When multiple people own property together in Michigan, the type of ownership structure they choose can dramatically affect what happens after one owner dies. Joint ownership with rights of survivorship is one of the most common ways people attempt to keep assets out of probate court.
What Is Joint Ownership With Rights of Survivorship
This form of ownership means that when one owner dies, their share automatically transfers to the surviving owner or owners. The property doesn’t go through probate because it never becomes part of the deceased person’s estate. Instead, ownership passes by operation of law. Michigan recognizes several types of joint ownership. Joint tenancy with rights of survivorship is the most straightforward version. Tenancy by the entirety is a similar form available only to married couples. Both structures allow property to bypass probate entirely. The key difference between these arrangements and tenancy in common is what happens at death. With tenancy in common, a deceased owner’s share becomes part of their estate and must go through probate. With rights of survivorship, that share vanishes, and the surviving owners automatically own the whole property.
How This Affects the Probate Process
Property held with rights of survivorship doesn’t get distributed through a will or estate administration. A Fenton probate lawyer can explain that these assets are considered non-probate transfers under Michigan law. This creates several practical benefits:
- The property transfers immediately upon death without court involvement
- Surviving owners maintain uninterrupted access and control
- There are no probate fees or court costs for these specific assets
- The transfer happens privately without public court records
However, this only works if there’s at least one surviving owner. When the last owner dies, the property must go through probate unless other arrangements have been made.
Common Applications and Potential Problems
Many married couples hold their home as tenants by the entirety. This provides probate avoidance and offers some creditor protection under Michigan law. Bank accounts are often held as joint tenants with rights of survivorship for similar reasons. Parents sometimes add adult children as joint owners on bank accounts or real estate to avoid probate. While this strategy works from a technical standpoint, it creates risks that people don’t always anticipate. Adding a child as a joint owner means that the child legally owns the property right now, not just after the parent dies. This exposes the property to the child’s creditors, divorce proceedings, and poor financial decisions. The parent can’t sell or refinance without the child’s consent. Joint ownership also overrides instructions in a will. If a parent’s will says to divide assets equally among three children, but one child is the joint owner of the house, that child gets the house regardless of what the will says. This sometimes creates family disputes that Gudeman & Associates, P.C. helps resolve.
Tax and Medicaid Considerations
The IRS treats the creation of joint ownership as a potential gift for federal tax purposes. While most people won’t hit gift tax thresholds, it’s something to consider when adding someone as a joint owner on valuable property. For Medicaid planning, creating joint ownership can trigger a penalty period if done within five years of applying for benefits. Michigan’s Medicaid program treats this as a transfer of assets, which can delay eligibility for nursing home coverage. The step-up in basis rules at death also work differently with joint ownership. Surviving owners only get a step-up on the deceased owner’s share, which can create capital gains tax issues down the road if they sell the property.
Working With Legal Guidance
Estate planning involves more than just avoiding probate. A Fenton probate lawyer can evaluate whether joint ownership fits your overall goals or if other tools like transfer-on-death deeds or trusts make more sense for your situation. The right approach depends on your family dynamics, the types of assets you own, and your long-term objectives. What works well for one family might create serious problems for another. Getting professional guidance helps you understand the tradeoffs before making ownership changes that can be difficult to undo.
