When an individual passes away, their estate is subject to the probate process. This is a court process that oversees the distribution of estate assets to heirs, after taxes and outstanding debts are paid. It also ensures that Guardians and Conservators are appointed, when applicable.
Although probate is important and necessary, it can also be expensive and time-consuming. Because of this, many individuals planning their estates are interested in excluding as many assets and properties from the probate process as possible.
Keep reading to understand the difference between probate and non probate assets, the common types of non probate transfers, and how to take advantage of them whenever possible.
What is a non-probate transfer?
A non probate transfer describes the transfer of assets between a deceased individual and their heir(s) that takes place outside of the probate process.
When an individual passes away, they leave the world with a collection of probate and non probate assets. More often than not, an asset is a probate asset that becomes a part of the decedent’s estate. These assets, by law, must pass through probate. The probate process ensures that all assets and property are properly accounted for, and that outstanding taxes and debt are paid. Once these steps are complete, the remainder of the estate can be rightfully distributed to heirs.
Because the probate process can be time-consuming, taxing, and costly, it is often beneficial to remove as many assets and property from the estate as possible. This is done by increasing the number of non probate assets and reducing the size of your estate. There are several techniques available for avoiding probate as much as possible.
One such technique is maximizing the use of non-probate transfer assets.
Benefits of non-probate transfer
The key benefit associated with a non probate transfer is its function of transferring property directly between a decedent and their heir, and thus avoiding the probate process. Here are the numerous benefits of the non probate transfer:
Assets passed via non probate transfer avoid the probate process
Property becomes available immediately after death
Assets are transferred in private without going through any public proceeding
Avoid costs associated with probate proceedings and attorney fees
Transfer of property happens automatically upon passing
Exert control over who inherits a non probate transfer asset (not left up to the courts to decide)
Types of non probate transfers
The reason for which we take the time and effort to prepare for our eventual death is for the sake of our loved ones. When we don’t plan ahead for what should happen to our assets and property, more time, expenses, and stress will be endured by those we love.
Non probate transfers allow us to pass certain assets and property directly to our loved ones outside of the probate process. Discussed earlier, these assets become available and transferable immediately following our death, and are thus not subject to the costs incurred by probate court. It seems like a no-brainer to take advantage of this technique whenever available.
Here are a few examples of non probate transfers:
Joint Property Ownership
Payable on Death Accounts
There are several forms of financial accounts and ownership titles that allow you to designate a beneficiary. Examples include banks accounts, investment accounts, retirement savings, life insurance, and car titles. When acquiring or setting up this asset, the entity will give you an option to enter a beneficiary designation.
Accounts with beneficiary designation transfer automatically to your named beneficiary upon your death. They pass outside of the probate process.
A beneficiary deed is a type of house deed that automatically transfers title from the owner to their beneficiary (or beneficiaries) when they pass away. In some cases, the home is the largest asset represented in an individual’s estate. It can be advantageous to the family if this large asset can be transferred outside the probate process.
Joint property ownership
There are several different methods of owning property jointly with other individuals or entities. Because of this, it’s very important to be intentional about what type of deed you use. This is because the ownership structure determines how your property interest in the property can be passed on to another party (or not.) Joint property ownership is an easy method of transferring your property ownership outside of the probate process. Click here to learn more about the differences between joint tenancy and community property ownership.
There are some assets and property in your name that don’t necessarily have a beneficiary designation or an ownership structure that allows them to pass directly to an heir outside of probate.
Consider transferring them into a Living Trust.
A Living Trust is an estate planning document that gives you control over how your property should be distributed when you pass away. It is similar to a Will in the sense that you can leave instructions for who you wish to inherit your property, such as loved ones or nonprofits.
The key differentiation between a Living Trust and a Will is that assets transferred into a Living Trust are not subject to probate. This is because the Living Trust is technically the “owner” of these assets, and are thus removed from your personal estate.
Payable on death accounts
Last but not least, payable on death accounts are created with your financial institutions. This is a legal agreement that directs your bank to transfer your account to a designated individual when you pass away. This documentation is kept on file at your bank as proof, and overrides your Will and any other estate planning tools. This allows the particular account to pass directly to your beneficiary outside of the probate process.
Designate your beneficiaries today with Trust & Will
The probate process exists for a reason; it is a judicial process that determines how property should be distributed and also formally appoints guardians and conservators to look after your dependent loved ones when applicable. It serves this function even when an individual passes away without a Will.
However, those who have studied the probate process know that it can eat into your estate value through taxes and fees. Further, legal proceedings are notoriously time-consuming. This can be a tough pill to swallow for your grieving family who may be in need of the assets and property in your estate as soon as possible.
Luckily, there are several techniques available that allow individuals to avoid the probate process as much as possible, or altogether. Today, we learned about the non probate transfer which describes the function of certain qualifying assets to transfer between decedent and beneficiary automatically and outside of the probate process.
Key types of non probate transfer assets include assets held in a Trust, assets with beneficiary designations, assets that are payable on death, and certain types of ownership and deed structures for real property. Here, you may be wondering if you still need an Estate Plan. The answer is absolutely “yes.” This is because there are a limited number of non probate transfer assets available. If you truly wish to avoid probate, then you will likely need a Trust in addition to taking advantage of beneficiary designations and beneficiary deeds. Last but not least, your Will is still the key document you’ll want to use to express your final wishes, as well as to nominate a Guardian and/or Conservator for your loved ones who need looking after.
Does this all sound confusing? Overwhelmed by all the options? Don’t worry! It is completely normal, and expected, not to know the ins and outs of estate planning. That’s why we’re here!