Probate Vs. Nonprobate Assets

When an individual passes away, their property must be gathered and distributed in line with their wishes and all applicable state laws — a process that is commonly referred to as probate. 

If you want to simplify or avoid the Michigan probate process for your estate, one important aspect to understand is the distinction between probate assets and nonprobate assets. 

Navigating Probate Can Be Challenging

Whether you are planning ahead to make things easier for your loved ones, or currently dealing with the aftermath of a family member’s passing, it’s incredibly important to understand the ins and outs of the process that a decedent’s estate succumbs to in court. 

By definition, probate is a legal process — and typically involves formal legal proceedings and, some degree of supervision from the courts. The probate court is not a comfortable setting for handling an estate, particularly when one is already feeling stressed and emotional from losing someone dear. In some cases, navigating an estate through the probate courts can be a convoluted and complicated process, which can become long and arduous for everyone involved including the personal representative appointed to manage the estate, as well as any heirs and beneficiaries. 

There can be significant financial and time costs involved with probate. While the probate process typically lasts less than a year, it can certainly drag on for longer with court and administration fees mounting up along the way. 

Probate court records are also a matter of public record, which can lead to a lack of privacy for your loved ones. People can access information regarding the value of an estate, the name and contact information of any beneficiaries, and other private details that you may prefer to keep close to the vest. 

When you don’t plan ahead for the estate administration process, this can also leave room for issues and complications to arise, which may require litigation to resolve. Having to deal with contests and disputes can cause the process to stretch on and make things more complex for your loved ones. 

Because of the many challenges and uncertainties involved, many individuals in Michigan put a high priority on taking steps to simplify probate often, by helping some of their most important and valuable assets avoid court administration altogether. Avoiding probate is a key component of estate planning, which is the process of preparing financially and personally for death or incapacity. 

The Importance of Estate Planning

Estate planning helps ensure that you have a say in how your assets will be reallocated if you pass away or become incapacitated. A comprehensive estate plan, tailored to your needs and goals, can help maximize the assets available to your beneficiaries when you have passed, while minimizing or eliminating the cost of probate fees. It is a way to help ensure that the people you choose can get the control you want them to have, while making sure that the distribution of your assets is appropriate and that inheritance does not become a detriment to your beneficiaries.

One way to minimize the financial and personal toll of the probate process for your loved ones is to be proactive about how you manage and control your assets, when you have the chance. It’s important to note that not all assets will need to be administered through probate when you or a loved one passes away. There are some straightforward steps that can help make it so that many assets can transfer directly to your intended beneficiaries without requiring judicial oversight and therefore largely avoiding probate. 

Probate Vs. Nonprobate Assets

A major part of estate planning involves understanding what separates probate assets from nonprobate assets, and how each will be handled and transferred to your loved ones when you are gone. 

Probate assets are those that are included as part of the decedent’s estate, and are thus subject to court proceedings when he or she dies. Broadly speaking, this refers to property and assets that are owned solely by the decedent, without any co-owners or designated beneficiaries. Estate assets are managed by the personal representative, and distributed following the terms set by the decedent’s will. If the decedent did not have a will or if they failed to include the asset, the property is distributed according to Michigan’s laws of intestate succession, meaning that the courts will determine how the property is to be distributed. Broadly speaking, Michigan intestacy laws apply to all probate assets not covered by the decedent’s will. Priority is placed on distributing intestate assets to the spouse of the decedent, followed by their children, parents, siblings, and then other surviving descendents. 

Nonprobate assets are those with a beneficiary or payable-on-death designation or a co-owner who is legally entitled to the property. These assets generally pay directly to a named beneficiary and are nontestamentary meaning that they are not transferred under the decedent’s will. Assets held in a revocable living trust will also likely avoid probate court involvement, in most circumstances. 

With that said, assets that typically transfer outside of probate administration generally fall into three categories: 

Assets held in a revocable living trust

Trusts offer numerous estate planning advantages, including the capability to help many types of assets such as investments and securities, tangible personal property, bank accounts, business interests, and real estate  bypass probate. 

The inter-vivos or revocable living trust is one of the most popular types of trusts in the United States, in part because it can help avoid probate and help families avoid court fees and stringent oversight. 

