Some people may be able to structure all of their assets without the need for a Revocable Living Trust and still avoid Probate in Michigan. For your financial accounts, the best way to accomplish this is to make sure these accounts are set up as a “payable on death” (POD) account or “transfer on death” (TOD) account. And for your house, you can set up a “Ladybird Deed” which provides that upon your death, the house automatically passes to the named beneficiary.  This is usually easy to do if you have a simple estate and you do not have too many assets or accounts.

POD/TOD Assets Pass Directly to Named Beneficiary Upon Your Death

With POD/TOD accounts, you simply need to name a beneficiary in the paperwork the bank provides. This is just as you would with a life insurance policy and your retirement account for example.  Only you, as the account owner, would have control and access to the account during your lifetime. And you can change the beneficiary at any time. The named beneficiary will have no control or ability to access the account until after your death, at which point the beneficiary will show the bank a copy of your death certificate in order to have those account assets pass directly to him or her (without Probate court involvement).  These assets also receive a “step up” in basis when you die – this means that no capital gains tax will be due if the investments had to be sold and liquidated before transferring to the beneficiary.

What is Probate again?

As I’ve described before, Probate in Michigan is the process through which the Probate Court reviews your Probate assets and determines how property is to be distributed after you die. Some of your assets will go to your heirs and be distributed only upon approval from the Probate Court which can be timely and costly – these assets are your “Probate assets” .  Some other assets go directly to the beneficiaries thereby bypassing the Probate court – these assets are your “non-Probate assets” and they pass to the beneficiaries much more quickly and without Probate court fees.

Some Caveats:

  • If a beneficiary predeceases you and there is no remaining  beneficiary named, then the account will have to be probated and be distributed in accordance with your Will.
  • Certain beneficiaries should not receive POD/TOD accounts such as those on special needs or depend on Medicaid and other public benefits.
  • You will need to coordinate your POD/TOD accounts with your overall estate planning objectives. For example, if your Will says your assets should be distributed equally among your four children, yet you have a POD account naming only child as a named beneficiary. This would create unequal shares among the children.

A Revocable Living Trust is Still the Best Way to Avoid Probate, but Not the Only Way

Ultimately, if avoiding Probate is your primary goal for estate planning, putting all of your assets in a Revocable Living Trust that clearly states who gets what would be the best course. That being said, it is not the only way to avoid Probate: setting up your estate plan with just POD accounts is possible but requires careful and thoughtful planning.

For more information on Trusts, please see below:

What is Probate? Do I Need a Trust?

Your Trust Has Been Signed. Now What?

What Is a Certificate of Trust?

 

 

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