The purpose of administering a decedent’s estate through the probate court in Michigan is to ensure that the deceased person’s property is legally transferred to those entitled to receive it according to law. A dead person cannot sign a property deed or a vehicle title. In most cases, a personal representative must be appointed by the probate court to manage and administrate final affairs, up to and including transferring property to heirs.
So does all of the decedent’s property have to go through the time-consuming probate process? Not everything. The following items DO NOT have to pass through probate administration and are except from intestate succession:
- Property Transferred To A Living Trust – Trust property is distributed to the beneficiaries under the terms and conditions in the trust document.
- Life Insurance Benefits – Proceeds from life insurance are paid directly from the insurance company to the named beneficiaries in the policy. However, probate may be necessary if, in rare circumstances, the beneficiary is the decedent’s estate.
- Funds in 401(k), IRA Or Other Retirement Account With Named Beneficiaries – However, if the decedent neglected to name a successor beneficiary to these accounts, then a personal representative will have to be appointed to deal with them.
- Funds Held In Transfer-On-Death Financial Account – Again, if the decedent neglected to name a successor beneficiary to these accounts, then it is considered an asset solely owned by the decedent that is subject to probate proceedings.
- Property Co-Owned In Joint Tenancy Or Tenancy By The Entirety – The surviving co-owner is automatically the sole owner of the property without additional paperwork needed. However, if property is co-owned as a tenancy in common (e.g. one person owns 50% of the property and another person owns 50% with no rights of survivorship), then the decedent’s portion is subject to probate proceedings.
- Property Transferred By Enhanced Life Estate “Lady Bird” Deed – A ladybird deed is a transfer of real property to a contingent grantee that reserves a life estate and full powers to convey with the grantor. Upon the death of the grantor, the property fully vests into the grantee. There is no need for probate proceedings with this type of transfer. Depending on the grantor’s wishes, this can be an inexpensive yet powerful estate planning tool.
Under certain circumstances, the following property of the decedent may also avoid probate:
- Unpaid Wages – According to MCL 408.480, an employer in Michigan may pay decedent employee’s unpaid final wages to the surviving spouse, children, parents or siblings (in that order) unless the employee filed a request with the employer stating otherwise. This transfer is available if there is no other property for which probate court estate administration is required.
- Clothing And Cash Up To $500 – According to MCL 700.3981, a hospital, nursing home, morgue or law enforcement agency may deliver to a decedent’s spouse, child or parent showing identification and an affidavit indicating relationship to the decedent. No court intervention is required, but this transfer is unavailable if there are already pending probate proceedings regarding this individual.
- Motor Vehicles and Watercraft – According to MCL 257.236, if the combined value of the decedent’s vehicles does not exceed $60,000 and combined value of watercraft does not exceed $100,000, title may be transferred by the Michigan Secretary of State to next to kin upon submitting a death certificate, an affidavit of kinship and a certificate of title for the vehicles or watercraft. No probate proceeding are required unless the combined value of the vehicles and watercraft exceeds the threshold amounts.
PLEASE NOTE: The property includible in gross estate for the purpose of determining federal estate tax liability is far more extensive than the property includible in the decedent’s estate for Michigan probate purposes. The following is a list of ALL property counted for federal estate tax valuation:
- The value of ALL property to the extent of the interest therein of the decedent at the time of death. This includes joint tenancies and tenancies by the entirety where the decedent is considered to have a 50% interest. These property interests include dower or curtesy rights in the real property.
- Inclusion of certain gifts made within three years of decedent’s death.
- Property transferred where the decedent retained a life estate interest (e.g. property subject to a ladybird deed).
- Transfers of property taking effect at death (e.g. bank accounts payable upon death).
- Property in which the decedent had a revocable interest in at the time of transfer, meaning the transfer could be revoked, altered or terminated at the decedent’s behest (e.g. property transferred to a revocable living trust during the decedent’s lifetime).
- The value of any annuity.
- The value of any property in which the decedent exercised a general power of appointment created by a will or some other disposition.
- The value of life insurance proceeds payable to the estate or to other beneficiaries of the decedent if the decedent owned the policy.
As you can see, the federal estate tax encompasses several property items not subject to Michigan probate proceedings. The personal representative must take care to properly account for all property to avoid the decedent’s estate being subject to tax penalties and interest for any deficiency or for failing to file a return. More likely than not, the value of the estate for most individuals will be well below the basic exclusion amount of $11.18 million dollars ($22.36 million for married couples) in which case no return is necessary.
If you have questions regarding how to handle a decedent’s property, do not hesitate to contact the probate and tax attorneys at Kershaw, Vititoe & Jedinak PLC.
