Estate Planning Basics, Part 3: Probate and Non-Probate Assets

The assets you own today, and may use on a daily basis, are legally classified into two categories for estate planning purpose: Probate Assets and Non-Probate Assets. This post will discuss the difference between the two and how estate planning can assist in the most useful and efficient distribution of those assets when you are no longer here.

Non-Probate Assets: Some assets will transfer outside of your estate so, with or without a will, the same thing will likely happen and these assets will no be part of your will or intestate estate. Some examples of non-probate assets are:

1. Property held in trust at the time of your death;
2. Life insurance proceeds;
3. Funds in an IRA, 401(k) or other retirement account IF there is a valid beneficiary designation on the account;
4. Securities held in a transfer-on-death (or payable-on-death) account;
5. Transfer-on-death (or payable-on-death) bank accounts; or
6. Property you own with someone else as joint tenants with right of survivorship or tenancy by the entirety (marital real estate).

Probate Assets: The are assets owned solely by the decedent and not held in trust or transfer-on-death (or payable-on-death) account. A will can control the disposition of these assets or, in the absence of a will, they will be distributed according to the intestate succession rules in North Carolina. Some examples of probate assets are:

1.  Real property that is titled solely in the decedent’s name or held as tenants-in-common;
2. Personal property, like jewelry, furniture, and automobiles;
3. Bank accounts that are solely in the decedent’s name and not transfer-on-death accounts;
4. An interest in a partnership, corporation, or LLC held individually by the decedent;
5. Any life insurance proceeds or brokerage account distribution that either lists the decedent or his estate as the beneficiary, or has an invalid beneficiary designation.

While a will cannot direct the distribution of Non-Probate Assets, a thorough estate plan should encompass both Probate and Non-Probate Assets to make sure your beneficiaries are receiving the most benefit from your estate.