What property passes through probate?
Only certain property passes through probate. This means that certain assets that the decedent owned before death do not become part of the probate estate. Non-probate assets pass to another person by the law or under the terms of a contract. For example, if a couple owns a house in “joint tenancy with a right of survivorship” (this means that when one spouse dies, the deceased spouse’s share passes automatically to the living spouse), that house does not have to go through probate. Other property, like life insurance and retirement accounts, pass to the beneficiary who the decedent chose to receive the benefits when the decedent was living.
Common examples of non-probate assets are:
- Assets owned or held in a trust.
- Payable on death accounts, where the beneficiary is named and alive.
- Community property with rights of survivorship.
- Property held in joint tenancy, where there is a surviving joint owner.
- Insurance, retirement plans, or annuities with beneficiary designations.
Assets That Don’t Need to Go Through Probate
Typically, many of the assets in an estate don’t need to go through probate. If the deceased person was married and owned most everything jointly, or did some planning to avoid probate, a probate court proceeding may not be necessary.
Here are kinds of assets that don’t need to go through probate:
- Retirement accounts—IRAs or 401(k)s, for example—for which a beneficiary was named
- Life insurance proceeds (unless the estate is named as beneficiary, which is rare)
- Property held in a living trust
- Funds in a payable-on-death (POD) bank account
- Securities registered in transfer-on-death (TOD) form
- U.S. savings bonds registered in payable-on-death form
- Co-owned U.S. savings bonds
- Real estate subject to a valid transfer-on-death deed (allowed only in some states)
- Pension plan distributions
- Wages, salary, or commissions (up to a certain amount) due the deceased person
- Property held in joint tenancy with right of survivorship
- Property owned as tenants by the entirety with a spouse (not all states have this form of ownership)
- Property held in community property with right of survivorship (allowed only in some community property states)
- Cars or boats registered in transfer-on-death form (allowed only in some states)
- Vehicles that go to immediate family members under state law
- Household goods and other items that go to immediate family members under state law
In addition, most states offer simplified probate proceedings for estates of small value. The simpler process is commonly called “summary probate.” The executor can use the simpler process if the total property that is subject to probate is under a certain amount, which varies greatly from state to state. In some states, the limit is just a few thousand dollars; in others, it’s $200,000.
Because you count only the property that must go through probate—and exclude property that was jointly owned or held in trust, for example—some very large estates can take advantage of the “small estate” procedures. For example, say an estate consists of a $400,000 house that’s jointly owned, a $200,000 bank account for which a payable-on-death beneficiary has been named, a $100,000 IRA, and a solely owned car worth $10,000. The estate has a value of more than $700,000, but the only probate asset is the car—and its value qualifies it for the small estate procedure in almost every state.
What Are Non Probate Assets?
Non Probate Property Avoids Costly Probate
Non-probate assets are a special type of property that won’t need to go through the probate process after you die and will instead pass directly to your heirs. Owning non probate property is one of the easiest ways to avoid costly and time-consuming probate. Non probate property will generally be available to your heirs within a short period of time after your death once your heirs receive a death certificate.
A Word of Caution About Non Probate Property
While avoiding probate may on the surface appear be a good result, sometimes non probate property will end up in the hands of beneficiaries, or worse yet, creditors, you didn’t intend to have it. For example, if you own a bank account jointly with one of your children (we’ll call her Sue) but you have three children and you want all three of them to inherit your property, instead the joint account will pass 100% to Sue after your death and she will be under no legal obligation to divide the account with your other two children. You also need to be aware that if Sue is married and gets divorced or has a judgment against her, then her ex-husband or the creditor with the judgment could attempt to seize the assets held in your bank account. Thus, non probate property should only be used after understanding exactly who will inherit it after you die as well as the legal consequences of adding owners to accounts or real estate deeds.
In general, there are six different types of non probate assets which are described in detail below.
6 Types of Non Probate Assets
- Assets you own in your sole name but have a payable on death (POD), transfer on death (TOD), or in trust for (ITF) designation will avoid probate after you die. This includes Health Savings Accounts and Transfer on Death or Beneficiary Deedswhich are available in a handful of states. However, if all of the designated beneficiaries predecease the account or property owner, then the account or real estate will have to go through probate.
- Assets you own jointly with your spouse or others, such as a child or sibling, through rights of survivorship (joint tenants with rights of survivorship, or JTWROS) will avoid probate after you die.
- Assets you own with your spouse in a special type of joint ownership recognized in some states called tenants by the entirety (or TBE) will avoid probate after you die.
- Assets owned by your Revocable Living Trust at the time of your death will avoid probate after you die. Assets that aren’t owned by your trust at the time of your death but remain in your individual name without some type of beneficiary designation will not avoid probate after you die.
- Assets in which you retain a life estate and the remainder passes to a non-charitable beneficiary other than yourself, including real estate owned in certain states by an enhanced life estate deed, will avoid probate after you die.
- Assets owned by you through contract rights which are payable to a designated beneficiary after your death, including life insurance policies, IRAs, 401(k)s and annuities, will avoid probate after you die. However, if all of the designated beneficiaries of any of these types of assets predecease the account owner, then the asset will need to go through probate.