Estate planning can be complex. And when it comes to probate and non-probate assets, the complexities can be baffling. Know the distinctions. Understand how these two asset classes are set up in your estate.
Doing so could help reduce misunderstandings among your beneficiaries and ensure harmony in your family after you pass away. Failing to do so could make your will and estate plan meaningless, or subject to protracted legal disputes.
Probate assets are owned by the deceased and are often set forth in a last will and testament. Assets without a will are subject to a process known as intestate succession. All 50 states have statutes of this kind and distribute assets according to the law.
These can include:
• Bank accounts;
• Real estate;
• Personal property such as furniture, cars, and jewelry;
• Interests in companies, LLCs, or partnerships;
• Life insurance, 401(k)s, and brokerage accounts that list beneficiaries;
• Assets that the deceased owned as a joint tenant with right of survivorship
• Assets designated as payable to the estate only;
• Anything owed to the deceased.
Non-probate assets include any assets not included in a last will and testament, or assets governed by contractual provisions set forth by the deceased.
These can include:
• Payable on death (POD) and transfer on death (TOD) assets. These can include health savings accounts.
• Assets jointly owned by the deceased with a spouse or children– such as real estate, or others with right of survivorship (joint tenants with right of survivorship (JTWROS).
• A revocable living trust established by the deceased.
• Assets with contract rights that are payable to a beneficiary at death: annuities, life insurance, IRAs, and 401(k)s.
You'll note that some of these assets are common to both probate and non-probate categories. That's because it all depends on how the grantor has set up the assets and whether it's jointly owned. And, they can be applied to either category, depending on circumstances. This is why it's crucial to review what assets you have and how they are designated for your heirs.
Remember: non-probate property is beyond the control of your estate or your will. For example, an elderly mother who needs help managing her finances opens a joint bank account with a daughter. Even though her will stipulates that her children evenly share the bank account assets, upon her death, the bank account automatically goes to the daughter with whom she owns the joint bank account and not to the other siblings. Unless it's arranged otherwise, the joint owner will be the owner of a jointly held bank account upon the death of the first joint owner.
Jointly owned real estate is subject to the same laws. Unless it is set up differently, the property will go to the joint owner. In more complex situations, the creditors of an ex-wife of a grandson could attempt to seize assets held jointly in your bank account. IRAs and insurance policies are passed on to the named beneficiary on he contract and are outside the jurisdiction of the will and probate courts.
People marry. They get divorced. Others die. Children and grandchildren are born, while some die unexpectedly prior to the death of the grantor. Human lives are in constant flux. Life changes among family members can significantly change the character of your will and estate. Know what you own and make sure that it reflects your current wishes as you and your family goes through inevitable life changes.
Feel free to contact me about your estate planning. I look forward to helping you preserve your financial, intellectual, and spiritual wealth legacy.