It is a common misconception that all assets of a deceased individual go through the probate process and are transferred to their heirs. However, there are certain assets that do not go through probate and are directly transferred to the heirs or beneficiaries. Typically, assets that are solely titled to the deceased are subject to probate and distributed according to the instructions in the deceased’s will, or by appointing a personal representative if there is no will.
Assets that do not go through probate, known as non-probate assets, offer a more streamlined transfer process for loved ones. Avoiding probate can save time and money, as the probate process can be lengthy and costly, causing stress for family members. Non-probate assets also do not incur taxes or fees, ensuring that the full value of the assets is passed on to beneficiaries.
1. Jointly Owned Assets
Jointly owned assets, such as those owned by spouses, bypass the probate process as they automatically transfer to the surviving owner upon the death of one owner. Even if the deceased specifies in their will that these assets should go to their heirs, the surviving owner retains ownership. However, in cases where both owners pass away simultaneously or the surviving owner fails to designate a new owner, the assets may enter probate. An exception to this rule is tenants-in-common ownership, where the deceased owner’s share can be distributed according to their will.
2. Beneficiary Designations
Assets with designated beneficiaries, such as bank accounts, IRAs, and insurance policies, also avoid probate and directly transfer to the named beneficiary. This swift transfer process ensures that beneficiaries receive the assets promptly. However, certain circumstances, such as the beneficiary predeceasing the owner or being incapacitated, may necessitate probate. To prevent this, owners should update beneficiary designations accordingly.
Assets designated to ‘my estate’ in beneficiary forms will also enter probate. It is essential to be aware of these scenarios to keep assets out of probate and uphold your intentions for asset distribution.
3. Trust Assets
Assets held in a trust are not subject to probate, offering a secure way to protect assets from the probate process. Trusts can alleviate the burden on family members by avoiding asset devaluation due to taxes and fees, as trusts are typically tax-exempt according to state laws. However, if a trust is established within a will (testamentary trust), it may still undergo probate.
Conclusion
To spare your family from the complexities of probate after your passing, consider owning non-probate assets. By understanding the various ways to avoid probate, you can ensure a smoother transfer of assets to your loved ones. Non-probate assets not only ease the burden on your family but also preserve the full value of the assets for their benefit.
