How to Avoid Probate
Time: in Michigan it takes a minimum of 5 months to probate your estate and distribute your assets.
Money: Michigan has an inventory fee your estate will pay, which is based on the gross value of your estate assets. This fee is not much, but it also usually takes an attorney to help probate your estate. These attorneys’ fees usually far exceed my fees to avoid probate.How to avoid Probate?
Living Trust: this is the best way to avoid probate. All you have to do is set up a living trust and put all non-exempt assets (see the Probate web page for details) into the trust. When you die, all assets in the trust are not subject to probate. It’s just that simple.
Joint Tenancy with Right of Survivorship: this is a form of joint ownership of assets (called “joint tenancy”). In Michigan, this form of ownership it can only be used for real estate, stocks and similar investments and indebtedness (such as, bonds, mortgages, promissory notes, etc.).
- Husband & Wife: if you and your spouse use this form of ownership, you would jointly own the asset. When the first of you dies, full ownership goes to the surviving spouse – who is then sole owner of the asset. The asset is not included in the estate of the first spouse to die. But, the asset will be included in the surviving spouse’s estate at his/her death. So, you are simply delaying when the asset is included in someone’s estate.
- More than 2 owners: You can also have more than two owners. If you have more than two owners, after the death of the first owner, nothing happens except that each owner will hold a larger percentage of ownership. This continues until there is only one surviving owner who holds 100% ownership. The asset is not included in anyone’s estate until the death of the last surviving owner. So, once again, you are simply delaying when the asset is included in someone’s estate.
The weakness of this ownership is that if both spouses die at the same time, then the asset must go through probate. The only sure way to avoid probate is with a Living Trust.
Tenancy by Entirety: is simply a Joint Tenancy with Right of Survivorship but it is only available for use by a husband and wife.
Life Insurance: a policy on your life is not subject to probate if you have a designated beneficiary (other than yourself or your estate) who will receive the proceeds upon your death. The proceeds are not included as part of your estate. This is a good vehicle to avoid probate, but it lacks the ability to direct when the distributions well occur and the flexibility to change the distribution amounts. This is easily overcome by using a trust (either a Living Trust or an Irrevocable Life Insurance Trust) where the trust provisions can address the timing and amount issues.
Retirement Plans: such as an IRA, 401k, pension benefits, social security, etc. are not subject to probate if they have a designated beneficiary (other than yourself or your estate) who will receive the benefits after your death.
Lifetime Gifts: you can give away $14,000 per year per spouse to anyone (that’s $28,000 per couple that you can give to one person). You can give up to 50% of your income to a qualifying charity and get an income tax deduction for it.Assets Exempt from Probate?
Living Trust: this is the best way to avoid probate. All you have to do is set up a living trust and put all non-exempt assets (see below for details) into the trust. When you die, the trust assets are not subject to probate. Instead, the trustee simply carries out your instructions (set forth in the trust) as to how and when to distribute the trust assets.
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