In today's blog we present some of the most common problems that arise when a person passes away without an estate plan.
“What’s the worst that can happen if I don’t do any estate planning?”
Many people ask us that question, thinking there is little harm if the unexpected happens and they have no plan in place. The fact of the matter is even if the worst things do not happen very few things that happen when a person fails to plan are beneficial.
When you pass away, any assets in your own name alone are required to go through probate under Michigan law. The probate process requires opening up of a file with the Probate Court in the county in which you had resided. The court requires significant amount of information, including a list of assets, beneficiaries, and actual and potential creditors before even beginning the probate process. Once the process begins, if you do not have a Will, the court decides who will be responsible for administering your estate and eventually distributes your assets according to the rules put in place by the legislature. The benefit of probate is that there is a legal process specifying the distribution of your assets. The downside of probate is that:
- The costs of probate may reduce your estate by 3% to 5%, taking money away from family members
- Probate takes a minimum of six months, and may take much longer depending upon the types of assets in the estate and if there are any disputes among beneficiaries
- The probate process is totally public. Anyone can review your probate file and see your assets and the distributions going to the beneficiaries
Through planning, it is possible to avoid all of these problems. If you have a Living Trust, you decide who is responsible for administering your estate, who receives your assets, and you decide how those assets are distributed. If that is not sufficient reason to plan, in addition to the negatives stated above, a host of other common problems exist, which may be alleviated during the estate planning process.
Without clear direction, family members may have significant disagreements regarding major assets. How is a jointly owned vacation home handled, when one family member may want cash and the remaining family members want to keep the home for future use? Who controls the operation of a family business, especially when only some of the family members are active in the business and others are just looking for additional income?
How is personal property, whether of significant value or merely sentimental value, divided between children? What if one family member claims the "family grandfather clock" was promise to her by mom and dad, yet there is nothing in writing?
What if the parents place bank and investment accounts in the joint name of one of their children for convenience purposes? While parents may intend to divide everything equally between their children, under Michigan law those jointly held assets become the property the joint owner at the death of the parent.
Even if none of these events happen, without an estate plan you cannot prevent beneficiaries from rapidly dissipating assets due to poor decision-making. Nor can you prevent family members with whom you had a falling from receiving a portion of your estate after your death. Additionally, if there are minor beneficiaries, the probate must remain open and the count requires continued administration until all of the minors have reached the age of 18.
While it is true that you will not have to worry about all of these problems because you will be gone, they are likely to impact your loved ones. By taking the time to establish an estate plan, including properly drafted Will and a Revocable Living Trust, you can alleviate many of these problems.