Which of Your Assets Are Subject to Probate?
A “probate asset” is any asset owned by a person at his or her death that in owned or titled in his or her sole name that has no way of passing to a living beneficiary without a court-supervised probate process. For example, life insurance proceeds, bank accounts with payable-on-death designations, some retirement accounts, and some forms of real estate ownership pass directly to named beneficiaries by operation of law, so probate isn’t required.
Everything else forms the decedent’s probate estate. They’re his or her probate assets. The estate will be subject to a statutory process using the Probate Court to take these assets out of the deceased person’s name and transfer them into the names of his rightful heirs and beneficiaries – after all legitimate debts and expenses have been paid.
Probate is the legal process that is used to transfer ownership or title of assets from the decedent to his or her devisees (recipients named in a will) or heirs (recipients named by law). All wills and intestate estates (no will) must be probated, but the degree of court involvement and complexity range from simple and relatively inexpensive to complicated and costly. Both informal and formal probates must be open with the probate court for a least six months, but full, formal administration of the probate estate can take much longer when disputes arise among devisees or heirs.
There are four common types of probate assets.
- Individual Assets: These assets include all property titled in the decedent’s sole name without co-owners or payable-on-death and beneficiary designations. They can commonly include bank accounts, investment accounts, stocks, bonds, vehicles, boats, airplanes, business interests, and real estate. They also can include personal property that may or may not have much value, such as artwork, memorabilia, and electronics.
- Tenants in Common Property: These assets include property titled in the decedent’s name as a tenant-in-common with one or more other individuals. Each owner has a percentage interest in the property, such as 80 percent and 20 percent, or 50 percent and 50 percent. Real estate is often titled this way between unmarried owners, but other types of assets can be titled this way as well, including bank accounts, investment accounts, stocks, bonds, and vehicles. Probate court can be required for this type of property. If the decedent retitled his tenant-in-common interest into the name of a revocable living trust before his death, this converts the tenant-in-common interest into a non-probate asset. It won’t require a probate court proceeding to pass to a new owner.This type of property should not be confused with assets held by joint tenants or other arrangements with rights of survivorship. Property held with rights of survivorship passes directly to the survivor when one owner dies. It does not require probate and is not included in the decedent’s probate estate.
- Beneficiary Assets with Predeceased Beneficiaries or No Beneficiary Designations: Even assets with beneficiary or payable-on-death designations can become part of the deceased’s probate estate if the beneficiary dies before the owner. These assets might include health savings or medical savings accounts, life estates in property, life insurance policies, retirement accounts including IRAs and 401(k)s, and annuities.When all named beneficiaries of an account or policy predecease the decedent, the asset typically diverts to the deceased’s “estate” and becomes part of his or her “probate estate.” The same applies when a decedent fails to name any beneficiaries at all, or names his or her estate as the beneficiary.
- Assets Left Out of a Trust: It occasionally happens that someone will create a revocable living trust and move or transfer most of his or her property into it. Living trusts do avoid probate of the property held in them.However, this doesn’t mean that none of the deceased’s property will be a probate asset at his or her death. For example, many years may go by during which the decedent acquired additional assets, and he or she neglected to put all of them into his or her trust.A common solution to this dilemma is to create a pour-over will to direct property outside of the trust into the trust at death, but these assets are still subject to probate and contribute to the decedent’s probate estate.