Many people assume that when someone passes away, their assets automatically go through the probate process to be distributed to their heirs. However, this is not always the case. Only assets solely owned by the deceased are subject to probate. These assets are allocated according to the deceased’s will, or if there is no will, the court appoints a personal representative to distribute them.
Non-probate assets bypass the probate process entirely. These assets are transferred directly to the designated heir or beneficiary upon the owner’s death. Owning non-probate assets can save your loved ones from the lengthy and often expensive probate process, reducing their stress during an already difficult time.
Transferring non-probate assets also avoids taxes and fees, preserving the full value of the assets for your beneficiaries. This ensures that your family receives the exact amount you intended to leave them.
Here are some examples of assets that do not go through probate:
1. Jointly Owned Assets
Assets owned jointly by two people, often spouses, are not subject to the probate process. When one owner dies, the asset automatically transfers to the surviving owner. This transfer is straightforward and does not require probate.
Even if the deceased’s will specifies that these assets should go to other heirs, the surviving joint owner retains ownership. However, if both owners die simultaneously or the surviving owner dies without adding another owner, the assets may then enter probate.
An exception to this rule is tenants-in-common ownership. In this case, the deceased’s share can be distributed according to their will, and the surviving owner only receives the deceased’s share if specified in the will.
2. Assets with Beneficiary Designations
Certain assets allow you to name a beneficiary, such as bank accounts, IRAs, and insurance policies. These assets are not subject to probate and transfer directly to the beneficiary upon the owner’s death.
This transfer is immediate and efficient, ensuring that the beneficiary receives the assets without delay. However, there are situations where these assets might still go through probate:
- If the beneficiary predeceases the asset owner, the assets will go through probate unless a new beneficiary is named.
- If the beneficiary is incapacitated or a minor, the court will appoint a guardian to manage the assets, which may involve probate.
- If the owner designates “my estate” as the beneficiary, the assets will be subject to probate.
To ensure your assets remain outside of probate, consider these scenarios and update your beneficiary designations as needed.
3. Trust Assets
Assets placed in a trust are not subject to probate. This is a highly recommended strategy for protecting your assets from probate. Attorneys often advise clients to place their assets in a trust for this reason.
However, if the trust is created through a will (known as a testamentary trust), it will be subject to probate. Trusts can significantly ease the burden on your family by avoiding taxes and fees that reduce the value of the assets. According to state laws, trusts are typically not taxed.
Conclusion
To spare your family the stress and expense of probate, consider owning non-probate assets. There are various methods to avoid probate, and understanding them can help you protect your family’s inheritance. Non-probate assets ensure that your loved ones receive the full value of what you leave behind, without the complications of the probate process.
