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 owned by the deceased are subject to probate. These assets are distributed among the heirs according to the instructions in the deceased’s will, or if there is no will, the court appoints a personal representative to distribute the assets.
Assets that do not go through the probate process are known as non-probate assets. These assets are directly transferred to the heir or beneficiary after the owner’s death, bypassing the probate process. This can save time and money for the family, as probate can be a lengthy and costly process that can cause stress for loved ones.
Transferring non-probate assets also avoids taxes and fees, preserving the full value of the assets for the beneficiaries. This ensures that your family receives the exact amount you intended for them after your passing.
1. Exclusion of Jointly Owned Assets from Probate
Jointly owned assets, such as those owned by spouses, do not go through the probate process. When one owner passes away, the assets automatically transfer to the surviving owner without the need for probate. Even if the deceased specifies in their will that the assets should go to their heirs, the surviving owner retains ownership.
In cases where both owners die simultaneously or the surviving owner fails to designate a new owner, the assets may enter probate. However, there is an exception for tenants-in-common, where the deceased owner’s share can be distributed according to their will.
2. Beneficiary Designations and Probate Exemption
Assets with designated beneficiaries, such as bank accounts, IRAs, and insurance policies, bypass probate and are directly transferred to the beneficiary upon the owner’s death. This quick and straightforward transfer ensures that the beneficiary receives the assets promptly.
However, there are scenarios where assets with beneficiaries may still enter probate, such as if the beneficiary predeceases the owner or is incapacitated. To avoid this, owners should update their beneficiary designations accordingly.
3. Trusts as Probate Avoidance
Assets held in a trust are not subject to probate, making trusts a popular choice for asset protection. Trusts can help alleviate the burden on family members by avoiding the reduction of asset value due to taxes and fees associated with probate.
While assets in a testamentary trust created in a will may still go through probate, living trusts can effectively keep assets out of probate and provide peace of mind for the family. Trusts are also tax-efficient, as they are not typically subject to state taxes.
In Summary
To spare your family from the complexities of probate after your passing, consider owning non-probate assets. There are various strategies to avoid probate, and understanding them can ease the burden on your loved ones and preserve the full value of your assets for them.
