Probate Vs. Non-Probate Assets in Estate Planning


You may hear a lot about probate assets and non-probate assets and not understand what the terms mean and why the difference matters.

Whether an asset is probate or non-probate affects how quickly you get the asset as well as the oversight needed to distribute the asset to the rightful beneficiaries.

What Is the Difference?

Assets that do not have to go through probate can be transferred to beneficiaries much more quickly. Probate can take months, if not longer, depending on the complexity of the estate.

Often beneficiaries will need assets and funds quicker than that time will allow, and these non-probate assets help make this possible.

Common Assets That Go Through Probate

The probate process is required for any property that was solely titled in the name of the deceased person.

For instance, if the deceased owned real estate or a car titled only in his or her name, that property would be handled via the probate system. In addition, if property was owned as “tenants in common” with a deceased person and another individual, that portion of the property owned by the deceased would be handled via probate.

All this property goes into the “probate estate,” and this will be handled by the personal representative or executor, as well as the Judge in the probate court.

Many choose to hire an attorney to assist with this process, as well as an accountant for purposes of estate taxes, should those apply.

Assets That Don’t Need to Go Through Probate

Not everything goes through probate. Many assets can be handled without filing a single document in court, if done properly prior to the deceased’s death.

For instance, if the deceased is married and owned most of his or her property jointly with his or her spouse, that property would quickly pass onto the spouse upon the passing of the deceased.

Living trusts are the most common method people use to avoid having their assets go into probate. Trusts are created giving the Settlor (i.e., you) the power to modify or change as many times as you wish during your lifetime, and then, upon your death, the trust is under the control of the Trustee, someone you name specifically within the document to handle your assets and debts, as well as any outstanding affairs that need to be handled before the trust can be closed.

These assets are not taxed under estate taxes and can be distributed quickly outside of the court system. The caveat to trusts, however, is once the document is created, you will need to change legal ownership of your property to “The Trust of ‘X’.” Otherwise, you are walking around with a document that holds absolutely no power over anything you own, and all your assets will go to probate in the end.

Life insurance proceeds are out-of-probate assets that go directly to the beneficiaries listed on the accounts. Some people choose to list the estate as the beneficiary of a life insurance policy, though this somewhat defeats the purpose of having a non-probate asset like this.

Retirement accounts, IRAs, 401(k) accounts, and pension plans all have beneficiary designations, and these assets also go outside of probate.

Any property that is held in joint tenancy with right of survivorship or property that is owned in Securities registered in transfer-on-death form, funds that are available in a pay-on-death bank account, U.S. saving bonds that are also registered in a pay-on-death form, or real estate that is valid on a transfer-on-death deed are also handled outside of probate.

If you have registered your car or boat in a transfer-on-death form, this asset would be dealt with outside of probate. However, this option is limited only to a handful of states.

Call J. Cutler Law Today

At J. Cutler Law, we offer free probate consultations for you and your family. We can help you decide what trust best fits your family’s needs. Call us today for a free consultation at (801) 618-4469 or contact us online.