Avoiding Probate and What that Means

What is probate. People have conflicting and incorrect ideas about what probate means so let’s take a look at what it really is now. The probate court is the mechanism that allows people to transfer the assets of a decedent to their heirs. The general way the probate process works is that the court gives authority to a personal representative for a decedent’s estate in order to transfer, sell, distribute, and otherwise handle that person’s assets upon death. The probate process in Michigan has a bad reputation for being cumbersome, difficult, and time-consuming. While this may have been the case many years ago, the processes used by probate courts today are far more straightforward, even for legal novices. However, fear of the probate court system remains. Losing a close friend or loved one is difficult enough on its own, but adding in the necessity of handling their estate and winding up their financial matters can make it even more daunting to many people.

In light of this, many clients want to set up their estate in an effort to avoid probate to simplify things for family and friends.

If someone were to die without any estate planning documents, i.e. no will or trust, the law refers to this as intestate succession. Michigan law provides how the assets will be distributed when there is no will. At a certain point, if there are no close relatives, the property will revert to the state.

When someone dies with a will or trust, they are said to die testate. While having a will or trust to distribute your property according to your wishes is a good thing, many people erroneously believe that having a will allows them to avoid the probate court process. This is untrue. A will merely provides the heirs and court a roadmap for distribution of the assets. Depending on the asset, and how it’s titled at the time of the decedent’s death determines if the probate process is necessary.

There is a key distinction to be aware of regarding assets and that is the difference between probate assets and non-probate assets. Certain assets are transferred without the necessity of probate court. Common examples of these non-probate transfers are retirement accounts. Most of these accounts allow the holder to list a beneficiary or beneficiaries in the event of death. When people list beneficiaries, upon their death, once notified of the death, the company administering the account will distribute the funds to the beneficiaries directly. Without the need for probate court. It’s important to be aware of beneficiary designations because, under Michigan law, these designations override a will.

Another common misconception many people believe will allow them to avoid probate is by having a trust. This is partially true. If all of a person’s assets are in the trust at the time of death, it is true that there is no need for the probate process. The key to that is that the assets are actually in the trust. If the person doesn’t have all of the assets in the trust, those assets need to be transferred upon their death and probate will be necessary. Any good estate planning attorney that drafts a trust for a client should also draft a will. Most of the time the will that is drafted in accordance with a trust is called a pour-over will.  A pour-over will operates to transfer all assets remaining in the testator’s possession at death into their trust. It is a safety net to catch anything that may not have inadvertently or even intentionally not placed in the trust during the testator’s lifetime. Therefore, if the goal is to avoid probate, it is important to pay attention to how your assets are held and titled during your lifetime.

With real property, people can sometimes title it in a manner to avoid probate as well without the need for a will or trust. For married couples, it is pretty standard for them to hold real property as joint tenants with rights of survivorship. This means that they both own the property and when one of them die, the other will own the property solo. Another common way to transfer the property to avoid probate court is through use of a lady bird deed. This deed is pretty common and the owner of the real property is basically deeding the property to themselves and whoever they want to receive the property upon their death. With a lady bird deed, it is important to consult an attorney because when done incorrectly, you can inadvertently transfer your property to someone prematurely and significantly affect on your property rights.