When a person passes away, their assets will be separated into two legal categories: those needing probate and those not. It is of the utmost importance to understand the distinctions between property that requires probate and property that does not. After death, the disposition of an asset will be decided according to whether or not it is considered a probate or a non-probate property.
Even if you have a will, you will only have power over the property subject to the probate process. Your beneficiaries will get the assets that do not need probate even if you do not include them in your will and if you do not go through the probate procedure. In most assets, the assets that are subject to probate are those that are owned entirely in your name. The transfer of ownership of non-probate assets is often indicated by a beneficiary designation or another designation that specifies how the property will be transferred once the owner passes away.
Probate Process
The estate of a person who has passed away must be settled via probate before it can be closed. During the probate process, all the deceased person's outstanding obligations and financial concerns are taken care of. Administrators of the estate, whether selected by the deceased person themselves or by the court, are responsible for compiling an inventory and gathering the deceased person's belongings. Executors of an estate are responsible for ensuring that any leftover assets are dispersed by the wishes expressed in the decedent's last will and testament.
If the deceased person does not leave a will, the estate will be distributed to the decedent's heirs by the intestate succession rules of the state. The duration of the probate procedure often ranges from several months to a whole year, depending on how complicated the estate is. If someone contests the will of the deceased person or the intestate succession and pursues litigation, the probate process might be held up for a long time. An essential aspect of the probate process is determining whether or not an asset must go through the probate process. Only the distribution of probate assets is within the competence of probate courts.
Probate Assets
Many individuals are under the impression that their final will determines what happens to their possessions once they pass away. Surviving spouses are sometimes taken aback when they learn that they will not inherit all their spouse's property, even when the will specifies that all should go to surviving spouse. All of the following types of property are considered probate assets:
- Real estate that was held either in the deceased's name alone or the names of the decedent and another person as tenants in common
- Personal property, such as clothing, jewelry, and vehicles, along with other pieces of home goods and furnishings
- bank accounts that were held wholly and exclusively in the name of the deceased
- A share of ownership or an interest in a corporation, partnership, or limited liability company
- accounts at brokerage firms or policies of life insurance in which the deceased person or the deceased person's estate is named as the only beneficiary
Non-Probate Assets
On the other hand, probate is not required for assets owned jointly with another person. These are known as "non-probate assets." A non-probate estate does not go through the probate process since the deceased owned the asset jointly with another person. Most assets owned jointly are held in what is known as "joint tenants with rights of survivorship." If one of the owners passes away, the rights to the property or asset are immediately transferred to the other identified co-owner.
Tenants in common is a kind of property ownership that exists in specific situations. In this scenario, the deceased person's half stake will be included as an asset in the probate process. This classification is becoming less common these days, although it was more common in residences bought before 1980. In any event, if the deceased person possessed a property interest as a tenant in common with another person, then the property is not regarded as an asset for probate, and it cannot be divided by the terms of the deceased person's will.
Examples of Non-Probate Assets
- Holdings in real estate that were shared with the deceased owner either as tenants by the whole or in joint tenancy
- shared brokerage or bank accounts, as well as accounts with payable on death (POD) or transfer on death (TOD) beneficiaries, are considered joint tenancy accounts.
- Real estate that is held by a trust that is still active.
- Life insurance policies or brokerage accounts that name a beneficiary who is not the deceased person's estate is considered intestate.
- Various types of retirement funds, such as 401(k)s and IRAs
- Accounts for certain types of investments, such as annuities
