Many Michigan residents, with good reason, seek to avoid the probate of their assets in the event of their death. Individuals with clear estate planning documents and trustworthy successors do not need the time, expense and delay involved in probate proceedings to distribute their wealth.
Probate avoidance frequently includes placing business interests into revocable living trusts. These are often joint trusts between both the business owner and the owner’s spouse. This practice is excellent for avoiding probate but may cause complications for the owners of Michigan businesses during their lifetimes. When a business interest is transferred to a trust, the trust becomes the shareholder of the corporation or member of the limited liability company. Under Michigan law the owners of companies can and sometimes must approve of company action by written consent. When trusts are the owners of the business interests the trustees of the trusts, must give written approval of company actions; a technicality that is often forgotten. As a result, both spouses are likely to be required to sign documents on behalf of the company where previously only the business owning spouse was required to do so.
Third parties such as lenders or insurance companies are also likely to require signatures and they may also require copies of the trust or trust certificates to establish the identity and authority of the individuals signing the company documents as trustees. This can be an unnecessary burden on any business transaction.
Trust ownership of business interests can also create problems in the interpretation company documents which provide for certain options and rights to occur upon the death or disability of a shareholder or member. These complications can be avoided and the documentation of business actions simplified through the use of Michigan’s transfer on death beneficiary registration law.
Michigan law permits the owner of a business interest to register that interest in beneficiary form and name a transfer on death beneficiary. Naming a transfer on death beneficiary does not affect the ownership of the business interest until the owner’s death. Upon the owner’s death, however, the business interest passes automatically to the designated beneficiary. By naming the owner’s revocable trust as a transfer on death beneficiary in lieu of transferring ownership of the business interest to the trust during the owners lifetime, the owner can have the best of both worlds; avoidance of probate and simplified ownership during life.