Avoid Estate-Planning Pitfalls: Probate Assets vs. Non-Probate Assets
You’ve heard of estates, but do you know what an estate is? An estate (in terms of probate law) is property – either physical or monetary. It can also include intangible items such as contractual rights, trademarks and patents. So, how is this property settled?
With an estate, it’s through probate. If there is a will, then “probating the will” involves the official proving of a will. The assets of a property are divided under that will.
When planning your estate—more specifically, when you work to determine how property is to be distributed in your estate plan—it’s important to understand the difference between the different types of assets, and how they are owned. Probate can be a technical and sometimes-complex aspect of estate planning. But if you understand a few of the terms, and take the time to set up an estate properly, you can avoid costly and time-consuming mistakes.
In Arizona and most other states, probate is a court in which estates are settled after a person dies or becomes incapacitated. For the purposes of this post, we will be referring to probate assets. Let me give you a couple of definitions:
Probate assets — These are assets that are left behind after someone dies or is incapacitated. These assets can only be controlled, managed or transferred by court order.
Non‑probate assets — These are assets that are handled or distributed without having to go to court.
Keep in mind that going to court isn’t necessarily a bad thing. Often, going to court is the only way you can resolve a problem or get guidance when there’s a disagreement.
To give you an idea of the differences between probate and non-probate assets, here is an example of each.
Probate assets:
Let’s say that your mother, Alice, owns a house and passes away. Alice has left a valid will, and the title for the home is in her name. In order to sell the house after Alice’s death, the title must be transferred out of her name. This is true even if her will specified what should happen to the house (for example, that it should be sold and the proceeds distributed to her kids). The change of title can only be done through probate court. Alice’s house is a probate asset.
Non-probate assets typically include IRAs, retirement plans, life-insurance policies and assets that are held in trust. But each of these requires a beneficiary in order to be classified as a non-probate asset. Without a specified beneficiary, these assets can only be resolved through probate court.
When you know whether an asset is probate or non-probate, you will know if you will need to resolve an issue in court.
But because of the complexity of this area of estate-planning or management, it’s best to find an attorney who focuses on probate law. You may think that dealing with an attorney can be intimidating, but it doesn’t have to be. In fact, a competent attorney will help you avoid costly, time-consuming mistakes.
Do you have any questions about probate and non-probate assets? I’d love to help. Please leave a comment below or contact our office.
2 Comments
david
April 1, 2016at 10:04 amif you are beneficiary of non-probate asset, how are you notified if the Exceutor of the Will (and in possession of all deceased records) will not communicate with you.
Paul Deloughery
June 29, 2016at 8:39 amBoy that’s a tough one. If you are beneficiary of a bank account or insurance policy, the company will try to locate you. Otherwise, if you are designated on a written list to receive (for example) a painting or car, you will never find out if someone doesn’t share a copy of that list with you. This is one of the reasons I stress the importance of sharing copies of your estate plan documents (including written lists designating who is to receive items of personal property) with multiple family members before you die.
If you really want to see if you are entitled to receive something, you need to hire a probate litigation attorney. The Executor (Personal Representative) may need to be subpoenaed. You can ask for a Status Conference with the court. You can ask that the court supervise the administration of the personal property. But unfortunately you probably have to hire a lawyer familiar with “the system” to help you.