How to Avoid Probate in Michigan
Many people, when asked about their estate planning goals, say that they want to avoid probate. Even if they are not entirely sure what the probate process involves, they have the sense that avoiding probate is a good thing—and often, they are right.
Probate is the legal process of administering the estate of a deceased person (decedent), with some level of court involvement. Depending on the size and complexity of the estate, the court’s involvement may be significant. More often, however, the court’s oversight of the probate process is minimal. Even so, probate typically takes months, during which time creditors must be notified of the death, estate debts must be settled, and any disputes over the estate must be settled through probate litigation or probate mediation. Finally, at the end of the process, any assets remaining in the estate can be distributed to heirs.
Even when there are no disputes, the probate process can be drawn-out and stressful for grieving families. Probate is also a matter of public record, which means estate matters are harder to keep private. It’s not surprising, therefore, that people making an estate plan are interested in how to avoid probate. In this blog post, we’ll discuss how to avoid probate in Michigan, and when it might be a good idea for an estate to go through the probate process.
Does a Will Avoid Probate?
Perhaps one of the most common misperceptions about avoiding probate is that having a will bypasses the probate process; it does not. Part of the probate process is submitting the decedent’s will (if there is one) to the court to be declared valid.
There are many reasons to have a will, but avoiding probate, unfortunately, is not one of them. The good news is that you have other estate planning options that do help you to avoid probate, and most of them are fairly easy to implement, especially with the help of an experienced probate and estate planning attorney.
Five Ways to Avoid Probate in Michigan
Your decisions about avoiding probate will depend on your needs. Here are some of the most common ways to avoid probate in Michigan.
Joint Tenancy/Joint Ownership
For many people, their home and other real estate are their most valuable assets. A joint tenancy with right of survivorship is one way to transfer real property seamlessly to another party after your death. In a joint tenancy, two or more parties are joint owners of a property. Upon the death of one owner, the other joint tenants automatically become owners of the property. So, for instance, you could make your adult child a joint tenant simply by executing a deed from yourself to the two of you as joint tenants.
This sounds easy, and it is. But joint tenancy is not without risk. When you make someone else a joint tenant, they have an immediate ownership interest in the property. That means that you can’t decide to sell or mortgage the property without their consent. Because they own the property jointly with you, the property is also vulnerable to their creditors, including a divorcing spouse. In a worst case scenario, you could lose your home.
All of the above concerns apply to other types of joint ownership with right of survivorship, such as a joint bank account. And with a joint bank account, your joint owner has an equal and immediate right to all funds in the account, even if you were the one who put that money in the account. If you are considering creating a joint tenancy, discuss the risks and benefits with your estate planning attorney first.
Ladybird Deed/Enhanced Life Estate
A ladybird deed, also known as an “enhanced life estate,” is a way to get around some of the problems that joint tenancies create. With a ladybird deed, you have the right to remain in your home during your lifetime, with the property passing to your chosen beneficiary or beneficiaries at your death.
During your life, the property remains in your control, meaning that you can sell or mortgage it without your intended beneficiary’s consent. The property also remains safe from your intended beneficiary’s creditors during your lifetime. Ladybird deeds are available only for real estate, not for other assets like bank accounts or personal property.
Beneficiary Designations
Some types of assets, such as bank accounts and brokerage accounts, can be transferred with a simple beneficiary designation: you are the owner, and you can indicate a beneficiary to whom you wish ownership to pass upon your death. These accounts are sometimes known as “payable on death” (POD) or “transfer on death” (TOD) assets.
The advantage of avoiding probate with beneficiary designations is its simplicity; typically, all you need to do to designate a beneficiary is complete a form. Some disadvantages include the potential for unintended consequences. For instance, you could make each of your two children the beneficiary of two different accounts that you hold. The accounts may be of equal value now, but one may increase in value while the other declines, leaving your beneficiaries in unequal positions.
Lifetime Gifts
You can also avoid probate in some cases by making lifetime gifts to loved ones, thereby reducing the size of your estate. If you are considering this option, you should be aware of federal gift tax reporting requirements. You should also know that making transfers to family members could affect your eligibility for Medicaid assistance should you need nursing home care within five years of making the transfer.
In addition to those concerns, there exists the possibility that making gifts may not reduce the size of your estate enough to avoid probate altogether. And a gift is just that—you lose control of an asset altogether when you give it to someone else. You can’t take it back or dictate how they use it.
Trusts
Creating a trust is an excellent option for avoiding probate, as well as some of the unintended consequences described above. A living trust is one of the most common types of trust, and it allows you to use and control all assets in the trust during your lifetime. You can place any asset, including real estate, vehicles, bank accounts, personal property, and more, in your trust.
When you die, or if you become incapacitated, the successor trustee you have chosen takes over managing the trust. Upon your death the assets can be distributed to your beneficiaries as you have dictated, avoiding probate and court involvement altogether. There are many different types of trusts to address various estate planning goals; discuss your needs with your estate planning attorney.
Is Avoiding Probate Ever a Bad Idea?
Most of the time, avoiding probate is desirable. Probate can be cumbersome and expensive, and it delays distribution of assets to heirs and beneficiaries. There are some situations in which going through probate can actually be helpful, however. For instance, probate involves giving notice of estate proceedings to potential creditors of the estate. If the creditors do not make claims within the time allowed after notice, their claims are forever barred. If an estate does not go through probate, creditors may have up to three years to make a claim, creating a longer period of uncertainty for heirs.
To learn more about your options for avoiding probate, contact Suzanne R. Fanning, PLLC to schedule a consultation.