Investment and Trust Company.

For many people in Northern Michigan, family cottages bring up the issue of trusts. Many cottages began as humble getaways, but over the years, the value skyrocketed and the places grew to be worth a million dollars or more. Add to that savings from a grandparent’s retirement account, and you could easily be considering an estate worth a couple of million dollars. As Lamb explains it, if those assets are handed directly to children through simple inheritance, they are vulnerable to civil actions like divorce settlements and liability lawsuits. “How many people really want to hand over fifty percent of their financial legacy to their child’s ex-spouse? Because that is exactly what could happen with traditional inheritance,” Lamb says. Families with a larger asset base, say, $5 million or more, are often also concerned about broader estate preservation goals, like making sure their

NEED TO KNOW

INFO ABOUT BOAT INSURANCE With more than a million boats registered in Michigan, it’s clear we in the Mitten State adore our watercraft—and that we should know about boat insurance! We checked with Matt Anderson, president of Global Marine Insurance, to get some basics. For starters, Anderson often sees a lack of understanding between what a typical homeowners insurance policy would cover and what a boat insurance policy would cover. “Typically a homeowners policy would have lower coverage limits and have narrower coverage,” he says. For example, a homeowners policy would not cover costs for things like salvage or wreck removal if the boat sinks, and it would not pay

for oil and gas spill cleanup, which the law requires of the boat owner. In the event that a boat is destroyed, a homeowners policy would typically pay for the depreciated value of the boat. A boat policy, on the other hand would generally pay the full original cost of the boat and would cover such things as the trailer, towing, medical expenses, and personal property on the boat. Boat insurance liability coverage would expand to include things like if a mechanic was working on your boat and became injured. Boat owners also need to be sure the limits of their primary liability policies meet the requirements of their secondary “umbrella” liability policies.

successors never have to deal with estate taxes taking a big chunk out of their holdings with the passing of each generation. “In a trust, those assets may be protected from future estate taxes as assets are maintained in a trust for multiple generations.” Lamb says. A common misperception that Lamb sees is people fear having their lifestyle restricted by a trust—that is, they worry they will not have adequate access to their own assets. “But that is generally not a problem,” Lamb says. “A trust can be quite flexible and you can write it to do exactly what you want it to do during your lifetime and the lifetime of your heirs.” One aspect of trusts that might surprise people is the affordability. A relatively straightforward trust that would protect a cottage and preserve money for its upkeep and property taxes could be drafted for less than $2,000. —J.S. Many “umbrella” policies require a minimum of $300,000 to $500,000 of primary coverage. Many yacht policies have a specified navigational territory. If you have coverage for the Great Lakes, and you trailer your boat to Florida, your boat would not be covered there unless you modify your policy. “A good marine insurance agent will work with the owner of the yacht to determine how and where the yacht will be used so that adequate coverage is in place,” Anderson says. And season limits matter. “Say your lay-up time is set to begin October 14, but you sail for another week. You would not be covered for a loss when operating past that deadline,” Anderson cautions. “Make sure to call your agent and simply extend the lay-up date”.—J.S.

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WHEN TO USE A PROFESSIONAL TRUSTEE Often one of the most difficult decisions clients struggle to make is who to name as trustee of their trust. After four decades of estate planning I have some pretty strong opinions on when to name a professional trustee. Here are 17 considerations distilled from my experience. 1. The children live far away from their parents, and thus they are not in a position to handle the day-to-day tasks of trust and estate administration, and they are understandably distracted by their own jobs and childrearing, or they simply do not want to deal with the unfamiliar decisions that come with administering an estate. 2. One or more children have special needs that require a long-term trust arrangement to hold their inheritance to meet those special needs for the balance of that child’s lifetime. The inheritance held in trust needs to be managed carefully so as to not jeopardize the disabled child’s eligibility for governmental benefits. 3. One or more of the children has a substance abuse problem that the other children (or other family members) are unaware of, an addiction problem that is to be specifically addressed by the trust. 4. A dynasty trust is intended with the express purpose of avoiding federal estate taxes over several generations. Continuity in trust administration is critical to achieve that estate tax-savings goal. 5. A child is to be either disinherited or treated differently than siblings, which often leads to a greater chance that the disgruntled child will threaten some type of contest to the will or trust.

6. One or more of the children are not financially sophisticated enough to manage an inheritance, and some level of education [investments, budgeting, credit rating] over time will be required before a substantial inheritance is released from trust to that child. 7. The children simply do not get along with one another, or the children’s spouses regularly interfere in family decisions, which results in unwelcome tension. 8. The surviving spouse is the stepparent of the decedent’s adult children, all of whom are beneficiaries of the same trust. 9. A closely held business with an S election will be a large part of the trust corpus that is to continue to be operated by the trustee long after the decedent’s death, or operated until the trustee liquidates the business. 10. The trust instrument directs the trustee to sell assets, such as a closely held business, or real estate, and a high level of business acumen is required to successfully negotiate a fair price and the terms of sale. 11. Collectibles such as artwork, stamp, coin, baseball card collections, etc. compose a large part of the trust corpus, each of which needs to be independently valued for federal estate tax reporting and distributions to trust beneficiaries, and to establish a consistent

income tax basis for the distributed collectible. 12. Intellectual property, e.g., patents, trademarks and copyrights, compose a part of the estate, which requires substantial knowledge in how these unique, federally registered assets are legally transmitted to beneficiaries. 13. The estate consists of deferred compensation, restricted stock, or retirement assets that carry inherent complex income tax liabilities that do not disappear on the decedent’s death. 14. One or more of the children owe substantial sums to their deceased parent, which debts are to be quantified by the trustee and not forgiven on the parent’s death. 15. Part of the trust corpus consists of oil, gas or other mineral interests that require specific management skills and tax reporting. 16. Trust assets are located in other states or abroad and have to be monitored and managed from afar by selected third parties, and which assets may carry local estate or inheritance tax consequences. 17. Trust beneficiary is incarcerated, which may lead to an attack on the beneficiary’s trust share by the government, which could erupt into litigation. These are all real life examples where a professional trustee was either selected by clients, or with hindsight, a professional trustee would have been superior to an individual who was chosen to serve as the successor trustee.—George Bearup, Senior Trust Advisor, Greenleaf Trust. —J.S.

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Estate & Financial Services 2016  

Your Northern Michigan Guide to a Secure Financial Future / Good news for charitable giving. / Mortgages: Low down-payments, now. / Strateg...

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