What is a Non-Probate Asset?

Estate Planning is the process of directing how your assets will be transferred when you pass away. Some belongings are transferred by directions in a Last Will and Testament.  This is the probate process (to learn more, read our previous article, “Probate is Not a Four Letter Word”).

There are assets that may pass directly to your loved ones without having to go through probate. Fittingly, these are called Non-Probate Assets

One type of Non-Probate Assets is jointly owned property with a right of survivorship. The right of survivorship is the key to bypassing the probate process. Examples of jointly owned property with a right of survivorship can include homes and other real property held as joint tenants, jointly titled motor vehicles, and joint bank accounts. Upon the death of one owner, the ownership of the property automatically transfers to the other joint owner(s) without probate and without the involvement of the courts.

Another type of Non-Probate Asset is an asset that is registered in beneficiary form, meaning that the asset (typically an account or other security) includes a designation of who will receive the asset upon the death of the current owner.  For those types of Non-Probate Assets it is essential to ensure that beneficiary designations are complete, correct, and well thought out (especially from a tax-planning perspective). Examples of these types of assets include life insurance policies, payable-on-death accounts, retirement accounts, and pension benefits.

Beneficiary designations should always be kept up to date.

Problems can occur if beneficiary designations are not correct. For example, if an account holder named a friend as their beneficiary, upon the account holder’s death the money in the account would still pass automatically to the friend, even if that was not what the account holder actually intended. Another problem that can occur is that if an account holder’s named beneficiary predeceases and there is no contingent beneficiary listed, the result would be that the Non-Probate Asset would have to pass through probate (thereby eliminating the benefit of holding such an asset in beneficiary form). 

It is also important to consider the potential consequences of beneficiary designations.  Imagine the owner of a $2,000,000 bank account designated their nineteen (19) year old son as the transfer-on-death beneficiary. Think about how responsible that nineteen (19) year old might be with the money if they received a significant sum at that young age. Likewise, if an account holder were to name a trust as the beneficiary of a qualified retirement account (e.g., a 401(i) or Traditional IRA), the tax consequences may not be advantageous because of the compressed tax rates applicable to trusts and the short time frame allowed for withdrawing qualified funds from a trust.

People should regularly review their estate plans.  It is also prudent to review your estate plan when events like marriages, changes in relationships, minor children reaching adulthood, the birth of a new child, divorce, the death of a family member, or even account value changes occur.  When reviewing your estate plan, you should review the chosen beneficiaries for each account, and the distribution between beneficiaries. 

At Grabitske Law Firm, we can help you build a holistic Estate Plan that takes into consideration not just who your beneficiaries are, but what their situation is and how you may structure matters to get your assets to the intended recipients in a tax-efficient manner.  

As we approach the end of the year and the start of a new one, many people are setting their yearly meetings with their financial advisors. This is also the perfect time to start, or revisit, your estate plan with us. We can discuss any changes that need to be made and work to coordinate with your financial advisors. At Grabitske Law Firm, we can help you with your Estate Planning, probate, trust, business, agricultural law, and real estate matters. If you are ready to make changes or just have questions about how to get started, contact Grabitske Law today! We can help!

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Grabitske Law Firm, PLC

For nearly two decades, Paul Grabitske has been helping clients with their legal issues in the areas of estate planning, probate, trust administration, business law, agricultural law and litigation.

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