Understanding Non-Probate Assets in Estate Planning

In the estate planning and estate administration fields one often hears the terms “probate assets” and “non-probate assets” used. It is important to understand the difference between the two. Probate assets are those assets which pass under a Last Will and Testament. Conversely, non-probate assets are those assets which do not pass under the Will. Examples of non-probate assets include joint accounts marked “JTWROS” (joint tenants with rights of survivorship), “POD” (payable on death) accounts and real property deeds in the names of both spouses. Other examples include insurance policies, IRA accounts and annuities in which beneficiaries are specifically named.

In the case of non-probate assets the assets pass upon death to certain other persons. The assets do not pass by way of the Will. For example, a bank account in the names of two persons marked “JTWROS” will automatically pass to the survivor upon the death of one of the joint owners. Similarly, if real property is owned by two married persons as “husband and wife” the property automatically passes to the surviving spouse upon the death of the first spouse to die. Additionally, an IRA or insurance policy will pass to the person named as the beneficiary upon the death of the owner of the IRA or the policy.

What is most important to understand is that these assets do not pass under the terms of the Will. Thus, a mother cannot by her Will leave a joint bank account to her son if the joint bank account is in the name of the mother and her daughter. Upon the mother’s death the account will go to the daughter. In the same sense, real property in the names of a “husband and wife” cannot be left by a Will to a third party until both spouses have passed away.

In preparing a Will, you must know what assets are probate assets and which are non-probate assets. You must understand what assets will pass under your Will and which will pass outside of your Will. The failure to understand how these assets will pass could render your estate planning meaningless.

You must also understand the concept of non-probate assets even after your Will is complete. This is because in some cases, a person may by Will intend to distribute their assets equally among their three children, but later put a bank account into a joint name with one of the children and not realize that the account will pass to that child alone and not to all three children.

Before preparing your Will, you should discuss with your attorney all of the assets in your name and determine whether the assets are probate or non-probate assets and how you want those assets to be distributed upon your passing.