Non-probate assets are property that doesn't need to go through the probate process after you die and will instead pass directly to your heirs. Owning non-probate property is one of the easiest ways to avoid the costly and time-consuming probate process. Non-probate property will generally be available to your heirs within a short period of time after your death once your heirs receive a death certificate.
Find out how non-probate assets work and which assets qualify.
What Are Non-Probate Assets?
Non-probate assets pass to beneficiaries without involving the probate court. These may be assets with a designated beneficiary or certain types of co-owned assets. It's clear who is to receive these assets after you die, and these assets are not controlled by your will.
For example, life insurance policies with named beneficiaries are non-probate assets, as are retirement accounts or property held in a trust.
How Do Non-Probate Assets Work?
Many non-probate assets have a beneficiary designation, which lists the intended beneficiary (or recipient) of the asset upon your death. When a death certificate is presented, the asset may be passed to the beneficiary without much fuss. The executor of your estate does not need to get involved, and the beneficiary receives the asset quickly.
Non-probate assets can still end up with people you didn't intend to have them.
While avoiding probate may on the surface appear to be a good result, it's not a perfect guarantee that your assets will pass to the people you want to receive them.
For example, suppose you jointly own a bank account with one of your three children. You may want all three of them to inherit your property, but the contents of the jointly owned account will only pass to the child you co-owned it with, and they are under no legal obligation to divide it with their siblings.
Furthermore, if that child is married and gets divorced, or has a judgment against them, then the ex-spouse or the creditor with the judgment could attempt to seize the assets held in your bank account. That's why it's essential to understand exactly who will inherit non-probate property after you die.
Think through the legal consequences of adding owners to your existing accounts or real estate deeds. It's wise to consult an attorney for advice on estate planning so you can arrange a structure that best accommodates your wishes.
Types of Non-Probate Assets
In general, there are six different types of non-probate assets.
Assets With POD or TOD Designation
Assets you own in your sole name but have a payable on death (POD), transfer on death (TOD), or in trust for (ITF) designation will avoid probate after you die. It includes Health Savings Accounts and Transfer on Death or Beneficiary Deeds which are available in a handful of states. However, if all of the designated beneficiaries predecease the account or property owner, then the account or real estate will have to go through probate.
Certain Assets You Own Jointly
Assets you own jointly with your spouse or others, such as a child or sibling, through rights of survivorship (joint tenants with rights of survivorship, or JTWROS) will avoid probate after you die.
Tenants by the Entirety
Assets Owned by a Revocable Living Trust
Assets owned by your revocable living trust at the time of your death will avoid probate after you die. Assets that aren't owned by your trust at the time of your death but remain in your individual name without some type of beneficiary designation will not avoid probate after you die.
Assets in which you retain a life estate, and the remainder passes to a non-charitable beneficiary other than yourself, including real estate owned in certain states by an enhanced life estate deed, will avoid probate after you die.
Assets With Beneficiaries
Assets owned by you through contract rights that are payable to a designated beneficiary after your death, including life insurance policies, IRAs, 401(k)s and annuities, will avoid probate after you die. However, if all of the designated beneficiaries of any of these types of assets predecease the account owner, then the asset will need to go through probate.
- Non-probate assets are assets that go directly to your heirs instead of being subject to the probate process.
- These assets can include certain kinds of jointly owned property and assets with named beneficiaries.
- Non-probate assets can streamline the process of passing of assets to your heirs.