In Michigan, certain assets are considered "non-probate" assets, meaning they bypass the formal probate process and transfer directly to their designated beneficiaries or co-owners upon the owner's death. This allows for a quicker and often more private transfer of wealth.
Here are the primary types of assets that typically avoid probate in Michigan:
Assets with Beneficiary Designations
Many financial accounts and policies allow you to name specific beneficiaries, ensuring the assets pass directly to them without court involvement.
- Life Insurance Policies: If a life insurance policy has a named beneficiary, the proceeds are paid directly to that individual or entity upon the insured's death, bypassing probate.
- Retirement Accounts: Accounts such as 401(k)s, IRAs, 403(b)s, and pensions usually require you to name beneficiaries. These funds are distributed directly to the designated individuals.
- Bank Accounts: Bank accounts can be set up with "Payable on Death" (POD) or "Transfer on Death" (TOD) designations. Upon the account holder's death, the funds automatically transfer to the named beneficiaries. Similarly, credit union accounts might use "In Trust For" (ITF) designations.
- Brokerage Accounts: Investment accounts can also utilize TOD designations, allowing stocks, bonds, and other securities to transfer directly to named beneficiaries.
Jointly Owned Property
Property owned jointly with rights of survivorship automatically passes to the surviving owner(s) outside of probate.
- Joint Tenancy with Rights of Survivorship (JTWROS): This common form of ownership applies to real estate, bank accounts, and investment accounts. When one owner dies, their share automatically passes to the surviving joint tenant(s).
- Tenancy by the Entirety: This form of joint ownership is exclusive to married couples in Michigan. It applies primarily to real estate and offers strong creditor protection. Upon the death of one spouse, the property automatically transfers entirely to the surviving spouse.
Assets Held in a Trust
Assets properly titled and held within a living trust (also known as a revocable living trust) are generally exempt from probate.
- Revocable Living Trusts: When you establish a living trust, you transfer ownership of your assets (like real estate, bank accounts, or investments) from yourself as an individual to yourself as the trustee of your trust. Upon your death, the successor trustee you appointed distributes the assets according to the trust's terms, without the need for probate court oversight. This offers privacy and can be particularly useful for complex estates or those wishing to avoid probate in multiple states.
Other Non-Probate Assets
- Transfer on Death (TOD) Deeds for Real Estate: Michigan law allows for "Transfer on Death" (TOD) or "Lady Bird" deeds for real estate. With a TOD deed, you can name a beneficiary who will inherit your real estate directly upon your death, avoiding probate while retaining full control of the property during your lifetime.
- Vehicles with Beneficiary Designations: In some cases, vehicles can also have beneficiary designations, allowing them to pass directly to a named individual without probate.
To summarize the common non-probate assets:
| Asset Type | Description | Example |
|---|---|---|
| Assets with Beneficiaries | Accounts/policies with designated individuals to receive funds. | Life insurance, 401(k), IRA, POD/TOD bank accounts, TOD brokerage accounts. |
| Jointly Owned Property | Property held with rights of survivorship, where ownership transfers automatically. | Real estate held in Joint Tenancy with Rights of Survivorship or Tenancy by the Entirety. |
| Assets in a Trust | Property legally transferred into a revocable living trust. | Real estate, bank accounts, investments titled in the name of the trust. |
| Transfer on Death (TOD) Deeds | Real estate titled with a beneficiary who inherits upon the owner's death. | Residential home or land with a recorded TOD deed. |
Understanding which assets bypass probate is crucial for effective estate planning. While these assets transfer outside of the probate court, they may still be subject to estate taxes, depending on the overall value of the estate. Consulting with an estate planning attorney can help ensure your assets are handled according to your wishes and efficiently transferred to your beneficiaries.
