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 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’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. I will discuss this further below.
“I Just Need A Simple Will”
Many folks call, saying that all they want is a so-called “simple will”. People often tell me this, because they do not want to spend the money on something they think will be more elaborate.
Just remember, a will must be probated, and because a will must be probated, one must add the cost of a so-called “simple will”, to the cost of probating that will inevitably arise, later on after the person’s death. The combined cost of a so-called “simple will”, plus those anticipated costs of probate will be just about double what it would take to set up something now, that would make the costs of probate negligible or non-existent.
Also, because there is no way to know now, how difficult or complicated your assets or your survivors will make the probate process, there is no way to say with certainty, just what the probating of your estate will cost. There is a way, however, to avoid all of this uncertainty, one that will cost much less overall. If there is ugly costly probate litigation, the cost may be as much as triple the cost of a more sensible plan, that can be “written in stone” right now.
Things You Can Do Without Hiring A Lawyer
Before discussing what you and I can do now, working together, to reduce/eliminate your probate costs, let’s discuss what you can do, without even hiring an attorney.
Actually, you could theoretically do it all, without hiring a lawyer, although hiring one will probably be a smart thing for you to do. Still, there are steps you can take, that do not require a lawyer, or the costs that come with using a lawyer:
Life Insurance –
Make sure that your life insurance beneficiary designations reflect what you want to see done with the proceeds of any payout of life insurance. You may spell this out in the insurance paperwork, down to the percentages of payouts going to each beneficiary. Because this is contractual, you will need to check with the insurer to see specifically what the procedures are for changing/confirming your life insurance beneficiary designations. (We could also discuss leaving the proceeds to a Life Insurance Trust, but that would likely be something you would need to hire a lawyer for, so we are not going to talk about that here).
Same discussion as under life insurance plans. Annuities are simply insurance policies designed to generate a stream of income. They have beneficiary designations, and all you need do, is to make sure your beneficiary designations are in order, and that they reflect what you want to see done with the money.
Retirement Plans –
Similar to life insurance and annuity plans.
See MCLA §700.6101
Bank Accounts –
Bank accounts that are held in joint name, pass to the survivor, upon the death of one of the account holders. Depending on your bank’s account agreement, that joint owner may have equal access to the account, during your lifetime, even though those funds really are yours alone. See MCLA §487.703. This type of account, though, can be convenient, where there are no mistrust issues, and where the “real owner” of the money, is incapable of handling the account.
Another type of account is a “Pay on Death” or “Transfer on Death” account, where the account owner is solely in charge of his/her money, during their lifetime, and the monies are simply paid over to the person named in the “Pay/Transfer on Death” designation. See MCLA §700.6101 & MCLA §700.6305.
Joint Ownership With Right of Survivorship
We are now getting close to that area where you may want to consider hiring a lawyer.
Under MCLA §700.6101, “a provision for nonprobate transfer on death..” in various instruments described in the statute, makes them “non-testamentary”. In English, that means they do not go into the estate, for the purpose of calculating inventory, or for the purpose of titling these properties.
If a property is owned in “joint tenancy with right of survivorship”, then upon the death of one of the joint owners (in this case the word “owner” and “tenant” is used interchangeably), the property passes to the survivor. Lawyers and judges say that this happens “by operation of law”, without any further steps being required.
Beware though, that not all property owned “in joint tenancy” is owned as “joint tenancy with right of survivorship”. There is another type of “joint tenancy “, or joint ownership, that being called “tenancy in common”. In a “tenancy in common”, the owners own the property jointly, but upon the death of one or both of the joint owners, their interest in the property passes to their survivors.
Let’s look at an example, to see the difference between “joint tenancy with right of survivorship” and “tenancy in common. In both examples, John & Jane jointly own 123 Main Street, Anytown, MI, and sadly, John dies. However, in one scenario, they own the property “with a right of survivorship”, and the other as “tenants in common”. Let us see what happens to the property on John’s death:
- With Right of Survivorship:
- John’s interest in the property passes by operation of law – outside of probate – and becomes Jane’s property.
- Tenancy In Common:
- John’s interest goes into his estate, which upon John’s death, co-owns the property with Jane. John’s interest goes through probate, and is subject to the inventory fee (aka tax).
- If a property sale were being contemplated, when John died, that sale might be delayed while John’s interest is being probated.
- While a “tenancy in common” may have reflected the owners’ intentions, it might not have as well; for example, if the joint owners were merely business partners, with no significant personal relationship, a tenancy in common might be expected.
Thus, one way to avoid probate is to put your property into joint name – with a right of survivorship in the person to whom you want to transfer the property. Remember, words are important here. If there are multiple people you want to share in this bounty, it could be pretty cumbersome. I know one family that has 5 joint owners on the property. I learned recently that one of those 5 joint owners has become estranged from the rest of his family, which is going to complicate the transfer of the property in years to come.
