Property Interests That Don’t Have to Go Through Probate

Probate is the legal process through which a deceased person’s estate is administered and distributed under court supervision. It involves filing necessary paperwork with the probate court, notifying heirs and interested parties about the proceedings and, when necessary, resolving disputes over the estate’s distribution of assets. However, probate can be time-consuming and often involves considerable expenses, including court fees, attorney fees, executor’s compensation and administrative costs. 

You can ensure a smoother and more efficient transfer of your property upon death by taking advantage of certain types of property ownership that are exempt from probate. These assets pass directly to designated beneficiaries, bypassing the court process altogether:

• Joint ownership with rights of survivorship — When two or more people own property as joint tenants, upon the death of one owner, their interest automatically transfers to the surviving owner(s). This form of ownership is commonly used for real estate, bank accounts and sometimes vehicles. However, it is critical that the ownership is clearly documented as “with rights of survivorship” for this transfer to occur outside probate.
• Transfer-on-death (TOD) and payable-on-death (POD) designations — Michigan law permits transfer-on-death (TOD) designations for real estate via a “Lady Bird deed,” formally known as an enhanced life estate deed. It causes ownership of a property to be transferred automatically to a named beneficiary when the owner passes away. Payable-on-death (POD) designations can be used for bank accounts, certificates of deposit and certain investment accounts.
• Life insurance policies and life insurance trusts — Proceeds from life insurance policies are generally exempt from probate, provided a beneficiary is named. The death benefit is paid directly to the named beneficiary. Life insurance death benefits can also be directed to an irrevocable life insurance trust (ILIT), which also provide estate tax planning advantages.
• Retirement accounts and plans — Retirement savings vehicles such as IRAs, 401(k) plans, and pensions allow participants to name beneficiaries who will receive plan assets upon death. These accounts avoid probate so long as a valid beneficiary designation is made. It’s essential to review these designations regularly, especially after life events like marriage, divorce or the birth of a child, to ensure they reflect your current wishes.
• Revocable living trusts — A properly drafted and funded revocable trust allows the creator to retain control over the trust assets during life and to name beneficiaries to receive the trust property after death. Since title to the assets is held in the trust’s name, these assets do not go through probate when the trust maker dies.

Consulting with an experienced Michigan estate planning attorney can help you carefully structure your estate, making effective use of these methods to maximize probate avoidance and ensure your property is transferred smoothly and according to your wishes.

At Otlewski & Maloney, P.C. in Rochester Hills, we provide Michigan residents with effective assistance in all aspects of estate planning. Call us at 248-759-5641 or contact us online to set up an appointment.