Avoiding Probate
Probate
Avoiding Probate
Many if not most times, avoiding probate can be quite beneficial. Your property will transfer to your family upon your death, without the delay and cost of having to go through the probate process. You have just experienced the grief of losing your loved one, and now the assets that you know he or she wanted placed into the hands of surviving family members/friends, is tied up. The property is tied up, because the owner of the assets is no longer there, to tell the bank or brokerage firm, what to do with the account, and worse still, they will not listen to you anymore, even though you personally know the bank manager, the teller, or the broker.
Where real estate is involved, the decedent is not there to sign a listing agreement, to dispose of the real estate they own. The real estate agent needs someone authorized to sign a listing agreement, and that simply will not happen, until probate is set up, and the court has appointed a Personal Representative for the estate, who will then be authorized to sign for the Estate.
There are some simple low cost steps you can take to avoid the delay, intrusion and taxation (in the form of “inventory fees”) that come with the probate process. Please note, that I am not suggesting any method of avoiding debts or taxes; I am suggesting probate avoidance techniques, for those who want to avoid probate. These are not debt or tax-avoidance techniques, and if you are looking for a way to avoid obligations of this nature, you may want to continue looking and searching. I am not that guy.
- Please note that there may be technical, nuanced reasons why the steps I am suggesting here may not work for you; for example, if your estate is potentially subject to estate and gift taxation, these steps may not work. If you are blessed to be in that category, my advice is to call Jon Frank, or another attorney who can help you navigate the nuances of the more detailed estate planning you may be looking for.
- Additionally, there may occasionally be very good reasons to go through the probate process, that frankly do not come to mind right now. I recently handled yet another matter, in which the decedent mother’s primary asset was a fully paid-off house; she did not have a will, and unfortunately, the three children she left in this world had a mutually antagonistic relationship. At first blush, probating the mother’s home (as we had to do) might seem one way to protect everyone from a claim by someone else that there was something dishonest going on.
- On further reflection, however, there was a step the mother could have undertaken, to have transferred her property, as she saw fit, and to have avoided the needless antagonism and litigation that resulted. That is what this page is about.
Frequently Asked Questions. Honest Answers.
No.
A will must be “probated”, meaning processed and distributed according to Michigan probate procedure. That procedure may be informal, and may entail almost no supervision, or interference by a probate judge. Almost none that is.
Avoiding probate requires intentional, thoughtful steps, taken in advance. A will has its place, but by itself, a will, will not help you avoid probate, if that is the goal.
Generally speaking, assets must be “probated”, when those assets are owned in the decedent’s sole name at the time of his/her death. Therefore, there are some general “non-probate” ways to transfer property, without a probate estate being opened; those are as follows:
“Pay on Death”, or “Transfer on Death” accounts
Insurance, retirement, and annuity plans; and
Certain types of joint ownership;
Property owned in trust;
Property owned by married couples;
Sorry. The answer is still no.
Where someone dies without a will, they are said to “die intestate”; their property is distributed to family, according to the rules of “intestate succession”. Each state has its own rules of intestate succession, and they are more or less similar, although there is enough variation, that you need to make sure you are consulting with a lawyer in your state/province.
These “intestate succession” rules mirror what the various states’ lawmakers have decided will usually track closely with what most decedents want to do with their property. For example, the law presumes that the surviving spouse will take all or most of the property, and if there is no surviving spouse, the law presumes that the decedent’s children will divide the property equally.
People should think carefully about having an estate plan, particularly if they do not want their property to be divided along these lines. For years, this was a source of some agony and angst for same-gender couples. It still remains a source of concern for any couple (same gender or otherwise), who live together outside the bounds of marriage.
However, to repeat, the mere existence or non-existence of a will, will not help you avoid probate. You need to do more.
Some jointly held property will pass to the survivor without probate; sometimes not. This is one of those times, when there are what I call “magic words”, i.e., where the specific words on a document will matter.
If a property is owned as “joint tenant with a right of survivorship”, then that property will pass to the the survivor, without probate, upon the death of the first joint owner. The property is said to pass, “by operation of law”.
