How to Avoid Probate in Michigan
Probate is a court process where the estate of a deceased individual is administered so that creditors are paid, assets are gathered, and property is distributed to the rightful heirs and beneficiaries.
In probate, someone dies “intestate” if they died without a will. If someone dies without a will, his or her distributable assets pass to certain family members per Michigan laws. If someone has a will, they can name anyone whom they want to receive their assets, so long as the person is able to do so and was not influenced. In Michigan, “small estates” (i.e. an estate valued at $25,000 or less in 2022) can utilize an abbreviated and easier process.
The probate process, which often lasts six months to a year (or more), can cost thousands in legal fees. Fees are paid from the estate. Probate proceedings are usually open to the public, so there is little privacy involved.
How to avoid probate in Michigan
Avoiding probate in Michigan is possible with advanced planning and, in some instances, the help of an attorney. Some of the mechanisms that may be used to avoid probate include the following:
In general, both personal property (bank accounts, certificates of deposit) and real property (homes, land, etc.) can be held by two or more people via joint tenancy. What this means is that the ownership interest of one joint tenant automatically passes to the other surviving joint tenants upon death.
A person may transfer ownership of the property to a preferred individual during their lifetime, a move designed to ensure that it is not included in their estate upon their passing and therefore not subject to probate.
It should be noted that the decision to gift property in this manner, otherwise referred to as making an inter vivos gift, can present certain gift and income tax considerations that must be examined carefully. Furthermore, once an inter vivos gift is made, it typically cannot be returned.
Payable on death accounts
Payable-on-death (POD) accounts, otherwise known as transfer-on-death (TOD) accounts, enable funds to be paid out to a named beneficiary upon the passing of the account holder and bypass the probate process altogether.
Here, the beneficiary, who has no access to the account funds while the account holder is alive, will likely be required to provide some proof of the death.
Transfer with Retained Life Estate
One of the ways in which the owner of real property can avoid the probate process is by transferring the deed to a preferred individual, but retaining the right to possess it for their lifetime.
For example, a father could transfer the family home to his daughter but reserve the right to live there until his death, at which time ownership of the house passes directly to the daughter. Here, the father has what is known as a life estate, while the daughter has what is known as a remainder.
Create a trust
Another way to exclude assets from probate is to create a trust. Trusts can be irrevocable or revocable. If revocable, a person has the opportunity to make changes or cancel at any time. Irrevocable trusts generally cannot be changed. Avoiding the cost and time of probate is one of the main reasons that people establish a trust so it’s best to hire an attorney to help with this complicated process. Trusts – especially those of considerable size – are tricky and should not be done without a lawyer.
Help is available
Certain assets automatically avoid probate. An IRA, 401(k), or life insurance policy usually has a named beneficiary. Pensions may have rights for the surviving spouse.
The estate planning attorneys at O’Reilly Rancilio are available to answer your questions regarding probate. For more information, please call 586-726-1000 or visit our website.