One of the most confusing responsibilities an executor or personal representative has while settling an estate is determining which assets will need to pass through probate and which assets may avoid probate.
Avoiding probate is often the way to go, but figuring out what qualifies is confusing — the rules themselves are nuanced or unclear, and absolute clarity may require a lot of research and/or facilitated agreement across multiple advisors (e.g. attorney, financial planner, CPA).
The stakes aren’t low, either. Miscalculations could lead to material consequences such as making the probate process last longer than it should, or affecting the way beneficiaries inherit assets.
And while the local rules, governing laws, and other determining factors can vary situationally, there are fortunately some general guidelines you can follow when identifying probate assets vs. non-probate assets.
What is Probate?
Before jumping into a full explanation of probate vs. non-probate assets, it’s important to first have a good working knowledge of probate is in the first place:
Probate is the formal process of the government overseeing the responsible transfer of our assets to the appropriate loved ones after we’ve passed away.
Probate has different levels depending on how involved the court must be (e.g. simple vs. full, supervised vs. unsupervised, etc.).
And since the type and value of assets you have will determine what level of probate you need, tallying up and categorizing your assets into probate and non-probate is one of the first steps you’ll need to take when someone passes away.
Non-Probate vs. Probate Assets
Some assets are legally able to pass directly to rightful heirs via properly completed beneficiary designation forms, payable-on-death accounts, certain types of titling & joint-ownership, a properly funded trust, or perhaps simply even by marital status.
A properly drafted pour-over will with associated testamentary trust can also help avoid probate, but it requires passing assets through a trust & trustee as opposed to directly to any beneficiary.
These are considered non-probate assets, and we’ll cover them in detail later.
Any other assets that are owned by a deceased person and which do not have a pre-defined, legally recognized way of transferring to heirs will need to pass through the court-supervised process of probate.
These are considered probate assets.
🤔 “But my aunt went online & made a DIY will, so probate isn’t necessary, right?”
Well, possibly… but unfortunately, having a last will & testament doesn’t necessarily mean your loved one’s assets will avoid probate.
Regardless of whether a deceased individual established a will or trust, for many reasons it’s actually quite common for there to be some remaining portion of estate assets which still require an executor’s formal supervision through probate.
And again, there are multiple types of probate, involving different factors of qualification and under which there are certainly some benefits to qualifying for summary versions versus the full & formal (a.k.a. more involved) styles of probate.
Not to mention, statistics show that 64% of individuals pass away without a valid will whatsoever.
In short: There are a lot of ways for assets to bypass probate, but most people still end up having assets go through it.
So you’re stuck with probate…
Needless to say, the formal “catch-all” process of probate often ends up overseeing the transfer of a lot of our property, belongings, and assets upon our death… which is actually a really good thing.
Either way, with a little effort, the probate process isn’t nearly as intimidating or expensive as many advisors, online articles, or estate planning professionals would lead you to believe.
Not to mention the process can also be incredibly rewarding.
After all, chances are that if you’re reading this, it’s because a family member or close friend trusted you with bringing a close to their financial and legal affairs — that’s an honor.
👇 So let’s get to it!