Many people wonder if they need to include absolutely everything in their Last Will and Testament. You should be aware that while most of your belongings should be distributed through your Will, there are certain exceptions.
Specifically, these exceptions can be seen by reviewing probate vs. non probate assets. With proper estate planning, certain assets can bypass probate and therefore do not need to be included in your Will. Although, that doesn’t mean you can ignore them entirely. Keep reading to learn more about probate and non probate:
What are probate assets?
Probate assets are any items, properties, or belongings solely owned by an individual at the time of their passing. These assets are then considered as property of the decedent and must pass through probate.
As a quick refresher, probate is the court-supervised process of closing an estate– typically guided by a Will or comprehensive estate plan. Any assets without joint ownership, beneficiary designations, or another clause allowing the property to transfer upon death will be required to go through probate.
Here are a few examples of probate assets:
Personal belongings, including jewelry, art, furniture, etc.
Bank accounts solely held by the decedent
Life insurance policies listing the decedent or their estate as beneficiary
Real estate and cars titled solely in the decedent’s name
Real estate held as a tenant in common
Corporate or business partnership interest
If you are interested in learning more about probate assets, read our guide on the subject.
What are non probate assets?
Non probate assets are any properties, accounts, or insurance policies that are either held by a Trust, joint owners, or include a beneficiary designation outside of the decedent and their estate. Simply put, these are assets with legal mechanisms in place to avoid the probate process.
There are a few different ways to help an asset avoid probate, including through joint ownership with survivorship rights. Assets with a transfer-on-death (TOD) or a payable-on-death (POD) clause will also avoid probate. Another route to avoid probate is to place assets in a Trust with a named beneficiary (other than the decedent).
Below are some common examples of non probate assets to consider:
Real estate and cars titled with joint owners
Property placed in a Living Trust
Retirement accounts, life insurance policies, and annuities with a beneficiary designation
Bank accounts or brokerage accounts with a TOD or POD clause
Probate vs non probate assets - what’s the difference?
The difference between probate vs non probate assets is how ownership is legally classified during a decedent’s lifetime. Any assets solely owned by the decedent, in the absence of a beneficiary designation or other clause transferring ownership, will be required to pass through the probate process.
A simple way to think about this is whether or not an asset needs to be included in a Will. A life insurance policy naming a sibling as the beneficiary would automatically be distributed after the decedent’s passing. This policy would not need to be distributed through the Will. On the other hand, a family heirloom would need to be included in a Will to pass to the correct beneficiary.
The difference of probate vs non probate assets is often made clear at the time ownership is established. For example, many organizations require an official beneficiary designation, one way of allowing the asset to bypass probate. This requirement is most common when opening life insurance policies, retirement accounts, and certain investments.
Why it’s important to understand the difference between probate vs non probate
It’s important to understand the difference between probate vs non probate to ensure your assets are distributed according to your wishes and to prevent unnecessary legal hurdles during the estate closure.
By learning the difference between probate and non probate assets, you can double check your estate plan to ensure all of your assets are accounted for. While some will be included in your Will, others need a beneficiary designation or other mechanism solidified. In doing so, you can help guarantee your final wishes are carried out as you want.
This process can also help alleviate some of the stress and challenges associated with the probate process on behalf of your loved ones. With the correct documents in place, your assets will be able to transfer ownership smoothly and without legal obstacles. Not only can this ease what will be a difficult time, it could allow you to provide crucial financial support to your loved ones.
What happens if you include a non probate asset in your will?
If you include a non-probate asset in your Will, that asset will be distributed according to its beneficiary designation, TOD clause, or other ownership split. If these legal mechanisms name the same beneficiary you list in your will, there will be no conflict.
If the person named in the Will is different from the beneficiary who was established by a beneficiary designation, TOD clause, or joint ownership split, these mechanisms will override what is written in the Will.
Let’s say you name your oldest child as a beneficiary on your 401(k), but when you write your Will you realize your youngest child would benefit more from the account. You then name your youngest child as the beneficiary in your Will, and leave other heirlooms to your oldest child. Without updating the official beneficiary designation, your oldest child will still inherit the 401(k), and the items listed in the Will.
Situations such as this example can leave loved ones understandably hurt and confused. This is yet another reason why it is crucial to understand the difference in probate vs non probate assets.
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When looking at probate vs non probate assets, a key factor to consider is that non probate assets do not need to be included in your Will. Instead, they are designed to pass to a beneficiary through an alternate legal mechanism. Probate assets, on the other hand, need a beneficiary named in the Will or they will be distributed according to state law.
As you might expect, these differences make estate planning all the more important. By reviewing each of your assets, and how you want them distributed, you can ensure none of your loved ones are left out. Not only can this create an immense sense of peace of mind for you, it can also minimize future stress for your family.
There are numerous documents and approaches involved in making an estate plan, but one thing is always true: you need to be thorough. Understanding the difference between probate vs. non probate assets is one way to ensure all of your assets are accounted for and that your future wishes are followed. Take our free quiz to see where you should get started, or compare our different estate planning options today!
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