In order to ensure that your assets reach your intended beneficiaries, it is important to understand the difference between probate and non-probate assets.
Many people believe their wills have the final say in who gets their assets after they die. However, this is not always true. In estate planning, there are two types of assets in general: probate and non-probate. Since each type of asset is distributed differently, it is important to understand the basic ground rules, so you can be certain your assets will go where you want them to go.
Probate
Probate is simply the process where the court examines the will to determine its validity. Additionally, the personal representative (or executor) of the estate gathers the decedent’s assets, pays all bills and taxes, and distributes the assets according to the terms of the will (as well as other estate administration functions).
The probate process is still necessary even if the decedent did not make a will. In this type of case, the court’s function is to make sure the assets are distributed to the decedent’s heirs according to the New Jersey intestacy laws. These laws set forth the default rules on how property is distributed if the decedent died without a will or made an invalid one.
Contrary to many people’s beliefs, not all property must go through probate before it may be distributed. Generally, the only property that must clear the process before distribution is property owned solely by the decedent. Examples of such property include real estate, bank accounts, and stocks that are titled in the decedent’s name only. For assets subject to probate, the decedent’s will (or intestacy laws) determine who receives the assets.
Assets Not Subject to Probate
Non-probate assets, as the term suggests, do not have to pass through the probate process before distribution. On the contrary, these assets are immediately distributed at the decedent’s death to named beneficiaries. Non-probate assets include assets held jointly with other persons as well as those having designated beneficiaries. Some of the common examples of non-probate assets are:
- Life insurance
- Retirement accounts (IRAs, Keogh Plans, 401(k)s)
- Real estate owned as joint-tenants
- Jointly held bank accounts
- Pension or annuities
- Virtually any account with transfer-on-death or payable-on-death designations
Regardless of what the decedent’s will says, all non-probate assets are distributed to their designated beneficiaries. In other words, the beneficiary designations cannot be overridden by a will (or other estate planning document).
Speak to an Attorney
Although these rules seem simple, serious problems can result if an estate planning attorney is not consulted during the estate planning process. For example, incorrect titling of assets can result in loss of tax benefits and other undesirable outcomes. In order to avoid problems, it is important to create your estate plan (and update it throughout your life) with the assistance of an experienced estate planning attorney. The attorneys at Levine Haddad & Gregory, LLC, can help you avoid the pitfalls that await the uninitiated and ensure your assets reach your beneficiaries in the most tax-efficient manner possible.