Probate and Non-Probate assets: What are they? Why do they matter?

March 12, 2014

Probate and Non-Probate assets: What are they? Why do they matter?

Article provided by Hamilton Law Office, P.C.
Visit us at http://www.stuarthamiltonlaw.com

When a person dies with a will, it is a common belief that all the person's property will be distributed according to the instructions in the will. However, this is not the case, as people have two types of assets under the law--probate and non-probate. As a result, it is important to know how both types of assets are treated after death in order to have an effective estate plan.

Probate assets

The distribution of probate assets is controlled by the terms of the decedent's will. As the name suggests, this type of asset must first go through probate before they may be distributed. Probate is the legal process in which the court examines the will and confirms that it is valid and enforceable. In addition, during probate, the court grants the personal representative of the estate (executor) the power to identify and gather the decedent's assets, pay all debts and taxes, and locate the heirs. Once this has been done, the probate process ends when the personal representative has distributed the assets according to the will's provisions.

If the decedent dies without a will, it is still necessary for the decedent's assets to go through probate. In this case, the court ensures that the personal representative distributes the assets according to the intestacy laws of Massachusetts. These laws only govern the distribution of property in cases where the decedent died intestate (without a will) or made an invalid will.

In general, probate assets include all assets that are owned solely by the decedent, such as real estate or motor vehicles (that are not jointly-owned), stocks, personal belongings and bank accounts.

Non-Probate assets

Unlike their probate counterparts, non-probate assets do not need to go through the probate process before they may be distributed. They may be distributed immediately after the decedent's death. These types of assets include:
-Life insurance proceeds (unless the decedent names his or her estate as the beneficiary)
-Real estate owned in joint tenancy with others or in tenancy by the entirety
-Assets held in a living trust
-Jointly-held bank accounts
-Retirement plans such as 401(k)s, Keogh Plans, or IRAs (unless the estate is named as the beneficiary)
-Pension or annuity plans
-Any account with a beneficiary, "payable-on-death" or "transfer-on-death" designation

Non-probate assets are always distributed according to the beneficiary designation, even if the will attempts to change this. If both types of assets are not effectively addressed in the estate plan, it can lead to problems. For example, if a father intended that the benefits of his life insurance property be shared among his children, but named his spouse as beneficiary (instead of a trust, for example), the proceeds would go to the spouse, who would be free to disregard his wishes.

Speak to an attorney

To avoid these problems from occurring, it is important to have a comprehensive estate plan that is regularly updated to account changes in your life. As the laws surrounding asset distribution are complicated and change regularly, it is important to seek the advice of an experienced estate planning attorney. An attorney can propose solutions that will distribute your assets according to your wishes, while minimizing and avoiding tax liability.