As a general rule, nearly all estate plans include a Will, which is generally a list of instructions for how you want your property distributed at your death.
Simply having a Will does not avoid probate. A Will gives the court instructions on which people should get which assets, and the Probate Court oversees the process of carrying out those instructions. But it also ensures that the laws have been followed, final expenses have been paid, and provides a place where creditors and heirs can make claims against the estate. The Probate Court also appoints Guardians and Conservators. For more information about what happens in Probate Court, check out this blog post.
Living Trusts are an additional document some people use in their estate plans to address some issues that cannot be as effectively handled with a Will. In those cases, often times a Michigan Revocable Living Trust is the best solution.
A Revocable Living Trust is a legal entity separate from you, sort of akin to a corporation or foundation. The Trust is managed by a trustee in accordance with a set of instructions called the Trust Agreement, which is much like the bylaws followed by the board of directors of a corporation or foundation. While you are alive and capable, you can be the Trustee of your own Living Trust and you can change the instructions or rules for how you manage the Trust assets and affairs for your own benefit.
However, when you die or become incapacitated, the rules or instructions can no longer be changed and the Trust operates independent of you. Because the Trust has rules for your successor to follow in managing its property and affairs for the benefit of you and your beneficiaries, there is no need for a court to intervene to carry out your wishes. The Living Trust’s independence from Probate Court oversight is often the most appealing to small business owners and those who have had the responsibility as an executor or personal representative in Probate proceedings for a deceased parent or other loved one.
Why Have a Revocable Living Trust in Addition to a Will?
- Probate Fees are Avoided (Over $500 in fees for a $150,000 Estate and over $1000 in fees for a $500,000 estate, plus attorney fees)
- Process is Private (Most Probate records are available to the public, even financial information)
- Protecting Children from their inheritance (Many younger children or children with medical, addiction, or creditor problems can be protected from their inheritance with a revocable living trust)
- Speedier Administration (Successor trustee can begin to act immediately without involving the court)
- Flexibility in Distributions (Trustees have more flexibility than personal representatives in allocating assets and can avoid some family squabbles that might otherwise end up before a Probate judge)
- Addressing Second-Marriage Concerns (See my blog post on Estate Planning After a Michigan Divorce)
What Happens without a Will or Living Trust?
When someone dies and does not leave a Will or Trust, that person is said to have died “intestate” or without a testamentary instrument. Michigan statutes then govern how your property is distributed, with it going to your spouse and/or your closest heirs regardless of how you wanted it distributed or what you promised verbally to your family and friends. We are not exactly sure how the rules were established, because the Michigan law of intestate succession requires that the assets of a decedent be split between a spouse and children in a way that absolutely none of our clients have ever come close to choosing on their own.
In the absence of a Will, Michigan law provides that the family members of both parents also have equal standing before the Probate Court to argue who should be the Guardian and Conservator for your child. The Probate Court has continuing jurisdiction over the matter, similar to custody hearings in a divorce situation, so the fight could continue for many years.
Even if you have a Will but fail to nominate an acceptable Guardian or Conservator for your minor children, the Probate Court will make that decision for you based on who makes the best case for that job. It has been our experience that pitting the family of the father against the family of the mother rarely ends in the way the parents would have envisioned and often results in the children being alienated from one side or the other.
Finally, if no one from either side of the family steps up to the plate to care for your assets or children, the Probate Court has no choice but to appoint independent people, typically attorneys, to handle these obligations for you. Whoever is appointed will normally be paid fees and may be required to post a bond, all of which will be at the expense of your estate, perhaps taking necessary assets from your surviving children.
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