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Probate vs Non Probate Assets: What’s the Difference?

Probate vs. non probate assets

When it comes to estate planning, it’s important to understand the difference between probate vs non probate assets. Probate assets are those that must go through the court process of probate after a person’s death, while non-probate assets can be transferred directly to beneficiaries without court involvement. This guide will help you understand the basics of probate and non-probate assets, and how to make informed decisions for your estate plan.

What are Probate Assets?

Probate assets are assets that are owned solely by the deceased person and do not have a designated beneficiary or joint owner.  These assets must go through the court process of probate in order to be distributed to heirs or beneficiaries.

In Arizona, the decedent’s estate is easily identified by application of the statutory definition: “’Estate’ includes the property of the decedent, trust or other person whose affairs are subject to this title as originally constituted and as it exists from time to time during administration. As it relates to a spouse, the estate includes only the separate property and the share of the community property belonging to the decedent or person whose affairs are subject to this title.” A.R.S. Section 14-1201.17. “’Property’ means anything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest in anything that may be the subject of ownership.” A.R.S. Section 14-1201.43; -10103.13.

What are Non-Probate Assets?

Non-probate assets are assets that are not subject to the probate process and can be distributed directly to beneficiaries or joint owners upon the death of the owner. These assets typically have a designated beneficiary or joint owner, such as life insurance policies, retirement accounts, and jointly owned property. It’s important to note that while non-probate assets may not go through probate, they may still be subject to estate taxes and other legal considerations.

Assets in a Trust, LLC, Corporation or Limited Partnership

Assets can avoid probate if they are held in a properly set up trust or other business entity.

Why is it Important to Understand the Difference Between Probate vs Non Probate Assets?

Understanding the difference between probate and non-probate assets is crucial for effective estate planning. Failing to properly account for all assets can lead to confusion, disputes, and delays in the distribution of assets. It can also result in unintended beneficiaries receiving assets.

The Story of Josh.

Josh (not his real name) came to our law firm a number of years ago. His father had just died, and his sister suddenly wasn’t talking to him. Apparently, Josh’s father had written a full estate plan … with powers of attorney, a pourover will, and a revocable living trust. The father’s will and trust said that Josh would get 50% of the father’s assets when the father died.

The father also named his daughter as the joint owner of all his real estate investment properties and investment accounts. He told his daughter to make sure she shared the assets with her brother. When the father died, his daughter legally became the owner of all the assets. The fact that the father also had a trust and a will turned out to be irrelevant. The jointly held assets went to the daughter, and the will and trust never came into play. The daughter made a calculation that all the inherited investment real estate and other assets that she received were more valuable than having a future relationship with her brother. She never shared the inherited non-probate assets with her brother. And they never spoke again.

That’s why understanding the difference between probate vs non probate assets is important.

By understanding the difference between probate and non-probate assets, you can ensure that your assets are distributed according to your wishes and that your loved ones are taken care of (in the way that you want) after your passing.

How to Avoid Probate for Certain Assets.

One way to avoid probate for certain assets is to ensure that they are designated as non-probate assets. This can be done by naming beneficiaries on accounts such as life insurance policies, retirement accounts, and payable-on-death (POD) accounts. By doing so, these assets will pass directly to the designated beneficiaries without going through probate. It’s important to review and update beneficiary designations regularly to ensure they reflect your current wishes.

But Review These Beneficiary Designations With an Attorney.

You can’t *assume* that beneficiary designations will always work. Here are some situations where beneficiary designations or joint owners is not enough:

  • More than one person become joint owners or beneficiaries of real estate. In this situation, the new owners may not agree on how to manage the property.
  • A beneficiary is a minor. Minors can’t own anything. If they inherit property, it might need to be controlled by a conservatorship until they turn 18.
  • A beneficiary is unable to manage the inherited asset. A mentally or cognitively impaired person may not be able to manage property. Their share would need to go to a conservatorship.

Seek Professional Advice for Estate Planning.

Estate planning can be a complex and overwhelming process, especially when it comes to understanding the difference between probate and non-probate assets. Seeking professional advice from an estate planning attorney or financial advisor can help ensure that your assets are distributed according to your wishes and that your loved ones are taken care of after you pass away. They can also help you navigate any legal or tax implications that may arise. Don’t hesitate to reach out for help in planning your estate.

We Can Help You Understand The Difference Between Probate Vs Non Probate Assets.

If you’re feeling overwhelmed by the prospect of managing a loved one’s estate, we’re here to help. Our experienced legal team specializes in guiding clients through the complex legal process of probate vs non probate assets distribution. Whether you’re unsure of what assets fall into which category, or you need help with the legal paperwork, we have the expertise you need to ensure a smooth and successful estate administration. Don’t let the confusion and stress of estate planning hold you back. Call us today at 602-443-4888 to schedule a consultation and get the guidance you need to protect your assets and ensure your loved one’s wishes are carried out.

ABOUT THE AUTHOR

Founding attorney Paul Deloughery has been an attorney since 1998, became a Certified Family Wealth Advisor. He is also the founder of Sudden Wealth Protection Law.

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