When it comes to estate planning, one of the most important terms and concepts to understand is non-probate assets. In this blog post, we will explore what non-probate assets are in simple terms, how they work, and why they are important.
What Are Non-Probate Assets?
Non-probate assets are assets that are not subject to the probate process. Probate is the court-supervised process of distributing a person’s assets after they pass away. Non-probate assets are distributed outside of probate and usually pass directly to a named beneficiary.
Examples of non-probate assets include:
Jointly Owned Assets
If you own an asset with someone else as joint tenants with rights of survivorship, the asset will pass to the surviving owner when you die. Examples of jointly owned assets include bank accounts, real estate, and investment accounts.
A payable-on-death (POD) account is a bank account or investment account that designates a beneficiary to receive the funds upon the account holder’s death.
Some states allow for transfer-on-death deeds for real estate. These deeds allow the property owner to name a beneficiary who will receive the property upon the owner’s death.
Life Insurance Policies
Life insurance policies typically have a named beneficiary who will receive the proceeds upon the policyholder’s death.
Retirement accounts, such as 401(k)s and IRAs, have named beneficiaries who will receive the account’s funds upon the account holder’s death.
How Do Non-Probate Assets Work?
Non-Probate assets pass outside of the probate process, which means that they do not have to go through probate court. Instead, they pass directly to the named beneficiary. For example, if you have a POD account with your spouse as the named beneficiary, the account will pass directly to your spouse when you pass away.
It is important to note that these assets are not subject to the deceased person’s will. This means that if you have a will that leaves your retirement account to your brother, but your retirement account has your spouse named as the beneficiary, your spouse will receive the account’s funds, not your brother.
Why Are Non-Probate Assets Important?
Non-probate assets are important for a few reasons. First, they can make the estate distribution process faster and less expensive. These assets pass directly to the named beneficiary, they do not have to go through the probate process, which can be time-consuming and expensive.
Second, non-probate assets allow for more control over the distribution of assets. Since non-probate assets pass outside of probate and the will, the deceased person can ensure that specific assets go to specific people by naming beneficiaries. For example, if you want your spouse to receive your life insurance proceeds you can name them as beneficiaries. If you want your children to receive your investment account, you can list them as the beneficiaries for those specific assets.
Finally, non-probate assets can provide a source of immediate funds to the deceased person’s loved ones. Since non-probate assets pass directly to the named beneficiary, the beneficiary can receive the funds immediately. This is particularly important if they need funds to pay for funeral expenses or other immediate needs.
Non-probate assets are an important concept to understand when it comes to estate planning. By designating beneficiaries for non-probate assets, you can ensure that specific assets go to specific people. This will make the estate distribution process faster and less expensive. Consider seeking an attorney if you have questions about non-probate assets or need help with your estate planning.