Protecting Michigan Property From Probate Headaches
Probate in Michigan is the court process that may be required to transfer certain property after someone passes away. When real estate is involved, the process can be time-consuming, expensive, and stressful. Paperwork can pile up, deadlines are strict, and family members may have to wait for court approval before they can sell or fix up a home or cottage.
We see this often in the Greater Detroit area, especially as summer approaches. Families may be moving, opening a cottage for the season, or preparing a home for sale when they suddenly discover a title problem. The property may still be in the name of someone who died years ago, or the wrong people may be listed as owners. When that happens, property that might otherwise have avoided probate can end up stuck in the process instead.
With the right planning, the headache of probate may be avoided. The key is to make sure the property is titled correctly, and the right planning tools are in place before a problem arises. A Michigan estate planning attorney can review your real estate, explain how it would pass at your death under your current plan, and identify any gaps so your family is not caught by surprise later.
How the Title of Michigan Real Estate Can Affect Your Plans
The way your real property is titled in Michigan often determines whether it will go through probate. Common forms of real property ownership include:
- Sole ownership: one person owns the property in their sole name
- Tenants-in-common: two or more people own the property; when one owner dies their share does not automatically transfer to the surviving owner or owners
- Joint tenants with rights of survivorship: two or more people own the property; when one owner dies their share automatically passes to the surviving owner or owners
- Tenants-by-the-entirety: a special form of joint ownership available to married couples; when one spouse dies their share automatically passes to the surviving spouse
Problems often arise when someone has not reviewed their deed in years. Some common issues include:
- A deceased co-owner may still be listed on the deed as a tenant in common, which can prevent the property from being sold until a probate estate is opened for that owner
- An ex-spouse was never removed from the deed after a divorce
- Unmarried life partners own a cottage as tenants-in-common, so each share may need to go through probate when the survivor of them passes away
These problems are often easier and less expensive to address during life than after someone has passed away.
Why DIY Deeds Can Create More Problems Than They Solve
People sometimes try to avoid probate by preparing a new deed themselves, such as a quit claim deed adding their adult children to the title. However, people who prepare these deeds on their own may unintentionally create a tenancy in common, which, as discussed above, does not automatically avoid probate.
Even if done properly, this approach can create new problems. Once a child becomes an owner, the property may be exposed to the child’s creditors, divorce, or bankruptcy. The parents may also lose some control over important decisions, including whether and when to sell or mortgage the property. Additionally, the transfer may be treated as a gift and may affect capital gains taxes and the step-up in basis at the parent’s death, potentially resulting in less favorable tax treatment when the adult children later sell the property. Because tax laws and family circumstances can change, it is best to speak with a professional before making these changes rather than trying to correct problems later.
In some situations, retitling real property can help to avoid probate, but it needs to be done with care. An experienced Michigan estate planning attorney can review your goals, explain your options, and prepare deeds that align with your broader estate plan rather than accidentally creating new probate or ownership problems.
Hidden Gaps in Beneficiary Designations and Lady Bird Deeds
Enhanced life estate deeds, also called Lady Bird deeds in Michigan, are a popular way to keep a home, cottage, or rental property out of probate. With this type of quit claim deed, the property owner maintains full control during their lifetime. They can live in the home, sell it, refinance it, or change the ultimate beneficiaries. At their death, the property passes directly to the people named in the Lady Bird deed as remainder beneficiaries, without going through probate.
The remainder beneficiary named in a Lady Bird deed can be one person, multiple people, or even a trust. Naming a trust allows the property to remain titled in the owner’s name during life and then transfer to the trust automatically at death. Because the ultimate beneficiaries are identified in the trust, later changes to those beneficiaries generally can be made by amending the trust rather than preparing and recording a new Lady Bird deed. Whether this approach to transferring real property to a trust is right for you is something an experienced Michigan estate planning attorney can help you evaluate.
For married couples, a Lady Bird deed is often prepared so that the spouses own the property together as tenants by the entirety. When one spouse dies, the surviving spouse becomes the sole owner and may continue to live in the home, sell it, refinance it, or change the ultimate beneficiaries. When the surviving spouse later dies, the property automatically transfers to the remainder beneficiary or beneficiaries named in the most recently recorded deed.
Coordinating Real Estate with Medicaid Planning
For older adults and their families, Medicaid and long-term care planning with real property require special attention because there is no single strategy that works for everyone. Whether a home should remain in an individual’s name, be transferred to a revocable living trust, or be placed in an irrevocable trust depends on many factors, including the person’s health, age, finances, family situation, and possible need for long-term care. The timing of any transfer can also be very important.
Lady Bird deeds and certain trust strategies may help protect a primary residence from Medicaid estate recovery in some situations, but they do not automatically solve every Medicaid issue. A revocable living trust may help avoid probate, but property held in a revocable trust is generally still treated as available to the person who created it for Medicaid eligibility purposes. Irrevocable trusts may provide additional protection in some cases, but they involve giving up certain rights and control and must be created and funded carefully, often well before long-term care is needed.
Because Medicaid eligibility and estate recovery rules are detailed, state-specific, and can change, there are no hard-and-fast rules that apply to every family. A transfer that helps one person could create tax, eligibility, control, or family problems for someone else. Before changing a deed or transferring property to a trust, it is important to speak with an experienced Michigan elder law or estate planning attorney who can review the full situation and explain the advantages, risks, and timing of each option.
Frequently Asked Questions About Michigan Real Estate and Probate
Not always. If the deed does not include survivorship rights or ownership as tenants by the entirety, your share of the property may still have to go through probate when you pass away. Regardless of your marital status, reviewing the deed is important to understanding how the property will transfer at your death.
No. A Lady Bird deed applies only to the specific real estate described in the deed. Other assets, such as bank accounts, vehicles, and investments, may still need beneficiary designations (sometimes called POD or TOD designations) or may need to be titled in a trust to avoid probate.
It depends. Probate generally will be avoided only if the children are added as co-owners with survivorship rights, and Michigan deeds require specific language to create those rights. Even when the deed is prepared correctly, adding children to the title can create new problems. The property may become exposed to a child’s creditors, divorce, bankruptcy, or other financial difficulties, and the transfer may also create gift tax or income tax concerns. Safer and more flexible options are often available.
A good rule is to review your deeds after a major life event, such as a marriage, divorce, birth, death, or move, and at least every three to five years. A review is also a good idea before selling or refinancing a property or changing how it is used, such as converting a cottage into a rental property.
Michigan has specific rules governing deeds, survivorship rights, and Medicaid planning. Generic online forms may not address these details correctly, and even a small mistake can have serious consequences. A Michigan estate planning attorney can help coordinate your real estate, trusts, tax planning, and beneficiary designations so your overall plan works as intended when your family needs it.
Protect Your Legacy with Knowledgeable Legal Guidance
Whether you are creating an estate plan or reviewing planning documents you already have in place, we are here to help you understand your options and guide you through each step. As your trusted Michigan estate planning attorney, La Grasso, Abdo & Silveri PLLC can review how your real estate is titled, explain how they would transfer at your death, and help create clear, legally sound documents that reflect your goals. We will answer your questions, explain your options in plain language, and support you in making informed decisions for you and your family. To schedule a consultation and move forward with your plan, please contact us today.