Probate vs. Non-Probate: What Are the Differences?
A person’s “estate” consists of everything they own at death. Typically, people have a mix of assets, including cash, motor vehicles, retirement accounts, and possibly real estate. They might also have debts. During probate, the estate’s personal representative will pay off debts and then distribute what’s left over to beneficiaries according to the will.
Some assets are not probated, however. Instead, they pass outside the probate process. At Surasky Law Firm, we are familiar with probate law and how to create an estate plan. There are advantages to passing assets outside of probate, which we can discuss in a consultation if you contact us today.
What Are Common Probate Assets?
Most assets a person owns at death will be probate assets. These tend to be assets they own individually and in their own name. You can decide who will inherit them by creating a last will and testament. If you die without a will (called dying “intestate”), then your probate assets are distributed according to South Carolina’s intestacy rules.
Your personal representative should gather and keep all the probate assets safe after your death. These assets typically include:
Motor vehicles in your name
Real estate owned solely in your name or held as a tenant in common
Personal effects, such as jewelry, digital libraries, home furnishings, books
Bank accounts solely in your name
Individual stocks and bonds not held as part of a retirement account
Business interests, such as a stake in a corporation or partnership
If you are serving as a personal representative, you should contact a lawyer whenever you are unsure if the deceased owned a certain asset. You also need to keep assets safe, which might mean continuing to pay insurance to protect the value of a home or vehicle.
What Are Non-Probate Assets?
There are many non-probate assets, so it is hard to come up with a comprehensive list. But let’s sketch out a few general categories.
Joint Tenant Ownership
Some assets are held jointly with another person who has the right of survivorship. This means that the deceased person’s ownership interest disappears when they die, leaving the other joint owner in sole possession of the property. Consequently, probate isn’t necessary because the deceased’s interest no longer exists. Most spouses own their home as joint tenants with the right of survivorship.
Payable on Death Accounts
You might also have bank accounts that are payable on death. The beneficiary listed on the account takes over ownership once they present proof to the bank that the other owner has passed. You might have a savings or checking account set up in this manner.
Life insurance and retirement accounts do not pass through probate. Instead, there is a designated beneficiary who takes over the asset.
Any assets held in a trust are not part of the deceased person’s probated estate. These assets belong to the trust, and they are distributed according to the terms of the trust. Some people put their entire estate into a trust, which means there is very little to probate after death.
Common Examples of Non-Probate Assets
Some of the most common non-probate assets include:
Assets in a trust, including a living trust.
Property owned in joint tenancy with right of survivorship.
Any bank account or brokerage account with a payable on death or transfer on death beneficiary.
Retirement accounts, such as 401(k), 403(b), and Individual Retirement Accounts (IRAs).
Life insurance policies with a named beneficiary.
Some annuities with a beneficiary.
What Happens with Non-Probate Assets?
One question people have is how they get access to non-probate assets. Sometimes, the beneficiary needs to take affirmative steps. This is most common with payable on death or transfer on death assets. Contact the financial institution to ask what information they need. Typically, they need a death certificate and some other information.
Sometimes, no step is required. If you own a piece of property as a joint tenant, you automatically assume full ownership of the property when the other joint tenant passes.
Similarly, you might be named as the beneficiary for assets held in a trust. It’s up to the trustee to manage the assets, which includes transferring ownership to you under the terms of the trust. You should contact the trustee with questions.
Can You Challenge Who Inherits Probate or Non-Probate Assets?
Probate assets are typically left according to a will. In South Carolina, a person cannot create a will unless they are an adult (18 or older) with capacity. Disappointed family members might challenge the will for one of several reasons: lack of capacity, fraud, duress or coercion, or a failure to follow the formalities. If a judge agrees the will is invalid, he sets it aside.
You can sometimes challenge how a loved one left non-probate assets. For example, they need the capacity to create a valid trust, which you might challenge in court. You should consult an attorney with questions if you have questions.
Should You Use Non-Probate Assets in Your Estate Plan?
Surasky Law Firm has created many estate plans, and we realize that one plan that works for your neighbor might not work for you.
Many of our clients have non-probate assets because they are easy to transfer. This is true of owning a home as a joint tenant with someone, probably your spouse. You probably also named a beneficiary to many assets like retirement accounts when you opened the account.
The probate process can be slow and cumbersome, depending on the estate. Small estates can usually breeze right through probate, but there are sometimes hurdles that slow everything down. Leaving non-probate assets is usually helpful for your family, who gain easy access to resources they will need.
Have a Probate or Estate Planning Question?
Our firm always strives to explain the estate planning process in simple, clear language to empower you to make sensible choices that work for you. We also help families and personal representatives go through the probate process. Call Surasky Law Firm today to speak with our attorney about your legal issue in a confidential consultation.