Estate planning relies heavily on the term non-probate assets which is one of term’s most important. In this article, we will look at what these are, how they work and why they matter. We will also delve into probate assets, comparing their pros and cons.
What Are Non-Probate Assets?
Non-probate assets are those that do not have to go through probate process. Probate refers to the court-supervised process of distributing a person’s assets after death. Donative dispositions made outside the ambit of a Will primarily define non-probate assets.
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 directly to the surviving owner when you die. Some examples include jointly owned bank accounts, real estate, and investment accounts.
Payable-On-Death 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.
Transfer-On-Death Deeds
Certain states permit transfer-on-death deeds for real property. They allow owners of such properties name beneficiaries who would get them once they are dead.
Life Insurance Policies
Life insurance policies normally have named beneficiaries who will be paid out upon death of policyholder.
Retirement Accounts
There may be named beneficiaries, for example in 401(k)s and IRAs, who can take possession around time when an account holder dies.
How Do Non-Probate Assets Work
Non-probate assets do not go through probate so it is not necessary for them to end up in probate court. Consequently, they automatically go straight 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 die.
It is worth noting that these assets do not form part of the decedent’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.
Benefits of Non-Probate Assets
1. Faster and Less Expensive Distribution:
Estate distribution can be faster and cheaper with non-probate assets through direct passage to beneficiaries without probate process which may drain time and money.
2. Greater Control:
Since they would bypass probate courts estates owners enjoy greater control over non-probate assets distributions. Some assets pass outside of probate and are unaffected by testamentary dispositions in a will. This allows a testator to ensure certain assets go to pre-fixed individuals through their nomination..
3. Immediate Access to Funds:
In instances where one dies, his or her family members should get access to funds instantly from non-probate assets. If such properties are given immediately to any person mentioned specifically in this way he/she can access those monies now without delay, especially for funeral services or urgent costs relating thereto.
4. Speed:
Once someone passes away, non-probate assets can be immediately transferred to beneficiaries, bypassing the long probate process.
5. Cost-Efficiency:
Non-probate assets don’t involve any court or lawyer fees when they change hands because they do not undergo a probating process.
6. Privacy:
Such non-probate asset transfers are confidential thus exempt from public records act thereby ensuring anonymity regarding living testators and heirs.
7. Simplicity:
By naming beneficiaries for non-probate assets at all stages, one can create a simple estate plan that ensures loved ones receive inheritances expeditiously.
Distinction from Probate Assets
Probate Assets:
Probate assets are those that do not have a named beneficiary or are not held jointly with rights of survivorship. The probate process is used to distribute these assets according to the will of the deceased, or if there is no will based, then distributed based on state law.
Disadvantages of Probate Assets:
Time-Consuming: The period for probating an estate can last for several months up to years depending on the complexity and any disputes that may be involved.
Costly: This includes court costs, attorney fees and other administration expenses which might significantly reduce the size of an estate.
Lack of Privacy: Information about estates like their value and who inherits them becomes public information since probate proceedings are part of public records.
Potential for Disputes: This often causes family feuds and lawsuits thus delaying disbursement more as well as incurring extra costs through legal actions.
A Will is Important for Probate Assets: State Your Intentions
1. Clarity on Who Receives Your Assets:
In the absence of a will, it’s unclear who should get your probate assets which may result in disorientation and possible family disagreements since there is no official document showing what you wished.
2. Items Subject to Probate:
- Individually Owned Real Estate: Properties owned by you only and without any payable-on-death deed.
- Bank Accounts: Accounts that do not have any designation such as Payable-On-Death (POD).
- Personal Property: Objects like gems, automobiles and house contents.
- Investments: Individually held investment accounts that are not designated for beneficiaries.
- Business Interests: Personally owned business assets.
3. Impact on Family Without Direction:
Intestate Succession: If you do not have a will, state laws will distribute your assets according to state statutes. This may begin with spouses and children, but can include distant relatives.
Potential Disputes: This can lead to disputes among family members concerning who will inherit some items hence calling for legal interventions in case of disagreements.
Delayed Distribution: Without a will, probate can become complicated and delayed because the court has to decide among competing parties claiming to be heirs under state law.
Without a will:
Assets are distributed according to intestate succession laws of the state. The spouse could receive a greater portion of the estate while children divide remaining property. However, actual distribution may differ deeply depending on the law of states.
Your house, car, and personal belongings can be under dispute between your spouse and kids. For example, if one child wants to keep the house but a sibling says that they should sell it and share the money, there might be long disputes without any decision due to lack of clear instruction from you.
In case you have no other close relatives, your estranged sibling who was not even your intended beneficiary may claim for part of what you own legally.
Conclusion
When planning your estate, it is important to understand what non-probate assets entail. By designating non-probate assets’ beneficiaries you ensure certain things go to certain people resulting in a quicker, cheaper estate distribution process. On the other hand, probate assets are overseen by courts and thus may take long to distribute as well as become expensive and public. If you have any questions about non-probate assets or need help with your estate planning, call an attorney.
You need a will for all probate property because it clearly shows how you want them shared out. Without a will, state law overrides your wishes, which might result in family conflicts and estate administration delays.
Creating a last will and testament provides comfort to loved ones, as they will know your precise wishes and take care of dependents. This ensures that your specific desires care for dependents, securing peace for you and your family.
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