What Distinguishes “With Right of Survivorship” from “Tenancy in Common”?
Mere words on a deed. That is it.
However, if the deed says nothing but “owned as joint tenants”, and does not specify as “tenants in common”, or “with right of survivorship”, then it is considered a “tenancy in common”. This is probably done, to protect the interests of family members who are devisees or intestate heirs. More likely, it is done so the local probate court can get their mitts on some revenue, in the form of an inventory fee (aka tax).
Do You Need a Lawyer to Change Form of Joint Ownership
You probably do, to make sure it is done correctly, including words on the deed, a completely accurate rendition of the “legal description” (aka legalese garbling, that even lawyers hate), and the recording of the deed, so that local governmental officials are aware of the correct form of ownership, and so that your desired form of ownership is made public to anyone doing a title search on the property.
Property Not Owned
It seems simple common sense that property you do not own, should not be part of your estate, and that is true. Property you do not legally own, will not be part of your estate.
You are not likely to be too crazy about giving away your property during your lifetime. How then, short of giving it away, can you continue to control the property, yet not have to worry about having that property go through probate upon your passing? By using a simple, single-asset revocable trust, you can divest yourself of legal ownership, while you maintain day-to-day effective (or “equitable”) ownership of the property.
How Can This Be Done?
You will probably need a lawyer for this. I would be happy to help.
By simply deeding the property from yourself, to a trust set up for this purpose (with you as the initial trustee), and recording the deed showing the trust form of ownership. By doing this, you can still:
- Sell the property, because the trustee is entitled in the trust document to do this; and
- Mortgage the property, assuming the normal circumstances, e.g., sufficient equity, creditworthiness, etc.
Everything will work as before: you will pay property taxes, you will pay your utilities, maintenance and other expenses.
However, more importantly, upon your death, the property will transfer outside of probate. In the initial trust document, when you name yourself as initial trustee, you also name someone to serve as your successor trustee, who will take over, upon your passing. In the trust document (usually no more than 2-3 pages), you can designate what that successor trustee is permitted to do, and how he/she is to divide the proceeds of sale, if that is what you want done with that property.
I had one client, not far from my Richmond MI office, the father of three highly accomplished high-earning daughters, and a 45 year-old son who was still waiting for his ship to come in. Concerned about a recent illness, this gentleman came to me about setting up “a simple will”.
On further discussion, I learned that he was concerned about where his son might live, in the event of his (the father’s) passing. I also learned that the father was coming to the end of his patience with his son’s apparent lack of ambition and work ethic.
We set up a trust as the “new owner” of the property, even though the father remained in control of the property as the initial trustee. Upon his death (assuming he does not sell the property first), one of his three daughters would succeed him as trustee, with the provision that the property would not be sold for a period of two years following the father’s passing, to permit the “ne’er do well” brother to have a place to live, and possibly, to gather funds sufficient to purchase the property from the trust.
At the end of the two years, the property would be sold, and the son and three daughters would split evenly, the proceeds of sale. Meanwhile, the son/brother was obligated to pay taxes, insurance, utilities, and upkeep, during those two years.
Thus, in addition to helping to avoid probate, because the decedent no longer technically owned the property, it became a flexible way for my client to make sure his children were cared for, and in a way he wanted to direct.
Above, in the section, I discussed another situation in which the decedent’s primary asset was a fully paid-off house; she did not have a will, and her three children did not get along. They were so antagonistic that two of them hired lawyers!! I know, because I was one of those lawyers.
While I am always grateful for a paying client, there was another path not taken, that would have spared the family the costs, and the conflict. The simple, single-asset trust I have been discussing.
Mom owned the property outright; no mortgage, and she was divorced from the father, who long ago had given up his interest in the property. Had I met Mom before her passing, she could have had me draw up a simple, single asset real estate trust, naming herself as initial trustee, and naming whoever she wanted as successor trustee. We cannot know whom she would have named as her successor, but let’s assume she knew how poorly her children related to one another, and let’s assume she wanted to reduce/eliminate conflict.
She could have named one of those three children as successor, or she could have named as successor, someone else, such as her ex-husband (who evidently was trusted by all family members). She could also have named a professional trustee, such as a bank, but those professional trustees are inordinately expensive, and are probably appropriate more for “the 1%” than they are for the rest of us.
The successor trustee would have put the property up for sale, and the proceeds would have been divided as the mother saw fit. Instead, there was about 14 months worth of probate court litigation.
Again, even where the survivors get along, and there is no need for a lot of probate court litigation, the cost of a so-called “simple will”, will double the cost of a simple single-asset trust, when we add in the cost of probate representation. Where the simple single-asset trust is used, there is no need for a lawyer to get involved any further.
Talk to Jon Frank today, about steps you can take, if appropriate, to avoid the costs and delays of probate.