What to Expect From Probate

Probate is a legal process that passes your property to your heirs or people named in your will. The entire probate process takes, on average, a few months to about one year after death. Probate often costs about four percent of a person’s gross estate. It may be possible to use one of five Michigan small estate procedures to probate your estate. Or, you may be able to use an informal, unsupervised probate process, which requires less court involvement.

The usual probate process involves several steps. First, the probate court appoints a personal representative. The personal representative must file the will, a list of persons who should receive distributions under the will, and an application in probate court to be appointed to his position. Second, the personal representative collects the assets and files a list or inventory of all property with the court. Third, he notifies creditors, pays bills, and pays taxes. If an estate tax return is due, he files it within nine months of the death. Fourth, he distributes property to heirs or people named in the will. And fifth, he files a closing statement.

Using Joint Property to Avoid Probate

Joint property is a popular method of avoiding probate. People typically name their children as joint owners of their property. Property owned jointly becomes the property of an owner on the death of the other owner. This method can be effective; however, you should be aware of several pitfalls.

For example, if you add a joint owner to a home or account, you cannot change your mind about the transfer without permission from the person who you made joint owner. Once they own the property jointly with you, they have the same ownership rights as you have in the property. Also, a transfer to joint ownership or a transfer out of such ownership is a gift. Gifts over $12,000 to a single person must be reported on a gift tax return and may have gift tax consequences.

Another pitfall occurs when people die out-of-order of their ages. If you name someone younger than you as a joint owner of your home with the expectation that they will “inherit” your house and that person dies before you, then their half of the home would become part of their estate and would be dealt with according to their plans. In addition, creditors of a joint owner could have access to the property, including the creditors of any divorce proceeding involving the joint owner. Finally, joint owners can spend a lot of time trying to equalize accounts owned jointly with different children, and they may be unhappy that their property is no longer their own.

Other Options for Avoiding Probate

A revocable living trust can be used to avoid probate. This method works only if the settlor, or person who wrote the trust, retitles all probate property into the trust. After the settlor and trustee dies, his successor trustee will take over. The successor trustee of a trust that distributes all assets must pay debts, file tax returns, and distribute the property to the beneficiaries.

Many of your assets may transfer outside of probate, using “payable on death” or “transfer on death” designations on accounts. For example, life insurance proceeds, retirement accounts, brokerage accounts, and bank accounts can transfer this way. If you select this method, you should make sure that there are enough assets available to the trustee or personal representative to pay expenses of estate administration.

Taxes on Estates

Under 2009 tax laws, United States citizens generally would owe estate taxes on assets, including life insurance, if their assets exceeded 3.5 million dollars. Spouses each get a 3.5 million dollar exemption, for a total exemption of seven million dollars. The top tax rate for estates currently is set at 45 percent. This 3.5 million dollar threshold will remain in place until 2010. In the year 2010, the estate tax is eliminated for one year. After this time, it is reinstated with a lower exemption of one million dollars. Congress plans to revisit this law; however, it is difficult to predict what the outcome will be of its review.

The Michigan estate tax equals the maximum state death tax credit allowed under federal law. For people who died or will die in 2005 or later, the federal government repealed the credit. So, there is no Michigan estate tax now.

There are certain exemptions from the federal estate tax, including the unlimited marital deduction. Married couples who are both citizens of the United States may pass an unlimited amount of assets to their spouses without tax. There are tax planning strategies, using revocable living trusts, designed to maximize use of the unlimited marital deduction and the threshold tax amount. Residents who are not citizens of United States have a more limited ability to pass assets to others. Non-United States citizens have the option of using a Qualified Domestic Trust to maximize use of their deduction.

Keep in mind, too, that assets given to charity and some gifts are not taxed. There are various ways to structure gifts to charities to provide income streams to the donors or their beneficiaries.

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To the extent that this written communication may address federal tax issues, federal regulations issued by the U.S. Treasury require that the recipient be informed that this written communication is not intended and cannot be used to (i) avoid any potential tax penalties that may be imposed under the U.S. Internal Revenue Code or (ii) promote, market, or recommend to another party any transaction or matter addressed in this communication. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.


Shauna L. Turnbull, PLC
39111 West Six Mile Road
Livonia, Michigan 48152
Phone: (734)591-7200
Fax: (248)344-1683
Shauna@sturnbulllaw.com


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