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.
On the other hand, non-probate assets bypass the probate process entirely. These assets are transferred directly to the designated beneficiary or heir upon the owner’s death. Owning non-probate assets can save your loved ones from the often lengthy and expensive probate process, reducing their stress during an already difficult time.
Moreover, transferring non-probate assets typically 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 individuals, such as a married couple, are not subject to the probate process. When one owner dies, the asset automatically transfers to the surviving owner without the need for 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 passes away 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, such as bank accounts, IRAs, and insurance policies, allow you to name a beneficiary. These assets are not subject to probate and transfer directly to the beneficiary upon the owner’s death.
This transfer is immediate and straightforward, 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 may appoint a guardian to manage the assets, which can involve probate.
- If the owner designates “my estate” as the beneficiary, the assets will be subject to probate.
To avoid these complications, it’s essential to keep beneficiary designations up to date and consider potential scenarios.
3. Trust Assets
Assets held in a trust are not subject to probate. Establishing a trust is a highly effective way to protect your assets from probate, and many attorneys recommend this strategy to their clients.
However, if the trust is created through a will (known as a testamentary trust), it will still go through probate. Trusts can significantly ease the burden on your family by avoiding the reduction of asset value due to taxes and fees, as trusts are generally not subject to state taxes.
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 these options can help you ensure that your assets are transferred smoothly and without unnecessary costs. Non-probate assets can significantly ease the burden on your loved ones and preserve the value of your estate.
