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Probate vs. Non-Probate Assets

A couple discussing the differences between probate vs. non-probate assets with a financial advisor.

Probate assets are those subject to court-supervised distribution upon the owner’s death. Nonprobate assets pass directly to designated beneficiaries outside of the probate process. Understanding the difference between both types of assets will help you plan your estate effectively. For help protecting your assets, consider working with a financial advisor.

What Are Probate Assets?

Probate assets are subject to the probate process upon an individual’s death. This legal process involves several key steps, such as validating the deceased’s will, appraising the estate’s value, settling outstanding debts and taxes and ultimately distributing the remaining assets to beneficiaries. The necessity for assets to undergo probate is anchored in the legal principle that ownership must be formally transferred through court supervision when not otherwise arranged. This is particularly relevant for assets that the deceased solely owned, or for those without a beneficiary designation or joint ownership mechanism in place.

The range of assets that can be considered probate assets is quite extensive. Real estate owned solely by the deceased or as tenants in common typically requires probate, as do personal possessions like vehicles, artwork and jewelry that were owned outright by the individual. Financial assets such as bank accounts and investment instruments, including stocks and bonds in the deceased’s name alone, without a payable-on-death designation, are also probate assets. Interests in business entities, such as partnerships or closely-held corporations lacking automatic transfer clauses, and life insurance policies or retirement accounts without named beneficiaries or naming the estate as the beneficiary, also fall into this category.

What Are Non-Probate Assets?

A financial advisor helping a couple prepare an estate plan for probate and non-probate assets.

Non-probate assets are those that transfer directly to a designated beneficiary, are jointly owned with the right of survivorship or are otherwise arranged to pass outside of the will. The significance of non-probate assets lies in their capacity to provide a seamless, expedient and private means of asset transfer, which can be a source of comfort and financial stability for beneficiaries.

To better understand the importance of non-probate assets, let’s delve into the various types that exist. These can be thought of as tools in your estate planning toolkit, each with specific characteristics and purposes:

  • Jointly owned property with rights of survivorship: The surviving owner automatically assumes full ownership upon the death of the other owner.
  • Retirement accounts: Beneficiaries receive the funds directly, bypassing probate.
  • Life insurance policies: Proceeds are paid immediately to the named beneficiaries, without forming part of the decedent’s estate.
  • Trusts (revocable and irrevocable): Assets are held for beneficiaries according to the terms of the trust agreement.
  • Payable-on-death accounts: Account holders can designate a beneficiary for bank accounts and CDs.
  • Transfer-on-death securities accounts: Allows for direct transfer of securities to a beneficiary.
  • Certain business interests: Ownership can transfer through mechanisms such as buy-sell agreements.

By choosing the appropriate non-probate assets, individuals can avoid the potential drawbacks of probate, such as delays and loss of privacy.

What Happens If You Include a Non-Probate Asset in Your Will?

If you include a non-probate asset in your will, it may not be distributed according to your will’s instructions and may cause confusion amongst your beneficiaries. Non-probate assets typically pass directly to the designated beneficiary outside of the probate process, adhering to the beneficiary designation that you previously set up.

Alternatively, to ensure that non-probate assets go to the intended beneficiary, it’s essential to regularly review and update beneficiary designations on accounts and policies.

You may, however, contest a beneficiary designation if you’re included in a will, and particularly if there are discrepancies or disputes regarding the validity of the designation, or if there’s evidence of coercion, fraud or incapacity involved in making the designation.

Bottom Line

A senior couple reviewing an estate plan with probate and nonprobate assets.

Knowing the differences between probate and nonprobate assets can help you plan your estate strategically. This can allow you to structure assets in ways that minimize probate costs and streamline the distribution process. Planning accordingly could also help reduce the burden on heirs as you facilitate a smoother transition of wealth.

Tips for Estate Planning

  • A financial advisor can help you put your estate plan in order so that you don’t have to worry about your assets or your beneficiaries. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you’re looking to plan out your own estate, you need to make sure you plan ahead, including being aware of the potential dangers of DIY estate planning.

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