It is important to acknowledge that a probate court serves an important role during life and after death. During life, a probate court (i) protects the financial assets of an individual needing protection (through a conservator) and (ii) oversees the medical and personal care needs of an incapacitated individual (through a guardian). After death, the probate court supervises the collection and application of assets that were titled in the deceased individual’s name alone (meaning assets with no surviving joint owner or no surviving beneficiary). In both situations, the probate court may provide valuable oversight and accountability. Sometimes the court is needed to resolve disagreements over wills, trusts and powers of attorney, as well as to decide family inheritance feuds.
Regardless of the important role and value of probate court, some individuals prefer to stay away from the probate process if at all possible. There are several legal tools that may be used to side-step probate court:
Powers of attorney – Powers of attorney, both medical and financial, are the two most important documents required in order to stay out of probate court during life. A general, durable power of attorney for finances (GDPOA) nominates a trusted individual (known as the “agent” or “attorney-in-fact”) to manage legal and financial affairs for the person signing the document (the “principal”). Medical decisions can be delegated to a patient advocate. This is done with a durable power of attorney for health care, known in Michigan as a patient advocate designation (PAD). It is important to note that the principal does not give up any rights or freedom by signing a power of attorney document. The agent and patient advocate are fiduciaries who must act in the principal’s best interest and at the principal’s direction.
With a GDPOA that includes the proper language, the agent will have authority to handle real estate, financial accounts, retirement accounts, business interests, mail, motor vehicles, debts and other legal matters. If a GDPOA is in place and provides the authority needed, it will not be necessary to ask the probate court to appoint a conservator to manage financial and legal affairs in the event of the principal’s physical or mental incapacity.
With a PAD, the named patient advocate may be authorized to make medical decisions on behalf of an individual who cannot make those decisions himself or herself. This document also serves as a durable power of attorney for health care and for care, custody and medical treatment decisions. This document and the powers in it are sometimes called a “living will” or an “advance directive for health care.” The patient advocate has the authority to make a broad range of medical decisions, including decisions regarding life support, as provided in this document and in accordance with the individual’s wishes.
Trusts – Trusts are usually thought of as a type of will. Unlike a will, however, a revocable trust operates both during life and after death. Also unlike a will, a trust does not require probate. The trust maker (“settlor”) sets up a document that designates an individual (“trustee”) to manage assets titled in the trust for the settlor during the settlor’s lifetime (if incapacitated). Upon the settlor’s death, the trustee follows the trust’s instructions on distributing the trust’s assets to named beneficiaries. As the trustee has legal authority over trust assets, the probate court is not needed to manage and distribute the assets of the trust. This makes a trust a key tool to avoid probate during life and after death.
Beneficiary designations – Beneficiary designations may be used to transfer bank, investment and retirement accounts to specific individuals and charities upon death. In some instances, a special kind of deed may work to transfer real estate on death. The benefit of beneficiary forms is avoidance of probate upon the death of the account holder or real estate owner. On the other hand, there are several disadvantages with these forms as they frequently (i) are not updated after divorces or deaths of family members, (ii) are not reviewed regularly, (iii) are filled out incorrectly, and (iv) do not coordinate with other estate plan documents.
Joint ownership – Accounts and real estate with multiple joint owners will transfer probate-free to the surviving joint owners. Joint ownership is usually appropriate for married couples, unless it is a second, or more, marriage. Joint ownership is not usually advisable between parents and children or other persons as this may cause tax, legal and inheritance problems.
Some things to remember:
- Powers of attorney (medical and financial), trusts, wills and beneficiary documents should be reviewed frequently and updated as needed;
- Each tool described above has a limited purpose and should be coordinated with other tools; and
- It is risky to utilize these tools without consulting an attorney, CPA or financial advisor.
Norman E. Richards (Gene) is an attorney at the law firm of Cummings, McClorey, Davis & Acho, P.L.C. where he focuses his practice on estate planning and elder law. He assists clients with the development of customized estate plans to address their specific needs, including family owned businesses, senior adults concerned about long term care needs, and special needs trusts for children with special needs. He may be reached at (734) 261-2400 or firstname.lastname@example.org.