The probate process begins after a person dies when a probate court must track, value, and distribute their assets and the contents of their estate. Meanwhile, probate courts also oversee the fulfillment of a decedent’s final obligations, such as their last tax return, the resolution of outstanding debts, and ancillary processes for out-of-state assets. However, the distribution of nonprobate assets is not within the jurisdiction of the probate process.
Probate law oversees the transition from ownership in death to new ownership in life – and regulates inheritance, bequeathment, and related estate planning matters. There are separate processes aside from probate that distributes belongings. There are probate and nonprobate assets – things that cannot pass through probate but are transferred to the living through other means. Both probate assets and nonprobate assets ultimately constitute the estate.
Understanding the difference can be crucial. Specific probate processes take longer the heftier and more complex a probatable estate is – converting as many assets as possible into nonprobate assets saves your family many probate-related headaches. Probate-related problems include extra fees, extended waiting periods, ancillary probate processes, and further legal paperwork.
Probate Vs. Nonprobate Assets
Probate assets include everything legitimately added to a will and any assets left behind when a person dies without a will (intestacy) that have not already been accounted for via a different beneficiary designation.
Assigning beneficiaries to an asset without resorting to a will is possible in many ways. For example, suppose you have an individual retirement account. Chances are that the account has the option to transfer its remainder (after you die) to the name of a chosen beneficiary, like a deed to a house.
The same can be said for select properties, and other assets in states with transfer-on-death laws and accounts marked payable-on-death. Some things, like life insurance payouts, are explicitly designed for a court to distribute assets among beneficiaries after the insured individual dies.
Anything that is effectively “already spoken for” outside of a will can skip probate.
The contents of a will do not skip probate because a probate court must formally recognize a will. In contrast, the probate court allows other relatives to challenge the will and present evidence to the contrary.
Probate is also an opportunity for creditors to lay a claim on a decedent’s estate and to settle final financial obligations – from utility bills to payroll and the last tax return.
The contents of a will – or any assets and belongings not otherwise accounted for and left in intestacy (without testament) – can be used to account for these final obligations, including the executor’s (the person in charge of the logistics of executing probate) compensation. Nonprobate assets are not the norm – a person must consciously elect to designate beneficiaries to their checking and savings accounts and select assets, should state law permit it.
Types of Nonprobate Assets
As we’ve mentioned briefly, assets in some shape or form “already accounted for” can skip probate. More concretely, this generally means:
- Anything owned jointly. This means anything co-owned or held in joint tenancy with a right of survivorship automatically transfers to the survivor’s account.
- Anything with a designated beneficiary. This ranges from individual retirement accounts to life insurance policies, personal bank accounts, and even select assets, such as vehicles or investment properties.
- Anything that is no longer part of the estate. This includes anything gifted before death and assets placed in irrevocable trusts for a beneficiary’s ownership.
- Anything managed through a trust and trustee. In addition to irrevocable trusts, the contents of a revocable trust skip probate, although you will still have to count said assets as part of the estate.
Nonprobate assets can significantly reduce the bloat of probate, simplify your probate process in death, and ensure that your estate is as “automated” as it can be – leaving behind minimal legal paperwork for your loved ones to worry about in your absence.
In the case of trusts, nonprobate assets also reveal one of the many uses of a potent estate planning tool. You can use trusts for a myriad of purposes outside of skipping probate, such as managing assets in perpetuity (as a family fortune), setting up a fund for the benefit of a minor beneficiary and paying out an allowance well into their early adulthood, leaving behind a portion of your wealth for charity, and much more.
Should You Worry About Probate?
Many estate planning services advertise the use of nonprobate assets and the ability to dodge probate as a significant selling point for more dedicated estate plans. But the truth is that most people will likely have no problem with a probate process.
In fact, some states offer an expedited probate process for smaller estates. In California, for example, an estate with a qualified total value of about $184,500 or less (in 2022) can prepare a small estate affidavit to skip through most of the waiting and enjoy a near-seamless transition for a property. This accounts for a significant number of estates.
There still needs to be an organized estate plan. Estate plans can minimize confusion in the advent of sudden death by ensuring that contingencies are in place for the management and distribution of assets.
Estate plans diffuse sibling rivalries and inheritance disputes. They can prepare a family for the next steps after their loved one’s death – and can even help prepare them for their incapacity through advance directives and powers of attorney.
And if your estate does not qualify for a small estate affidavit, you can utilize some of the methods listed above to make critical assets skip probate and bring that total value back down.
Do not take the ease with which an asset can become a nonprobate asset as a foregone conclusion – state law determines what can. It cannot pass through to another individual without probate and the circumstances under which this is possible.
Attorneys focusing on family law, estate planning, and avoiding probate are your ideal partner in formulating a plan. Plans should take advantage of laws to maximize your inheritance and minimize the stress of bequeathment to your loved ones. Consider making a plan with an estate planning attorney at Werner if you’re located in Santa Barbra, Santa Clarita, Simi Valley, or Westlake Village.