After a person dies, his or her assets will be divided into two different legal categories; probate and non-probate. Understanding the difference between probate and non-probate property is extremely important. Whether or not an asset is a probate or non-probate property will determine how it will be distributed after death.
Even if you have a will, you will only control probate property. Non-probate assets will pass to your beneficiaries outside of the will, and outside of the probate process. Probate assets are usually assets that are owned solely in your name. Non-probate assets typically have a beneficiary designation or some type of other designation that indicates the property will transfer on the owner’s death.
For example, most retirement accounts require the owner to select a beneficiary. At the time of the account owner’s death, the remaining assets in the retirement account will transfer to the named beneficiary outside of the probate court process.
The Probate Process
The purpose of the probate process is to settle the estate of a person who is deceased. Probate involves taking care of any lingering debts and financial matters of the decedent. Estate administrators appointed by the decedent, or by the court, take an inventory and collect the property. After paying creditors and debtors, estate executors distribute the remaining property according to the terms of the will.
When the decedent did not have a will, a decedent’s estate will pass to heirs according to state laws of intestate succession. The probate process often takes up to a year, depending on the complexity of the estate. Should someone challenge the decedent’s will, or the intestate succession, and brings litigation, the probate process can become held up for a significant amount of time. Whether an asset is probate or non-probate asset is an important part of probate. Probate courts only have jurisdiction to distribute probate assets.
Probate Assets
Many people assume that their last will and testament will control all of the property they own at their death. Sometimes, surviving spouses are surprised to learn that they will not inherit all of their deceased spouse’s property, even when the will states that everything should go to the surviving spouse. Probate assets include any assets that the decedent owned exclusively before his or her death. Probate assets include all of the following:
- Real estate property owned solely in the decedent’s name or held as a tenant in common with another person
- Personal property, including furniture, jewelry, automobiles, and other household items
- Bank accounts owned solely in the decedent’s name
- An ownership or interest in a partnership, LLC, or corporation
- Brokerage accounts or life insurance policies that name the decedent or the decedent’s estate as the sole beneficiary
Non-Probate Assets
On the contrary, non-probate assets are those assets that are held jointly with another person. In other words, when the decedent was a joint owner with someone else, the asset is a non-probate estate. Most jointly owned assets are owned as “joint tenants with rights of survivorship.” When one of the owners dies, the other named co-owner receives the rights to the property or asset automatically.
In some cases, owners own a property as tenants in common. In this case, the decedent’s partial interest will become a probate asset. This designation is less popular now and was more popular in homes purchased before 1980. In any case, when the decedent owned a property interest as a tenant in common with someone else, the property is not considered a probate asset and cannot be distributed according to the decedent’s will.
Examples of Non-Probate Assets
Essentially, non-probate assets are a special category of property that does not become part of your probate estate at death. Assets that pass through the operation of law will become the property of the named beneficiary immediately upon your death. Your beneficiary will not need to go to the probate court and request ownership. Instead, he or she will automatically become the legal owner of the property.
Typically, their distribution is not controlled by your last will and testament, or by intestacy laws. Instead, non-probate assets are distributed by operation of a contract, or by operation of law. Ownership of the asset will transfer to the beneficiary outside of the will. Non-probate assets include the following:
- Property held with the decedent as tenants by the entirety or in a joint tenancy
- Brokerage accounts or bank accounts held in joint tenancy or with a payable on death (POD) or transfer on death (TOD) beneficiaries
- Property owned by a living trust
- Life insurance accounts or brokerage accounts that list someone other than the decedent as the beneficiary
- Retirement accounts, including 401(k)s, IRAs
- Certain investment accounts including annuities
Speaking to an Experienced Lawyer About Your Assets
When you are deciding whom you would like to inherit your assets, it is important to consider your probate and non-probate assets. Even if you have a trust-based estate plan, you may end up with probate assets you did not intend to be probate assets. If the trust is not funded properly, if the beneficiary designations have not been updated property, your trust may not be legally valid. It is always the best option to consult with an experienced estate planning lawyer who will help you ensure that all of your assets go to your intended beneficiaries.
If you want to ensure that your assets go to the people you intend them to go to, you need an experienced estate and trust lawyer to create a thorough estate plan. You do not want to wonder what will happen to your loved ones when you are gone.
Our experienced lawyers will listen to your estate planning goals. We can help you create a will-based or trust-based estate plan, or update your existing estate plan, making sure it is legally valid. Contact CommonWealth Elder Law today to schedule your initial consultation.