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Coordination is Key: Probate v. Non-Probate Assets

| Mar 11, 2014 | Estate Planning

Proper estate planning requires coordination of your whole estate. Without a clear understanding of probate and non-probate assets and the proper coordination of the two, your assets will not likely be distributed according to your intent and last wishes.

What are probate assets?

Probate assets are those assets belonging to a decedent which pass to the beneficiaries named in his or her Will, or, if there is no Will, to the decedent’s heirs as determined by law. Probate assets, include but are not limited, to the following:

  1. Real property (not held in trust or passing pursuant to the expiration of a life estate or other form of concurrent ownership);
  2. Personal property;
  3. Bank or brokerage accounts that have no beneficiary designation or that name the decedent’s estate as the beneficiary; and
  4. Proceeds from a life insurance policy owned by the decedent on his or her life without an effective beneficiary designation or that are payable to the decedent’s estate.

What are non-probate assets?

Non-probate assets are those assets that pass pursuant to a right of survivorship, pay-on-death or beneficiary designation. Upon a decedent’s death, his or her non-probate assets pass directly to the joint owner with rights of survivorship or the designated beneficiaries and are not subject to the probate process. This often comes as a surprise to many and may create an unintended result.

For example, if one child of the decedent assisted with caregiving and was placed on the decedent’s checking and savings accounts as a “convenience” during his or her life, but the account had a right of survivorship feature, then the child would own the accounts in their entirety following the death of the decedent by virtue of the child’s addition to the account.

Nonetheless, non-probate assets can become probate assets if there is no named beneficiary or the beneficiary is the decedent’s estate. Non-probate assets, include but are not limited to, the following:

  1. IRAs, 401(k)s and other retirement benefits with effective beneficiary designations;
  2. Property owned by the decedent’s revocable living trust;
  3. Property owned by the decedent in joint tenancy with a right of survivorship (i.e. checking and savings accounts designated JTWROS or ROS);
  4. Bank or brokerage accounts with pay-on-death or transfer-on-death beneficiaries; and
  5. Proceeds from a life insurance policy on the decedent’s life with beneficiary designations.

Conclusion

In conclusion, because your Will does not control the distribution of non-probate assets, it is critical to identify which of your assets are non-probate so you can coordinate the distribution of these assets with the provisions of your Will or Trust and ensure your assets are distributed according to your wishes and not by virtue of any unintended designation or operation of law.