Probate is the process of having a court determine if a will is properly executed so that estate administration can get underway. As part of the process, a fee is paid to the county and notification is given to creditors, heirs, and beneficiaries. What most people don’t know though, is that the only assets which pass under your will, are those in your name alone. Assets which pass under your will are known as “probate” assets.
You can easily avoid probate if the property is jointly owned, owned by a trust, or is an account or an insurance policy which names a beneficiary. In these situations, the property does not pass under your will and avoids probate. These are known as “non-probate” assets.
For example, assume spouses own a home in joint names, with the right of survivorship. When the first spouse dies, the house passes to the second spouse by “operation of law.” No probate is needed to put the deed into the name of the surviving spouse alone. However, if the second spouse dies, owning the home in his name alone, the asset will go through probate.
With a home, probate can be avoided if the house is owned by a trust. In the example above, if the surviving spouse put the home in a living trust, the trust would spell out how and when the property passes to beneficiaries. Any assets held in trust avoid probate. So-called “living trusts”, which you can retain control over, are often used for this purpose. Assets which do not go through probate are referred to as “non-probate” assets.
Another way to avoid probate is to make sure you have named beneficiaries, whenever possible. For example, you can name beneficiaries to bank accounts, investment accounts, rollover IRAs, pensions and life insurance. If a beneficiary is named, the asset passes to that person and no probate is needed for that to happen. However, if you fail to name a beneficiary, the asset passes to your “estate” and goes through probate.
Many people don’t realize that naming a beneficiary is often the simplest way to ensure an asset avoids probate. Often entire estates can avoid probate through beneficiary designations and a trust. Trusts often work better for homes and large assets which you may want to divide in a certain way. For example, a trust is often the best way to live a closely-held business or a vacation home, which you intend to stay in the family.
Probate vs. Non-probate? The choice is up to you.
