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Estate Planning

Which of Your Assets Are Subject to Probate?

When a person passes away, their belongings must pass on into the ownership of someone else. That process, however, is not always simple. Ownership can be legally complicated and defined in a multitude of ways, yet cleanly transferring said ownership is tricky business. That is why there are specific laws and rules when it comes to inheritance and estate planning.

Understanding how property passes on after your death – and understanding how to determine where it goes – can give you and your family peace of mind, helping you ensure that what you own goes into the hands of new and rightful owners. But first, it goes through the probate process.

What Is Probate?

In the United States, every time a person passes away, their assets must go through the probate process. This is a process by which a special court oversees the distribution of a decedent’s estate. Under California probate law, court proceedings can be skipped for estates under a total value of $150,000, while larger estates go through a probate process that has an average length of eight to twelve months.

Probate begins with the filing of a decedent’s death certificate, as well as the details of their estate. The court assigns an administrator, who takes inventory of the estate and determines its final total value. Then, the administrator must take the time to file the appropriate paperwork to notify creditors, settle the decedent’s financial affairs, and distribute the estate either as per the decedent’s will – which must be legitimized by the court – or as per California intestate laws.

Most assets in an estate go through the probate process. But not everything with your name on it must pass through probate. In fact, with the right precautions, you can see to it that most of what you own does not go through probate at all.

Common Assets Subject to Probate

To put it simply, any property you own under your name, or partially under tenancy in common (which makes your share of the ownership of one property individual, and thus allows you to transfer said partial ownership through your estate).

This may include the funds to any accounts without explicit beneficiaries, and all assets under your name, without a transfer-on-death/payable-on-death clause.

Non-Probate Assets

Many assets do not have to pass through probate court. A simple example is household items, including appliances and furniture. Other assets that do not have to pass through probate include:

    • Property held in joint tenancy with right of survivorship.
    • Property held in community property (passing onto co-owners, often the spouse) with right of survivorship.
    • Wages and salary due to the decedent after their death.
    • Assets (including securities and property) and funds (or savings bonds) transferable through a Totten trust (payable-on-death/transfer-on-death).
    • Funds in a living trust.
    • Retirement account.
    • Life insurance payouts.

Contact a local professional on estate planning to determine exactly how much of your estate is eligible to pass through probate, and how to best plan for it.

Avoiding the Probate Process

There are good reasons to avoid probate. For one, it can be costly, both financially and in terms of time spent in court. There is a minimum period of four months in the probate process to give time to creditors to seek out the estate and file a claim for debts owed. This, in addition to the costs of hiring a probate attorney, can make probate quite expensive. It will also significantly delay the inheritance process.

Because probate court is a matter of public record, the contents of your will would be accessible by anyone asking for them – giving some people unwanted insight into your estate and financial matters. This lack of privacy as well as the costs and time associated with probate can make it unattractive, especially for very large estates that take an even longer time to process.

Aside from expedited probate, available for “small estates” under a $150,000 value (essentially allowing most individuals to skip probate entirely), the probate process will always take an average of over half a year. However, you can drastically cut down on that time and the inconveniences of going to probate court by utilizing certain estate planning tools to lower the size of your estate, limit the tax cost of passing your assets on to your loved ones after death, and ultimately skip probate entirely.

The primary tool for this is the trust. Trusts are legal agreements between two people: a trustor, and a trustee. They typically serve as entities that hold property for one person (trustor) under management of another person (trustee), for the benefit of a collective third party: the beneficiaries.

Living trusts go into effect once they are filed, removing a person from ownership of their property while typically still giving them control over it (as is the case with a revocable living trust). Some living trusts completely transfer all control away from you and into the trust, thus protecting those assets from creditors, bankruptcy, and estate taxes, at the cost of not being able to access them in your lifetime.

Trusts and their contents are not subject to probate, thus allowing you to protect most of your estate from probate court. In the case that you pass away before incorporating some final acquisitions into your trusts, most estate planners recommend a pour-over will, which moves any remaining assets into trusts upon your death without the bulk of preparatory paperwork associated with setting up a testamentary trust before dying.

Regardless of what you plan to do for your estate, timing is key. If you have something to protect and pass on, do not wait until you are ripe in age to think about inheritance and estate planning.

On top of being an incredible tragedy, passing away early often leaves families unprepared for the paperwork and hassle of dealing with probate and intestate laws, while a regularly-updated estate plan can ensure that no matter what happens, your children and loved ones will be able to grieve in peace knowing that your estate is neatly handled.

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