Understanding Probate and Non-Probate Assets
Probate is the legal process of settling a deceased person’s estate, including identifying and distributing assets, paying debts, and taxes. However, not all assets are subject to probate. Some assets, known as non-probate assets, pass directly to beneficiaries outside of the probate process.
Non-Probate Assets: What You Need to Know
Non-probate assets are those that have a designated beneficiary or are held in a trust. These assets bypass the probate process and are distributed directly to the beneficiaries upon the owner’s death. This can save time, money, and stress for your loved ones.
Common Types of Non-Probate Assets
- Retirement accounts: IRAs, 401(k)s, and other retirement accounts typically allow you to name a beneficiary who will receive the funds upon your death.
- Life insurance policies: Life insurance proceeds are paid directly to the named beneficiary, bypassing probate.
- Payable-on-death accounts: Bank accounts and investment accounts can be set up with a payable-on-death (POD) designation, which allows the funds to pass directly to a named beneficiary.
- Transfer-on-death registration: In some states, you can register real estate with a transfer-on-death (TOD) designation, which allows the property to pass directly to a named beneficiary.
- Jointly owned property: Property owned jointly with rights of survivorship will automatically pass to the surviving joint owner upon the death of the other owner.
- Trusts: Assets held in a trust are not part of your probate estate and are distributed according to the terms of the trust.
Benefits of Non-Probate Assets
- Avoid probate: Non-probate assets avoid the time, expense, and publicity of probate.
- Faster distribution: Beneficiaries receive their inheritance more quickly without waiting for the probate process to be completed.
- Privacy: The distribution of non-probate assets is private and does not become part of the public record.
- Tax advantages: In some cases, non-probate assets may offer tax advantages.
Planning for Non-Probate Assets
To ensure your non-probate assets are distributed as you wish, it is important to:
- Review beneficiary designations: Regularly review the beneficiary designations on your retirement accounts, life insurance policies, and other non-probate assets to ensure they are up-to-date and reflect your current wishes.
- Create a trust: Consider creating a trust to hold assets that you do not want to be subject to probate.
- Consult with an estate planning attorney: An experienced estate planning attorney can help you create a comprehensive estate plan that includes both probate and non-probate assets.
Understanding non-probate assets is an important part of estate planning. By taking steps to designate beneficiaries and hold assets in trusts, you can ensure that your assets are distributed as you wish and avoid the probate process.
Frequently Asked Questions
What are the benefits of using non-probate assets?
Non-probate assets offer several benefits, including avoiding probate, faster distribution of assets, privacy, and potential tax advantages.
What types of assets can be non-probate assets?
Retirement accounts, life insurance policies, payable-on-death accounts, transfer-on-death registration, jointly owned property, and assets held in a trust can all be non-probate assets.
How can I make sure my non-probate assets are distributed as I wish?
Review your beneficiary designations regularly, consider creating a trust, and consult with an estate planning attorney.
What are some common mistakes people make with non-probate assets?
Forgetting to update beneficiary designations, failing to create a trust, and not properly funding a trust are some common mistakes people make with non-probate assets.
Should I use a lawyer to help me plan for non-probate assets?
An experienced estate planning attorney can help you create a comprehensive estate plan that includes both probate and non-probate assets.