What Are Non-Probate Assets?
When someone passes away without having a will, their possessions may face going through probate. Due to the nature of the system, probate can take a long time to sort through and determine who the assets should go to. However, a savvy estate owner can ensure that some items become non-probate assets.
What Are Non-Probate Assets?
Non-probate assets can be life insurance or retirement accounts with a beneficiary named.
What is Probate?
Basically, probate is the legal process where a court decides who receives your property after death. Some assets go through probate while others skip the process, going directly to beneficiaries.
Probate is known for being a drawn out, time-consuming, and expensive process. Therefore, many people opt for non-probate assets.
Assets that don’t go through probate are called non-probate assets. These assets avoid probate in a variety of ways. But generally, non-probate assets are determined before the death of the owner. Non-probate assets are usually jointly owned assets, beneficiary-designated items, and trusts.
Jointly Owned Assets
Assets that are owned by two people will go to the surviving owner when one dies. This means that the assets avoid probate, but that the remaining owner can do what they want with the assets. The surviving owner could decide to disinherit your children or go against your wishes for the items.
Tenants-in-common is another type of joint ownership. The assets will be distributed as you desire based on your will, no matter who dies first in the joint ownership. However, the assets will need to go through probate.
Naming a beneficiary to receive your assets can mean that your assets skip probate. Not everything can have a named beneficiary, but some, such as insurance policies, IRAs, some bank accounts, and retirement plans, allow you to select someone to receive them at the time of your death. When things work as desired, the assets will be paid directly to the beneficiary.
Things that Could Go Wrong
- Beneficiary dies first or at the same time – assets go through probate.
- Incapacitation of beneficiary – probate assigns a guardian to the assets.
- Listing your estate as the beneficiary – probate must determine who your estate is.
- Beneficiary minor – probate will create a guardianship
Some trusts protect assets from going through probate. For example, a revocable living trust usually avoids probate. When you have a testamentary trust set up in your will, your assets must go through probate before they can enter the trust. If you want a trust that will avoid probate, consult an estate planning lawyer to determine which trust is your best option.
Quick List: Non-Probate Assets
To help you get a quick glimpse of what doesn’t go through probate, here’s a list. Be sure to speak with a lawyer to ensure that your assets fit the standards for non-probate assets.
- Joint ownership
- Bank accounts that transfer on death to beneficiaries
- Property within trusts
- Life insurance with a beneficiary other than you
- Retirement accounts: IRAs or 401(k)
- Payable-on-death (POD) bank account
- Joint ownership U.S. savings bonds
- Pension plans
- Wages due
- Vehicles or household items transferring to family members
Non-probate assets mean that your assets go directly to who you want to receive them instead of dealing with the probate court process. Of course, sometimes things won’t go as planned. But, if you want to protect your assets from going through a court process and being at the mercy of the legal system, making plans for your estate can be a crucial step for your life.