When someone dies who has no plans in place to transfer assets to their heirs, the estate goes to probate in Michigan. The Michigan probate court then determines how the assets are distributed, after a lengthy process that is not without cost. It’s a stressful situation, to say the least, but it does not have to be this way at all. In fact, by following these simple guidelines about how to avoid probate, you can assure your assets transfer to your heirs without ever entering a courtroom.
Give Gifts While You Are Alive
Many people choose to give their children, grandchildren and others large gifts while they are alive. Besides the fact that it allows them to see the person enjoy the gift, there are other benefits. This is, by far, the easiest way to assure that your estate will stay out of probate. The reason is that if you give the assets away, you don’t own them upon your death. Therefore, there is nothing to go through probate. Keep in mind, however, that your personal exemption for gifts is $14,000 per person per year. In other words, if you have ten grandchildren, you can give each one of them $14,000 for a total of $140,000 per year. Anything over the exemption amount will result in a gift tax obligation on your part.
Just keep in mind, that could completely screw up your Medicaid planning with the divestment rules we have.
Set Up A Revocable Living Trust
Living trusts are a good way to shelter your assets and distribute them after your death. They avoid probate because you, as an individual, do not own the assets, the trust owns them. The trust document is much like a will in that it details what you wish to be done with your property. You can decide to give your home, cars, cash and other assets to whomever you choose and the trustee is obliged to follow your wishes. However, any assets that are not included in the trust may still be subject to probate. For this reason, it is important to update the trust periodically to include new property.
Set Up Pay- and Transfer-on-Death Accounts
One way to assure that your bank and retirement accounts go to a specific beneficiary is to set up what is called a payable-on-death account. What that means is that when you die, the amount in the account goes directly to the person you name and avoids probate. It’s a simple matter of filling out a form, usually with your bank or financial institution, and signing it. On the same token, transfer-on-death registrations all you to transfer securities and even your car, in some instances. Transfer-on-death real estate deeds may also be used in some states.
Joint Ownership of Property
Another simple way to avoid probate is joint ownership of property. The basic concept is that you own property in conjunction with another person. Upon your death, full ownership of the property reverts to the other person. Forms of joint ownership include; joint tenancy with right of survivorship, tenancy by the entirety and community property with right of survivorship. Although all these forms of ownership do pretty much the same thing, subtle differences are present. It’s best to talk to a financial advisor to determine which is best for you and your situation.
The truth is, the death of a loved one is a stressful event, full of emotions and decisions. You can help to ease the burden on your survivors by planning ahead for the disposition of your assets and property. Contact us if you are a Michigan resident and you would like more information about estate planning, probate, living wills, trusts or joint-ownership options. We’ll be happy to provide you with a consultation to review your estate and answer any questions you have.