Probate is the legal process through which a decedent’s estate is administered and assets are distributed according to the decedent’s Last Will and Testament, or in accordance with state intestate succession laws if there is no Will. Probate is frequently misunderstood, causing many people to be unsure about which assets are subject to probate and why the distinction is significant. Understanding what assets go through probate is crucial for effective estate planning, as it can impact the time, cost, and privacy of administering an estate. With that in mind, the Port St. Lucie attorneys at Kulas Crawford & Smith explain what assets go through probate and why it is important to know the difference between probate and non-probate assets.
Probate vs. Non-Probate Assets
Whether or not an asset is required to go through probate can play an important role in the estate planning process. Common examples of assets that typically go through probate (probate assets) include:
- Solely Owned Real Estate: If the decedent owned real estate solely in their name, it would usually need go through probate to be transferred to the heirs. This includes homes, land, and any other real property.
- Bank Accounts: Bank accounts that are solely in the decedent’s name without a payable-on-death (POD) beneficiary designation will go through probate. This includes checking, savings, and money market accounts.
- Personal Property: Personal items such as jewelry, art, collectibles, vehicles, and household goods are subject to probate if they are owned solely by the decedent.
- Investments: Stocks, bonds, and mutual funds held in accounts without a transfer-on-death (TOD) designation or without joint ownership may require probate.
- Business Interests: Interests in a business, such as shares in a privately held company or ownership in a partnership, typically go through probate unless specific estate planning measures are taken to avoid it.
- Debts Owed to the Decedent: If someone owes money to the deceased, such as from a promissory note, this debt is considered an asset of the estate and will go through probate.
Conversely, there are some assets that do not typically need to go through probate (non-probate assets), such as:
- Jointly Owned Property: Property owned jointly with rights of survivorship, such as a home owned by spouses or a home owned by a parent and an adult child, automatically passes to the surviving owner without going through probate.
- Beneficiary Designations: Assets like life insurance policies, retirement accounts (such as IRAs and 401(k)s), and annuities often have beneficiary designations that allow them to pass directly to the named beneficiaries without probate.
- Payable on Death (POD) and Transfer on Death (TOD) Accounts: Financial accounts and in some states vehicles can be designated as POD or TOD, allowing the owner to designate a beneficiary who will automatically inherit the asset upon the owner’s death. Unlike joint ownership, the beneficiary of a POD or TOD asset has no ownership interest in the asset while the owner is alive.
- Trusts: Assets placed in a trust may not be required to go through probate because the trust, not the individual, owns the assets. Upon the Grantor’s death, the trust’s terms dictate how the assets are distributed.
Why Does It Matter If an Asset Goes through Probate?
Understanding which assets go through probate is important for several reasons. First, the probate process can be lengthy, often taking several months or even years to complete, especially if there are disputes among heirs or creditors. Assets tied up in probate are not immediately accessible to beneficiaries, which can cause financial strain if they were relying on those assets. Probate can also be expensive, which can significantly reduce the value of the estate. The more assets that go through probate, the higher these costs can be, potentially leaving less for the beneficiaries. Finally, probate is a public process, meaning that the details of the decedent’s estate, including the value of assets and who receives them, become part of the public record. For individuals who value privacy, probate avoidance should be an estate planning goal.
Do You Have Additional Questions about Probate Assets?
To learn more, please join us for an upcoming FREE seminar. If you have additional questions about probate assets, please contact an experienced Port St. Lucie estate planning attorney at Kulas Crawford & Smith by calling (772) 398-0720 to schedule a consultation.