CENTER FOR PROBATE & ESTATE ADMINISTRATION
What Assets Are Outside of Probate?
Whether an asset is subject to probate is dependent upon how the asset is titled. If the asset is held in the name of the decedent alone, it is normally governed by the probate rules. If the asset is held in one of the other ownership manners listed below, it is not subject to probate rules and may be distributed to the beneficiaries more quickly. Many people use one of the following ownership methods in order to avoid probate. However, not all of the manners listed below are created equally.
Assets – Non-Probate
Some assets are set up by contract with a beneficiary designation that is selected by the decedent prior to his or her death. These include:
- Life Insurance Policies: A life insurance policy is a contract with an insurance company whereby the insurance company promises to pay out an amount to a beneficiary that you name at the time you buy the policy. The proceeds pass to the beneficiary by contract and are not subject to probate.
- IRA’s, 401(k)’s and other retirement plan proceeds: IRA’s 401(k)’s, and other retirement plans pay the beneficiaries named by the decedent prior to the death of the decedent according to the terms of the retirement plan. Since the beneficiaries are named as part of the plan before the death of the decedent, the proceeds from these plans are paid to the beneficiaries outside of the probate process.
Other Ownership Methods That Avoid Probate
There are other ways to structure ownership that avoid the probate process:
- Joint tenancy with rights of survivorship: An account that is titled as joint tenancy with rights of survivorship means that two or more owners own the account together. When one of the owners dies, the decedent’s interest automatically passes to the remaining owner or owners. Many married couples hold their property this way, including real estate and bank accounts. In many states, a married couple can hold real property as tenants by the entirety, which is treated in the same manner as joint tenants with rights of survivorship.
- Payable on Death (POD) bank accounts: A payment on death bank account names a beneficiary that the account will be paid to upon the death of the owner. This designation is made when the account is opened with the financial institution. The beneficiary has no ownership interest in the account until the owner dies.
- Transfer on Death Securities: The transfer on death stocks, bonds and brokerage account are similar to the POD bank accounts. The beneficiary has no ownership interest in the account until the owner dies, at which time the beneficiary receives the proceeds from the account.
- Revocable Living Trust: A living trust is a revocable trust, which holds the legal title to property. During the lifetime of the grantor, the grantor of the trust has full ownership rights in the trust, just the same as the grantor would have owning the property outside of the trust. The trust document dictates how the trust property will be distributed at the death of the grantor.
Despite the fact that probate is avoided, holding assets jointly or with survivorship rights can cause problems. For instance, the joint owner on the account can have access to the accounts, so the owner does not have exclusive ownership of the accounts. Also, the owner of joint accounts might use one of the accounts for living expenses, effectively cutting out the beneficiary from receiving any benefits from the account. That beneficiary may receive nothing from the owner, even if the owner desired the beneficiary to receive some amount. Experienced legal advice can help you to determine the best way to hold your assets.
Conclusion
Even though assets may be held in a way that is not subject to probate, there are still issues that may need to be addressed. Contact an attorney who understands probate and estate administration issues to discuss this matter further.
