When doing estate planning, one is likely to think about probate. You must have heard or read that when you pass away, your estate would have to pass through probate before being disbursed to your inheritors. But then the big question is, does probate include all of your assets?
The answer depends on the kind of assets you own. Typically, not all assets are included in probate. There are assets that must pass outside probate, regardless of whether a will is available or not. These assets are known as non-probate assets. On the other hand, there are assets that must be subject to probate.
So to answer the question, we have to first answer another question, “are all your assets probate assets?” If yes, then surely all your assets will go through probate.
But if you have assets that are not subject to probate, then these ones will pass outside while the other probate assets go through the court.
Let us now take a closer look into probate and non-probate assets.
Probate assets
A probate asset is any property you own in your name alone, having no beneficiary designation in the document of ownership.
If your car, art work, or company bears only your name, then you have to write down in your will who these assets will go to. And the will must be taken to court for probate.
In the absence of a will, your wishes are not known and there is room for your family to squabble over your property. To avoid this, the court has to conduct probate all the same, invoking your State’s law of intestacy to determine who legally has a right to those assets.
Your share in a property is also liable to be listed under probate so long this share can be removed from the whole without ruining it. A good example is your interest from an investment owned between you and others. Such ownership is termed “tenants in common”.
Typically, only probate assets can go into your will. And most states have a threshold for probate. If your estate (the total value of your probate assets) does not surpass that threshold, then probate will not be conducted. The threshold is $30,000 in New York and $75,000 in Florida.
Assets which are not included in probate
Assets that do not fall under probate are referred to as non-probate assets. These include:
- Assets held by joint tenancy with rights of survivorship
- Retirement accounts and life insurance
- Accounts with payable-on-death bank account, and any other asset with beneficiary designation.
- Assets held in trust
- Household goods.
These assets are not liable to be listed under probate because they either bear the name of a trust (rather than your name) or have beneficiary designation, or held jointly with some other person who has full claim to the property when you pass away.
How do these assets pass outside of probate?
- Trusts avoid probate by the fact that any asset funded into the trust takes up the name of the trust rather than that of the individual. Hence, such an asset will pass directly to the beneficiary named in the trust.
- Your real property is another valuable property that typically goes through probate. Funding real estate into a trust is complex (but possible), hence, you should consider holding it with your spouse with rights of survivorship. Obviously, your spouse will inherit it directly without need for probate since they already hold a claim in the deed of the house.
- In your life insurance, retirement accounts, and TOD bank accounts, you already designated a beneficiary when creating them. So these assets will pass down to the designated beneficiary immediately you pass away, whether you write a will or not.
How to minimize probate
Probate is costly and time-consuming. It is not something to put your surviving loved ones through if you can avoid it. And you can.
The cost and time of probate varies with the value of the estate going through probate. So by funding your valuable assets into a revocable living trust, the value of assets included in probate will be minimized, thereby consequently minimizing probate.
Get help from an estate planning attorney near you
To ensure things are easy for your loved ones when you’re gone, get help from an estate planning attorney near you.
