19 Jan WHAT ASSETS DO NOT GO THROUGH PROBATE?
Probate is the process of going to court when the deceased owns an asset in his or her individual name so that asset can be collected, evaluated, and distributed to heirs or beneficiaries after the payment of the debts and taxes of the deceased has been made.
However, even if you have a will, sometimes it is not necessary to probate. Some examples of assets that do not typically pass through probate are as follows:
1) Trusts:
Assets held in a trust pass by the terms of the trust after the trustee pays all taxes, debts, etc. Trusts offer many other benefits besides probate avoidance. There are numerous types of trusts which vary by the goals of the individual (i.e., avoidance of guardianship, creditor protection, tax planning, charitable planning, potential remarriage of spouse or child’s spouse, etc.).
2) Real Estate – (if the deed is a):
a. Life Estate deed – whether or not the life estate deed is enhanced (Ladybird) retaining all elements of control or if it fails to retain elements of control.
b. Transfer on Death deed – if interested in seeing our chart on when it’s better to have a Ladybird deed or Transfer on Death deed, click here.
c. Joint Tenants with Right of Survivor deed – this is different than simple joint ownership. Even if a married couple jointly owns property, the survivor sometimes needs to go through probate (i.e. children of the deceased are from a prior relationship) to transfer the interest of the deceased joint owner.
3) All assets that pass as joint with right of survivorship:
In addition to real estate (if property titled), other assets can pass by right of survivorship. For example, a bank account (through the signature card) or a car (if the title is established in this manner) can pass to the survivor. A death certificate is generally all that is required.
4) Beneficiary – Designated Accounts:
Some examples of accounts that can name a beneficiary which typically avoids probate include:
a. Life Insurance policies – However, if the policy beneficiary dies first and there is no contingent beneficiary or if the estate is named as the beneficiary, then probate may be needed.
b. Retirement accounts – IRA’s, 401k’s, and other retirement accounts typically name a beneficiary and a contingent beneficiary.
c. Paid on Death (POD) accounts – Your bank account signature card can designate a beneficiary upon death.
d. Transfer on Death (TOD) accounts – Investment accounts that name a beneficiary on death are titled as transfer on death (TOD) which is similar to the POD on bank accounts.
e. Annuities – Similar to life insurance policies, annuities often name a beneficiary at death of the insured.
f. Pensions – Pensions often pass to a surviving spouse without probate if the employee chooses that option.
g. Education Savings accounts – Education savings accounts such as a 529 plan can name a beneficiary.
h. Health Savings accounts (HSA) – A beneficiary of a HSA can be named.
i. Vehicles – An owner of a vehicle can designate a beneficiary in Texas through the Depart of Motor Vehicles.
5) Small Estates Affidavits:
In Texas, if the estate of the deceased is less than $75,000 and the deceased did not have a will, a small estates affidavit could be filed with the court.
While probate avoidance is often desired, there are numerous reasons why probate may be preferred. This could include, but is not limited to (1) protection of the beneficiary who has creditors or is a spendthrift; (2) protection of assets if there is a concern that a spouse may remarry; (3) tax planning; (4) protection of the lose of public benefits if the beneficiary is on Medicaid or will likely need benefits; (5) protection of the beneficiary who has an addiction issue; (6) protection of the beneficiary who is a minor or too immature to handle assets; (7) protection against a child’s spouse if there is a marital issue or if the spouse may remarry resulting in assets going to a family unknown by the one signing a will; (8) protection of one who is incompetent; and (9) clarification of conditions on how assets are to be distributed.
If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.