Probate Versus Non-Probate Assets
Assets of a decedent can be classified into two different categories: probate and non-probate. Probate assets are assets which are distributed, or “disposed of,” by an individual’s last will and testament. Non-probate assets are distributed in a variety of other methods. Probate assets, as the name suggests, are required to go through the probate process.
Because non-probate assets are not disposed of by a will, it is important to coordinate the disposition of non-probate assets so that a total “estate plan” can be implemented.
Types Of Non-Probate Assets
The following is a list of some non-probate assets:
- Individual retirement accounts and 401(k) plans: These assets are disposed of by beneficiary designations and therefore are not disposed of by the decedent’s will. Because retirement accounts are some of the largest assets for many individuals, having a properly designated beneficiary on such assets is just as important as having a will.
- Property owned jointly with rights of survivorship: Upon one owner’s death, these assets pass to the surviving owner or owners and are not disposed of by will. Often times this is beneficial because it allows a married couple’s house to pass to the surviving spouse outside of probate. It is not necessary that the assets be owned by a married couple in order to be owned jointly with rights of survivorship.
- Revocable trusts: Assets held in a revocable trust are distributed based on the terms of the revocable trust and not under the terms of the grantor’s will. A “pour-over” will is used to add any probate assets to the revocable trust. Those assets held in the probate estate which “pour over” into the revocable trust are probate assets, and are subject to the probate process and associated fees. This is why proper funding of a revocable trust is essential.
- Life insurance: Life insurance, like the retirement assets discussed above, will go to the designated beneficiary.
There are other types of non-probate assets, and it is best to contact a knowledgeable attorney to help you with these complex differences. At The Nelson Law Firm, we can help you with all of your estate planning matters.
Coordination Of Will And Non-Probate Assets
One of the most common problems with beneficiary designations is that they are not properly coordinated with an individual’s other estate planning documents.
For example, if an individual wishes to divide his assets equally among his three children and has drafted his will to do so, a joint account will frustrate his intent.
This means that if a person owns a joint account with one child (so that the child can assist in paying bills), the joint account will pass to that child with whom he owned the account and not to the other two children.
This lack of coordination could lead to tension down the road as the children realize that one of them received more than the others.
Another example is assets designated for younger beneficiaries. Individuals often wish to hold assets in trust for their children until the children reach a certain age, beyond age 18. An individual’s will can impose such trusts, but beneficiary designations must also note that the individual wishes the non-probate assets to similarly be held in trust.