For the second part of our two-part blog on probate—the identification, gathering and distribution of a deceased person’s assets—we’ll examine what assets are subject to the process.

Generally, assets that will be included are those that were owned solely by the decedent at the time of his or her death, and that are not disposed of by other means. Examples include:

  • Checking and savings accounts
  • Non-retirement investment accounts
  • Solely held real estate
  • Personal property such as jewelry, collectibles, automobiles, etc.
  • Life insurance proceeds payable to the insured’s estate

Conversely, examples of assets that generally pass directly to a selected beneficiary outside of the probate process include:

  • IRAs and 401(k) accounts with properly designated beneficiaries
  • Real estate owned in a joint tenancy with rights of survivorship
  • Joint bank accounts that automatically transfer title to the surviving owner upon the death of the deceased owner (e.g., transfer on death [TOD], payable on death [POD])
  • Life insurance proceeds payable to properly designated beneficiaryies
  • Property held in a trust that names beneficiaries

Using a living trust to avoid probate

There are many reasons people wish to keep assets out of probate, although in some states the incentive is stronger than others.

Depending on the jurisdiction, assets passing outside of probate can reach the intended beneficiary much faster and avoid becoming part of publicly available records. Furthermore, in some states, the cost of the probate proceeding increases with the size of the estate. To avoid the costs and inconveniences of probate, many people choose to transfer their assets into revocable living trusts. These trusts can be individual or joint trusts.

Individuals or married couples can serve as the trustees of their own trusts, granting them full access to any assets transferred into the trust for the duration of their lives. The trusts are revocable during the settlors’ lives, allowing any necessary alterations to be made. At the death of the settlor (or second spouse in the case of married couples) the trust operates much like a will.

The following are three additional factors that could impact probate assets:

Community vs. Separate Property – Generally, in community property states, all assets that are acquired or earned during a marriage are owned equally by both spouses. Assets brought into the marriage can be kept separate or commingled to create community property, however, classifying assets as community property does not avoid probate. The deceased spouse is free to leave his or her half of community property (along with any separate property) to whomever he or she chooses. Because community property does not automatically carry a right of survivorship, a will (or intestate succession) is necessary to determine who is entitled to the assets and therefore probate is required to transfer assets, regardless of community or separate status.

Rights of Survivorship – Most frequently used in real estate, forms of joint tenancies with rights of survivorship are a common way to avoid probate. A right of survivorship simply means that when one joint owner dies, title automatically vests in the remaining owner or owners. As far as avoiding probate is concerned, however, this is only a temporary solution. Without other planning in place, the property will be included in the probate estate of the last surviving owner.

Real Property Held in Multiple States – Real property titled solely to the deceased is subject to probate, which creates additional complications when the property in question is located outside of the decedent’s home state. Real estate, like probate, is primarily governed by state law. As a result, when a decedent owns property in a second state, a second probate estate will usually need to be opened as well. This process, known as “ancillary probate,” takes place in the state in which the property is located and is subject to that state’s probate laws. Fortunately, many states have recognized this issue and have implemented procedures to ease the ancillary process. Once a will has been deemed valid and an executor appointed in the primary probate process, those decisions will typically be accepted by other jurisdictions without a second formal proceeding.

You can see from our two blogs that the process of distributing your assets after your death is quite complex and subject to many state laws.

Contact Wescott Financial Advisory Group for assistance in planning your estate to simplify the process for your heirs.