March 18, 2007
Rotary Article 1522
Wills or Trusts?
The evolution of estate planning strategy
March 18, 2007
Visit RotaryBayCity.org, web site of the Rotary Club of Bay City, Michigan
By: Stephen Kent
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New features are being added regularly. Visit the site and pass along suggestions to Stephen Kent or Gena Gates.
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Sign up now for the District Conference in Frankenmuth.
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The Golf Outing committee could still use some helpers. Keep it in mind if you're a golfer.
There are also committee openings at the district level. See Gena Gates for more information.
The club will have a table display at the District Conference featuring interesting information about the Bay City club's activities and projects. Contact Rob Clark for more information.
Andreas Teich performed the induction ceremony for new members Ron Bloomfield, Curator and Interim Director of the Bay County Historical Society and Museum, and Dr. Tina Kerr, Superintendent of Schools for Bangor Township. Everyone welcome our new members!
(See the official schedule at
Mar 20 Vocational Day
Mar 27 Vocational Day
April 3 Bay City's new Chief of Police, Michael Cecchini
April 3 Bay City Independents vintage baseball
April 17 Dick Devos
Wills and Trusts
When Rotarian Bob Sarow started practicing law in 1969, estate planning was largely a matter of getting a will crafted. The concept of the Trust didn't apply to most people. Over the next few years the thinking and the law changed so that today the Trust is the preferred estate planning tool in 90% of the cases.
The Evolution of Estate Planning
The definition of a trust calls for three parties: a Grantor of the assets, an administrator, and a beneficiary. Before the mid-70's, these would be three individual parties, with the administrator often being a bank or other such entity. If effect, a trust meant a person would turn his assets over to someone else to manage for his beneficiaries. During life that might not be an attractive proposition.
The change in thinking came when someone proposed that all three parties could be the same person. A person could set up a trust, administer it himself, and use the assets until time of death. At that point the trust would have provisions to pass the positions to another party.
Considered radical thinking when first proposed, the new form took root quickly and became the modern trust.
The advantage of a trust over a will is apparent at the time of death. A will must be probated. This legal process can be expensive and time consuming. A trust, on the other hand, has no requirement for legal processing. The administrator is required to pay the debts of the estate first, but once that is done the remainder of the trust can be distributed to the beneficiaries immediately.
A related area of law is the "power of attorney". Historically this power was granted to agents of a company doing business over seas. The agent was authorized to act in the name of his employer in all matters of business.
From the estate perspective the power of attorney was used to enable an agent, or relative, to act in a person's behalf if that person became incompetent. Unfortunately, the law held that if a person became incompetent, he lacked the ability to change his mind about granting the power in the first place. This presented the potential for abuse so the power of attorney was generally rescinded by the courts.
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In the 1970's a new concept was introduced called the durable power of attorney. It specifically covers the case of a person becoming incompetent. Almost all states now have provisions which allow a person to execute a durable power of attorney which will stay in effect even when the person is incompetent.
The combination of trusts and powers of attorney have become standard tool for modern estate planning. The trust is important for even modest estates due to it's low cost, convenience, and simplicity. For families that don't have complex financial holdings, the cost of setting up a trust can be as low as $500 to $1,000. More complex estates will, obviously, cost more.
Sarow also touched on the current state of the estate tax. Enacted in the 1930's, the tax was intended to tap only the very large estates. In 1969, the exemption was $70,000 which was still sizable, but shrinking as middle class incomes moved up.
Over the last few years the estate tax exemption has climbed to $2 million. In 2009 it will top out at $3.5 million. In 2010 the estate tax will be dropped entirely, making '06 a good year to exit this world and leave your wealth to the next generation.
Unfortunately, in 2011, the law is slated to come right back and the exemption will be dropped to $1 million.
Most thinking is that Congress will do something about the estate tax by then. In the meantime, Congress had made life very difficult for estate planners and their clients.
0202 nd 11-10-2018