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When creating your estate plan, it is important to understand the plan's different components; specifically, the difference between probate and non-probate property. This is because a certain type of property -- non-probate property -- is not governed by your will at all and doesn't have to go through the probate process.
What is probate?
Probate is the court process through which the validity of a will is established. The court must determine that the will is valid before any inheritance can be distributed. Every state has its own probate process and the time and expense of the process varies depending on the will. People often try to avoid probate to save time and money, but also to maintain privacy. Probate creates a public record and everything that is owned and the terms of the will become part of that public record.
What is non-probate property?
Generally, non-probate property has its own beneficiaries (or payable-on-death designations) and does not pass to anyone except the beneficiaries named. This is true even if a will provides that certain non-probate property should be given to someone other than the beneficiary. The beneficiary designation trumps the will. Non-probate property is also any property that is held by joint tenants. When people own something as joint tenants there is a right of survivorship. This means when one tenant dies, his or her ownership rights terminate and the other tenant becomes the outright owner.
Common examples of non-probate property, include:
-Real estate held as joint tenants
-Bank accounts held as joint tenants
-Life insurance
-Qualified retirement accounts, including IRA's, pension plans, Keogh Plans, profit sharing plans, SEP's, and 401(k)'s.
-Payable on death accounts (POD) such as brokerage accounts, securities and mutual funds.
Not understanding who is entitled to the non-probate assets can cause problems later on. For example consider this hypothetical situation: A father wants to provide equally for his three children upon his death. Prior to his death, the father opened a bank account with one of his children as a co-owner. Upon father's death, the bank account would be given to the child who is a co-owner and that child has no obligation to share the money with his siblings. And if the child does share the money in the account, he or she is still entitled to receive an equal share of the other probate assets to be distributed by the father's estate.
An experienced estate planning attorney is able to help people find solutions to these issues. Set up an appointment today with a lawyer in your area to determine what type of assets are in your estate and how to protect your family upon your death.
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Source:
The difference between probate and non-probate assets
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