Probate is the court-supervised process of settling a deceased person’s estate: making sure all assets are located, all legitimate debts are paid, and the remaining property transferred to the people the deceased intended to have it.
Depending on the size of the estate, the location of property, the number of heirs, and whether there is any conflict over the estate, probate can be a time-consuming and costly process. Unlike death itself, however, probate is not inevitable. You can take some relatively simple measures to avoid probate in Michigan, ensuring peace of mind for yourself now and for your family after your passing.
Probate isn’t always a bad idea. It can give heirs certainty that all claims against an estate have been addressed, and court oversight of the process can provide accountability. In many cases, however, a formal probate process simply is not necessary. Streamlined probate processes are available in some circumstances for smaller estates. If you have more than a minimal amount of assets, you may need to take deliberate steps to avoid probate in Michigan.
You may want to plan for probate avoidance if you want your family to have immediate access to your assets, if you don’t want them to have to seek court permission to continue running your business, or if you simply want to avoid the expense of the probate process. If you have real estate in multiple states (like a home in Michigan and a timeshare or winter home in Florida), your estate will have to go through probate in both states unless you plan to avoid probate. There is another reason you may want to avoid probate, too: probate filings are public record. Most people prefer to keep their financial information private, including after their death.
In general, if you don’t have a specific reason that you want your estate to go through probate, it’s best to plan to avoid it. Here are some ways to do just that.
Before we get down to the ways you can avoid probate, here’s a little primer on what goes through probate. A person’s probate estate includes all assets that they owned in their sole name during life. That can include bank accounts, investment accounts, real estate, and personal property (everything from clothing and books to cars and boats).
Property that is owned jointly with a right of survivorship does not pass through probate. Instead, it goes directly to the surviving owner. For example, if you have a joint bank account with your spouse, or you and a sibling own a vacation cottage as joint tenants, those assets will not go through probate.
Proceeds from a life insurance policy do not go through probate if an individual was named as the beneficiary. However, if the insured person names their estate as the beneficiary, or if there is no named beneficiary or all named beneficiaries die before the insured, proceeds from the policy become part of the probate estate.
Other assets with a beneficiary designation, such as certain retirement accounts, “payable on death” (POD) bank accounts or “transfer on death” (TOD) investment accounts also pass outside of probate.
Reading through the section above may have given you some ideas for probate avoidance, but you should exercise extreme caution with DIY probate avoidance. You may well succeed in avoiding probate, but could encounter unintended consequences.
Let’s say you decide to make your adult child a joint owner of your bank account. On the one hand, they can use it to help pay your bills and take care of your financial business, and they automatically become sole owner when you die—and all you need to do is sign a form from the bank.
Unfortunately, that also gives your child unfettered access to all funds in the account. In other words, they could drain the account, and you would have no legal recourse. Even if your child would never do such a thing, their creditors could; to a creditor, including a spouse in a divorce, the assets in that account belong to your child.
A payable on death (POD) account means that neither your child nor their spouse or creditors could access the account during your life. However, upon your death the funds are vulnerable. And if your child qualifies for means-tested government benefits, a sudden influx of cash from an inheritance could make them ineligible, requiring them to “spend down” the inherited assets before they could qualify again.
POD and TOD accounts can also lead to confusion and disputes. Let’s say you have two adult children, and your will leaves your estate equally to each of them. However, you name the child who lives near you as a POD beneficiary on your bank account. After your death, your children may find themselves in a dispute over whether you intended that account for the one child, or whether it should be part of the estate they were to share equally. In the end, that could lead them into probate court and a costly squabble—surely not what you intended.
There’s a reason that revocable living trusts, also simply called “living trusts” are so popular. They allow you to use, enjoy, and control trust property during your lifetime. If you become legally incapacitated, the successor trustee you named in the trust document takes over managing trust assets for your benefit. When you die, the successor trustee has immediate authority to manage trust assets and distribute them as you directed in the trust document. When creating the trust, you can generally determine how long the trust will continue, who can receive payments, and even under what circumstances. And you can easily amend the trust or even revoke it altogether up until the time you die or become legally incapacitated.
Depending on your circumstances, you may want to create an irrevocable trust. An irrevocable trust, as the name indicates, means you cannot revoke it, so you have less flexibility. That said, an irrevocable trust can help you avoid estate taxes and protect trust assets from creditors.
As useful as trusts are, there are other tools for probate avoidance as well. One way to keep real estate out of probate is with a ladybird deed, which is effectively a beneficiary designation for real property. One significant advantage of ladybird deeds is that in addition to avoiding probate, they remove real property from the category of assets that are counted for Medicaid eligibility. This is an important consideration should you ever need care in a nursing home.
The best way to avoid probate in Michigan depends on your unique circumstances. With offices in Northville and Brighton, we invite you to contact our law office to schedule a consultation regarding your options.