Non-Probate Assets Are Not Part of the Estate

In presentations about inheritance, the focus typically centers on creating a will. However, this overlooks a crucial question: what happens to assets that bypass the will through non-probate mechanisms?

Many families transfer more assets outside the will than through it. Consider common non-probate assets: life insurance proceeds, investment accounts, and jointly titled real estate (held as joint tenants with right of survivorship). These assets frequently total substantial amounts – often exceeding probate assets.

It is important to pay close attention to accounts transferred by beneficiary designation.

How Non-Probate Assets Transfer

Most retirement accounts – including IRAs, 401(k)s, and 403(b)s – pass to designated beneficiaries rather than through the will. Similarly, bank and investment accounts marked as Payable on Death (POD) or Transfer on Death (TOD) bypass probate entirely. Property held in a trust also avoids probate, which is one key reason people establish trusts.

Why This Matters

Understanding the distinction between probate and non-probate assets is critical. Consider this scenario: a man expected to inherit half his father’s estate. When his father remarried and later passed away, the son received only several thousand dollars – far less than anticipated.

The likely explanation: the father had retitled his house and bank accounts with his new spouse, removing them from the probate estate through joint ownership. His updated will may have divided remaining assets equally between his new spouse and son, but most assets had already been transferred outside probate.

Unintentional Disinheritance

Parents can accidentally exclude heirs if all non-probate assets are titled in one child’s name without provisions for others. An estate planning attorney can help balance inheritances by adjusting probate asset distributions if equal sharing is intended.

Tax Considerations

Non-probate doesn’t always mean non-taxed. Depending on residency and heir location, estate or inheritance taxes may apply.

Using Trusts for Control

Placing assets in irrevocable trusts is a common strategy ensuring intended recipients receive inheritances. Trusts allow specific instructions about distributions and exist outside the probate estate since they’re not owned by the grantor.

Your estate planning attorney can review both probate and non-probate assets to determine the best approach for achieving your distribution goals. If you or a loved one needs assistance, do not hesitate to contact The Stegall Law Firm.