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Understanding Probate Assets

Probate

Probate assets

When you create an estate plan, your primary goal may be to ensure that your assets are distributed according to your wishes after your passing. You should also consider other objectives, however, such as the impact probate will have on your estate and the loved ones you leave behind. Understanding which assets are part of the probate process and which are not is a crucial aspect of estate planning. With that in mind, the Los Angeles attorneys at Schomer Estate & Wealth Advisors explain which assets are part of the probate of your estate and which assets pass outside of probate.

The Probate Process

When someone passes away, their estate comprises all the assets they owned or had an ownership interest in at the time of death. This includes both real and personal property, as well as both tangible and intangible assets. Probate is the legal process that many of these assets must go through before being transferred to the intended beneficiaries or legal heirs of the estate. The probate process serves several essential functions:

  • Identification and Valuation of Assets: One of the primary functions of probate is to identify, locate, and value the assets of the deceased. This ensures that all assets are accounted for and properly managed during the probate process.
  • Notification of Creditors: Probate involves notifying creditors of the deceased’s passing, providing them with an opportunity to file claims against the estate. This step is crucial to ensure that any outstanding debts are settled before the distribution of assets.
  • Payment of Taxes: Probate ensures that any state and federal gift and estate taxes owed by the estate are paid. This is a critical step to prevent any tax liabilities from being passed on to the beneficiaries.
  • Distribution of Assets: Finally, probate facilitates the distribution of assets to the beneficiaries as outlined in the deceased’s Will or, in the absence of a Will, according to state intestacy laws.

Probate vs. Non-Probate Assets

One of the first tasks an Executor has when overseeing the probate of an estate is to categorize estate assets as probate or non-probate assets. This distinction plays a significant role in the probate process because it often determines the need for formal probate and the amount of time an estate spends in probate. Here are some common types of non-probate assets:

  • Assets Held in a Trust: While your Last Will and Testament must be submitted for probate, a trust does not. Assets held in a trust are not subject to probate and can be distributed to beneficiaries according to the terms of the trust immediately after your death.
  • Jointly Held Property: Real property, for example, can be held jointly with rights of survivorship. This arrangement allows your interest in the property to pass directly to the co-owner upon your death without first going through probate.
  • POD and TOD Accounts: Certain accounts can be designated as “Payable on Death (POD)” or “Transfer on Death (TOD)” accounts. This designation allows you to name a beneficiary who will automatically become the owner of the assets held in the account upon your death. Unlike jointly held assets, the beneficiary of a POD or TOD account has no ownership interest in the asset while you are alive. Most financial accounts, securities, and even vehicles in some states can be designated as POD or TOD.
  • Life Insurance Proceeds: The proceeds from a life insurance policy can be paid out directly to the named beneficiaries without going through probate.
  • Retirement Accounts: Funds held in many types of retirement accounts, such as IRAs and 401(k)s, are often non-probate assets.

Importance of Non-Probate Assets

Even a relatively simple estate with uncomplicated assets can take several months to make it through the probate process. Larger estates that include complex assets can take years to probate. During this time, the assets that are part of the probate process remain tied up and inaccessible to the beneficiaries. The cost of probate can also be significant, further diminishing the value of the estate. Given these factors, it is advantageous to include as many non-probate assets as possible in your estate plan. Doing so can:

  • Expedite the Distribution of Assets: Non-probate assets can be distributed to beneficiaries immediately, avoiding the lengthy probate process.
  • Reduce Costs: By minimizing the assets that go through probate, you can reduce the overall cost of administering your estate.
  • Maintain Privacy: Probate is a public process, meaning that the details of your estate can become part of the public record. Non-probate assets, on the other hand, can be distributed privately.

Do You Have Additional Questions about Probate Assets?

For more information, please join us for an upcoming FREE seminar. If have additional questions about probate assets, contact the experienced Los Angeles estate plan attorneys at Schomer Estate & Wealth Advisorsby calling (310) 337-7696 to schedule an appointment.

Scott Schomer, Estate Planning Attorney
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