One key to planning your estate is to understand the difference between probate and non-probate property. Probate is the process of the Probate court determining how to distribute your property after you die. This process is simplified if you have a Will in place that states who to distribute your property to, and appoints an executor of your choice. This Probate process can be considered a burden, which is why some people desire to have non-probate assets. Non-probate assets include retirement accounts and life insurance policies in addition to property that is jointly held, bank or brokerage accounts, and property held in a trust.
Retirement Accounts. Retirement accounts most commonly refer to Individual Retirement Arrangements (IRAs) and 401(k) and 403(b) plans. These accounts are designed to help you save for retirement while offering tax advantages. As a non-probate asset, upon your death, retirement accounts pass to individuals that you have chosen through a beneficiary designation. This allows those beneficiaries to take control of the assets after you’re gone without passing through your Will and therefore avoiding the Probate Court system.
Life Insurance. Life Insurance is a contract with an insurance company through which you pay premiums and the insurance company provides a lump-sum payment, or death benefit, to beneficiaries upon your death. The beneficiaries, chosen by you through beneficiary designation forms, receive the proceeds of the policy outright upon your death. This means that there is no need to pass life insurance through a Will, as it is a non-probate asset.
Owning non-probate property is one of the easiest ways to avoid costly and time-consuming Probate processes. While avoiding Probate may seem like the best option, there are times when this type of property may wind up in the wrong hands. It is important to be diligent in updating your beneficiary designations whenever a big life event happens such as marriage, divorce, birth of a child, etc. If a beneficiary is listed as your “estate” then non-probate property will wind up passing through the Probate process which can defeat the purpose of the retirement account being a non-probate asset. It is also important to understand that there is property that must pass through your Will and the Probate process. This includes any property owned by you in your sole name and personal property such as jewelry and furniture.