Monday, February 5, 2018

Understanding Informal Probate

Our recent blogs have focused on the benefits of estate planning. As we have indicated in the past, even if an individual does not do any of their own planning, there is a default plan under Michigan law that addresses the distribution of assets in the absence of other instruction. While this is only one aspect of the Probate process, it is a good place to start a series of the examples focused how an estate plan, or lack of one, affects post-death administration. 

Alice was the wife of Bill, the mother of Carole and Don, and the grandmother of six loving grandchildren. She stayed active in her later years volunteering with a number of organizations and was well respected in the community. After her husband, Bill, passed away, she became the sole owner of all of their joint assets and never felt the need to do any additional estate planning to address the distribution of her home, bank accounts, and the IRA she rolled-over to her own IRA after Bill’s death. She never saw the need to worry about what would happen after she died. Despite Alice's lack of concern, her estate was valued at more than $500,000.00 and required a fair amount of work.
Since Alice owned all of her assets individually and did not have a Will, it was necessary to open a probate estate in order for Carole and Don to gain the authority to gain access to and manage Alice's assets. Michigan law allows for three forms of probate administration, the small estate affidavit (for states with a total value of under $20,000), the informal probate proceeding (a simplified form of probate requiring more limited involvement of the probate court), and the formal/supervised probate proceeding (used to handle any litigation involving an estate). To administer his mother’s estate, Don retained our firm to assist him with the informal probate process. 
When opening an informal probate proceeding without a Will it is necessary to provide the court with a variety of information, including the identity of all of the decedent’s heirs, the identity of the proposed Personal Representative (as well as any other individuals with equal priority to serve in that role under the law), and a statement that the person applying for the informal probate is unaware of the existence of any Will belonging to the decedent. Don’s application for informal probate requested that the court appoint him as the Personal Representative though he had equal priority under Michigan law with his sister Carole. Upon receiving the Probate Court's appointment and his Letters of Authority Don then had 28 days to inform Carole of his actions. It is at this point in the estate administration process that it is first possible for an “informal” probate to become a “formal” probate. Had Carole chosen to challenge Don's appointment as Personal Representative the Probate Court would hold a Hearing on the matter and the administrative process would, at least temporarily, transition to a formal probate.
Fortunately, Carole and Don have a strong relationship and Carole lived outside of the state, so it made sense to everyone for Don to serve as the Personal Representative negating the need for a more formal probate proceeding. As Personal Representative, Don was then obligated to fulfill certain duties, including informing any known creditors of Alice of her death, publishing a notice to unknown creditors, assembling an inventory of the estate assets and keeping the Court and Carole informed of the status of each of these actions. As he proceeded with his duties, Don also became responsible for paying Alice’s outstanding bills, closing her accounts, and eventually selling her home. After he completed these duties, Don divided the remaining assets equally between himself and Carole as required by the Michigan Intestacy Statutes. Because of the various notice requirements, the minimum time for completion is 6 months and maybe longer depending upon the types of assets in the estate
It is worth noting that not all of Alice’s assets passed through the Probate process. While inventorying Alice’s assets Don learned that Alice had designated beneficiaries of her IRA many years earlier, naming her grandchildren to receive equal shares of that account. This beneficiary designation superseded the intestacy statute because the IRA custodian was contractually obligated to pass the IRA to the grandchildren, and the court had no jurisdiction in that asset. Thankfully, all of Alice’s grandchildren were over the age of 18 so this distribution was able to happen without any additional complication. If any of the grandchildren have been under the age of 18, the Probate Court would have required that a guardianship and conservatorship proceedings be instituted to protect the interests of the minors. This proceeding would have continued until all of the grandchildren reach the age of 18, necessitating annual accountings and hearings with the Probate Court. Consider how the children would have felt if Alice had spent most of her other assets maintaining her lifestyle and the only significant asset was the IRA. Was it really Alice’s intent to essentially “disinherit” her children in favor of her grandchildren?
The probate of Alice’s estate was a relatively simple process without any conflict between heirs, without the discovery of unknown creditors, and without difficulty in distributing assets to heirs. Even with that simplicity it took nearly a year to complete the process. With a little bit of planning on Alice’s part much of the work done by Don could have been significantly simplified and it certainly would have decreased the cost in both attorney’s fees and Don’s time. We recommend that everyone put some form of planning in place, because the value of that planning is worth many times its cost. Keep in mind that estate planning is not a one size fits all process, you should take the time to work with an attorney who will assist you in preparing the plan that is appropriate for your circumstances.

Matt and Al

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