However, if the property is owned as “tenants/tenancy in common”, then the property owned by the deceased “joint tenant”, or part owner, simply goes through the probate estate ofthat deceased person, unless owned in trust, or through some other probate-avoidant method.
If property held as “tenancy in common” does not avoid the probate court, why do people own property titled in this way? Because there is no relationship of love, friendship or marriage. Most commonly, it relates to property held by business partners (again, assuming no other probate avoiding technique being used).
There is also a method of transferring real estate, referred to as a “Lady Bird Deed”, where the owner transfers his/her property to someone else, but retains a life estate, i.e, control during their lifetime. This life estate is said to be “enhanced”, because the owner can still sell the property. This type of transfer may also avoid some of the difficulties that go along with establishing Medicaid eligibility for financing of long-term care. A detailed discussion of Medicaid planning is beyond the scope of this general information post/website. This will be an area in which you will need legal advice.
Trusts are based on the division of “equitable” and “legal ownership”, which is usually united in one person, married couple, or one set of joint tenants. “Equitable” or “beneficial” ownership arises out of having paid for the property, or having received it by gift, bequest, devise, or inheritance. “Legal” ownership refers to the rights an owner has to mortgage, sell, or give away the property.
The theory of a trust, is that someone else is the legal owner of the property, other than the beneficial, or equitable owner. The legal owner of a property in trust, is sometimes referred to as “the trustee”. The person(s) transferring the property into a trust, are sometimes referred to as “grantors”, or “trustors”.
Because that beneficial owner (the grantor) no longer has legal title to the property, and because he/she has named a successor trustee to assume legal ownership in the event of the grantor’s death, that property will not be part of the grantor’s probate estate.
For most people, their residence is the single biggest asset they have, and keeping it out of probate, can really simplify the process of passing that property on to successors, or simply selling it out of what would otherwise be a probate estate. Trusts can be helpful in this regard, and also in the process of eliminating disputes between surviving family members, who may succeed to ownership of the property.
Insurance and retirement plans typically have a designated beneficiary, who is to take over ownership of the policy proceeds, or the account value, in the event of the death of the insured/retiree. Because ownership of these assets transfers, “by operation of law”, they do not show up in the probate estate of the decedent.
One great piece of advice here, is to make sure your beneficiaries are in line with the current reality of your life. For example, do you still have your ex-spouse on as a life insurance beneficiary? If you want to, that is one thing, but many (if not most) people do not. Are all children and other beneficiaries reflected? Were children born after the insurance was set up?
Another great piece of advice is to have contingent beneficiaries set up, so that if a beneficiary dies, before the insured/retiree, that the portion which would have gone to the beneficiary does not go through the beneficiary’s probate estate.
Obviously, there are exceptions to everything. These are just general information concepts, on a general information website.
This is the simplest and most common way to avoid probate.
For the most part, property owned by married couples, owned AS married couples, will pass to the surviving spouse, without the necessity of probate. Once the surviving spouse him/herself dies, or sells the property, it is usually necessary to document the death of the first spouse to die, but that is usually it.
Sometimes brothers & sisters may be joint owners, or other non-married persons, and it may become necessary to document that they own, not as husband & wife, but as “joint tenants (in common, or with right of survivorship). See FAQ regarding “joint ownership”.
Just like it sounds, a “pay on death” (POD) account is one where you instruct your bank to pay the proceeds of the account to a named beneficiary, upon your death. The assets transfer, “by operation of law” (there is that phrase again).
This is set up directly between you and the bank, and not only is there no need for probate, there is no need for you to retain a lawyer to do this. Perhaps the only thing you need to be careful about, is that the named beneficiary is still alive, normally not a consideration, when naming one’s child as the “pay on death” payee.
These POD, or TOD for “transfer on death” accounts have the benefit of not being jointly held accounts. This could be quite significant, if there are trust issues with the other joint account holder, or if the other joint account holder has credit or lien issues, that may expose the account to attachment, or legal process from one of his/her creditors.
