Probate and non-probate assets

Probate assets are those belonging to only one individual at the time of their passing. They can include personal items, real estate, vehicles, and bank accounts. Since these assets are the property of the decedent alone, they must pass through probate.

Typically, an estate is guided by a will or an estate plan. So, if there’s no joint ownership, beneficiary designations, or another clause for distributing the assets, the property is required to go through probate. The probate process involves steps such as validating the deceased’s will, estimating the estate’s value, clearance of debts and taxes, and distributing the remaining assets to beneficiaries.

Non-probate assets avoid the probate process due to legal mechanisms. These include assets that are held in a trust, owned jointly, or with a beneficiary designation outside of the decedent’s estate. This means that non-probate assets don’t undergo probate court but provide a seamless and private asset transfer to beneficiaries.

Assets can avoid probate through joint ownership with survivorship rights or with a transfer-on-death (TOD) or payable-on-death (POD) clause. Assets placed in a trust with a named beneficiary other than the decedent can also avoid probate.

As you now know, the difference between probate and non-probate assets lies in the legal classification of their ownership during a decedent’s lifetime. Knowing that is important, because you can then ensure your assets are distributed according to your wishes and your beneficiaries don’t need to undergo unnecessary legal hurdles and the probate process. That being said, you need to have the correct documents in place and be aware of the exact difference between probate and non-probate assets.

Here are some generalized examples of probate assets vs. non-probate assets:

Including non-probate assets in your will may cause confusion amongst your beneficiaries if the beneficiary designation, the TOD clause, or joint ownership of your non-probate asset doesn’t name the same beneficiary as you list in your will. Generally, these mechanisms override what is written in the will.

You can ensure your non-probate assets go to the intended beneficiary by regularly reviewing and updating beneficiary designations of your accounts and policies.

Knowing what counts as probate assets vs. non-probate assets can help you with estate planning. With a strategic estate plan, you might be able to minimize probate costs, optimize the distribution process, and enable a smoother transfer of wealth to your heirs.

Generally speaking, non-probate assets don’t need to be included in your will, as they are designed to be distributed to a beneficiary without probate court. Probate assets, on the other hand, will be distributed to a beneficiary named in the will. If there’s no named beneficiary, the probate assets will be distributed according to state law.

A retirement financial advisor can help you with putting your estate plan in order by reviewing each of your assets. With that guidance and your understanding of probate versus non-probate assets, you can ensure that all of your assets are accounted for and that your wishes are followed.

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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.