It is a common belief that when someone passes away, their assets are transferred to their heirs through the probate process. However, not all assets go through probate. Typically, only assets that are solely titled to the deceased are subject to probate. These assets are then distributed among the heirs as per the instructions in the deceased’s will, or if there is no will, the court appoints a personal representative to distribute the assets.
Non-probate assets are those that bypass the probate process and are directly transferred to the heir or beneficiary upon the owner’s death. Owning non-probate assets can save your loved ones from the time-consuming and costly probate process, which can be stressful for families. The transfer of non-probate assets also does not incur any taxes or fees, ensuring that your family receives the full value of the assets you leave behind.
Assets that do not go through probate include:
1. Exclusion of Jointly Owned Assets from Probate
Jointly owned assets, typically owned by spouses, do not undergo the probate process. In the event of one owner’s death, the assets automatically transfer to the surviving owner without the need for probate. Even if the deceased specifies in their will that these assets should go to their heirs, the surviving owner retains ownership. However, if both owners pass away simultaneously or if the surviving owner fails to designate a new owner, the assets may then enter probate.
An exception to joint ownership is tenants-in-common, where the deceased owner’s share can be distributed according to their will, with the surviving owner receiving the share only if specified in the will.
2. Exemption of Beneficiary Designations from Probate
Assets with designated beneficiaries, such as certain bank accounts, IRAs, and insurance policies, do not go through probate. These assets are directly transferred to the beneficiary upon the owner’s death, ensuring a quick and seamless transfer. However, there are scenarios where assets with beneficiaries may still require probate, such as if the beneficiary predeceases the owner or if the owner designates “my estate” as the beneficiary.
It is important to be aware of these situations to prevent any complications that could lead to assets entering probate.
3. Trust Assets and Probate
Assets held in a trust are not subject to probate, making it a recommended method to protect assets from the probate process. Trusts can alleviate the burden on family members by avoiding the reduction of asset value due to taxes and fees. Additionally, trusts are not taxed according to state laws, further preserving the value of the assets.
Conclusion: Avoiding Probate with Non-Probate Assets
To spare your family from the stress of probate after your passing, consider owning non-probate assets. There are various strategies to avoid probate, and owning non-probate assets can ease the burden on your family and ensure they receive the full value of the assets you leave behind.
