A recent probate scandal in Michigan has resulted in some families losing their homes and thousands of dollars, exposing even more reasons why you want to avoid this process whenever possible. Fortunately, there are steps you can take so your family does not have to go through probate.
In Michigan, Attorney General-appointed lawyers – called Public Administrators – teamed with a real estate broker to sell homes without the rightful owners’ consent. The Public Administrators would find houses owned by someone who died recently and, if no heirs quickly came forward to officially claim the property, a Public Administrator would open what’s known as a probate case on the home.
At this point, a real estate firm and a “probate asset recovery” company (both owned by the same person) would swoop in and sell the home, while billing the estate for thousands of dollars and getting a commission on the sale.
Ultimately, the rightful heirs lose the home and 25-33 percent of their inheritance.
“It is very disheartening that these people were using the system for their benefit and not for the benefit of families,” said Jessica Showers, attorney at Hammond Law Group, which practices only estate planning and elder law.
“Things are already hard enough when you lose a loved one. To have people who are supposed to be getting assets through the system instead short changing the families is very upsetting.”
So, could these families have avoided this mess? The answer is “yes.” To understand how, it is essential to understand the probate process.
Avoiding probate makes it easier for everyone in the family. Click here to learn how to save your family time, emotional energy, and money.
What is Probate?
Probate is the legal process of getting titles or assets out of the name of someone who passed away and into the name of their beneficiaries. In order to do that, an estate administrator has to be appointed by the court and given the authority to managing the estate until it is time to transfer it to new owners.
“That person is usually a family member,” said Showers. “However, if there are no family members or anybody else who is willing to take on the role of Personal Representative, the role could be filled by a third party, such as a creditor. After some time, creditors are able to take on the role in order to recoup what they are missing from the estate.
“Probate is necessary when a person owns a home that is titled only in their name or they have assets that are worth over $66,000 that don’t have a beneficiary designation. For couples, probate typically happens upon the death of the second spouse.
“That is known as death probate. There’s also living probate, which occurs when someone becomes medically incapacitated.”
What are the Potential Complications of Probate?
As evidenced by the Michigan example, probate can be an extremely complicated process.
“It’s definitely possible that estates can be taken advantage of, but the events in Michigan are the most extreme I’ve ever seen,” said Showers.
“Family infighting is the most common complication in probate cases, especially when it comes to personal property. I’ve had cases that have lasted years because of a fight over personal property and one child feeling that he or she didn’t get a fair share, or one child believing that he or she should be in control of the estate but the parent naming another child.
“This usually occurs because of a lack of openness of the deceased’s estate plan and not making sure that everybody in the family was aware of the plan.
“If you do find yourself in the situation of family infighting in probate, it may be time to find an estate-planning attorney who handles probate and see what options are open to you. It may involve mediation or having a conversation with a third party to try and find some common ground.”
And the people who benefit from probate? Typically the lawyers, as legal fees can be substantial.
Can Probate Be Avoided?
The good news is that there are steps that you can take today to avoid putting your family through the probate process.
“I can only speak for Colorado, but probate can be avoided in a number of fashions,” said Showers. “Generally, assets like life insurance or retirement accounts don’t go through probate because somebody has designated a beneficiary before they pass away.
“The best way to avoid probate is to create a revocable living trust. While the trust holds title to the property and assets, you remain completely in charge of the trust while you are alive. Then, when you pass away, the trust dictates who is going to administer it, who is going to be in charge, and how those assets are to be distributed to the people you want. You don’t have to go to court and wait for a judge to sign off on it because all of those directions are in the revocable living trust. A revocable living trust helps avoid both living and death probate.
“Creating a revocable living trust isn’t a complicated process. It does require a time investment, to make sure you get it correct. Also, it is important to work with a knowledgeable estate planning attorney who can walk you through potential nuances that you may not necessarily think of in your day-to-day life.”
People are often confused about probate because they believe it can be avoided by having a will. According to Showers, that is not true.
“Having a will basically guarantees probate, because with a will you don’t change title of your assets, everything is still in your name. The will is helpful because now your wishes are known, but it is still going to guarantee probate.
“A revocable living trust means that you can avoid probate and amend the trust while you are still living. That’s a big reason why we recommend those trusts, because people’s lives change and you want a plan to grow and evolve with you.”