A trust is a written agreement created by the settlor, which names an individual who is responsible for managing property, as directed by the trust agreement. This person is known as the trustee. A revocable living trust allows the settlor to maintain control of their assets during their lifetime, and modify or revoke the trust at any time. Typically, the settlor will act as the trustee for as long as they are living, with a designated successor trustee stepping in after their death. 

There are many important considerations to be addressed in the creation of a trust, so that it is designed to your specifications and in line with all necessary legal formalities. For example, it’s crucial to remember that a trust must be funded with the assets that you choose —otherwise, it will remain an empty vessel. Once the trust is created, it is essential to re-title your selected assets into the trust. An experienced probate attorney such as Mr. Dean Patrick can help ensure that your trust is complete, and designed to ensure that your wishes will be executed as you see fit. 

It is also important to keep in mind that court proceedings may be necessary for the administration of a trust if requested by an interested person, or required by law. 

A proceeding involving a trust may relate to any matter involving the trust’s administration, including requests to determine the validity or settlement of the trust; the modification, reformation, or termination of the trust; or any proceedings involving the trustee including efforts to appoint a new trustee or have one removed. 

If court proceedings are necessary for any aspect of trust administration, an attorney can provide informed professional advice to guide you through the legal process, and aggressively advocate for your position. 

Financial accounts, securities, and assets with a “pay on death” or “transfer on death” beneficiary

Retirement accounts, life insurance policies, bank accounts, annuities, pension plans, investment accounts, and securities can be set up with a designated beneficiary, known as a “pay on death” or “transfer on death” beneficiary. 

When executed properly, this designation allows for the assets in an account or proceeds of a policy to transfer directly to the named beneficiaries upon the death of the account owner or policy holder, outside of probate. 

The designation of a TOD beneficiary does not affect ownership of the asset until the owner’s death. The owner may change or cancel the registration of a security in beneficiary at any time, without needing the consent of the beneficiary.

Jointly owned property

When it comes to estate planning and administration, the manner in which you and any co-owners hold title to property can have significant implications. 

Full ownership of real property owned through joint tenancy with rights of survivorship automatically transfers to the surviving co-owner upon the passing of the decedent, outside of the oversight of the probate courts. Property that is owned by married couples who share ownership as tenants by the entireties also transfers outside of probate. 

For real property, the conveyance must specifically mention joint tenancy, or tenancy in common is typically presumed. In Michigan, when co-owners are married, tenancy by the entireties is presumed, and does not necessarily need to be mentioned specifically in the deed or conveyance.  

It is important to note that, in Michigan, joint tenancy may function differently for personal property than it does for real property. 

Joint tenancy designations can allow you to avoid probate without increasing your liability. This can allow for more immediate distribution of your assets and ensure your partner gets the assets and control you want them to have, while providing you with peace of mind knowing you minimized the stress of your circumstances for your family. If you have any questions about the specifics of holding title to real or personal property, do not hesitate to get in touch by calling us at (833) 469-4897. Our legal experts can help you discuss and understand the unique variables of your situation.

Looking for Guidance from an Experienced Michigan Probate Attorney?

Whether you are taking steps to prepare for the future, or currently dealing with the legal aftermath following the passing of a loved one, Attorney Dean Patrick can provide the assistance and support that you need as an estate, contested or not, is guided through the Michigan probate courts.

At the Law Office of Dean E. Patrick, PLLC, we put our legal experience and skills together with our commitment to excellence in representing your rights throughout the entire probate process. You can depend on our law firm’s ability to listen to you and our talent for creative strategies as we help you prepare your estate plan and navigate probate, including (but not limited to) general probate litigation, wills and trusts contests, beneficiary disputes, guardianships, and conservatorships. 

Mr. Patrick is knowledgeable on all aspects of probate, with years of experience as a practicing attorney. Whenever you’re ready to get started, he is here to listen and learn more about your circumstances, and start finding a solution to your desired outcome – with the expertise, empathy, intellect, and professionalism your situation requires at every step of the way.

Have any more questions regarding any estate planning or administration matters you may have? Ready to get started? Contact Dean E. Patrick at his Southfield office at (833) 469-4897 or click here to learn more or arrange your initial consultation. Our staff is available 24/7 to answer any questions and help you with your legal matters.