By Eric P. Rothenberg, Esq. –
While there are many laws and court cases about “probate” property, most property today is “non-probate” and passes at death “by operation of law” and without probate court supervision. Non-probate property includes the following types of property:
Property with a Beneficiary Designation: The usually consist of life insurance and retirement assets (like a 401(k), SEP, Keogh and IRA). This property, which is in effect a contract between you and your insurance company or retirement custodian, passes to the individual or individuals that you list on the company’s beneficiary designation forms. It is important to review these every so often to ensure your beneficiary designation is not out of date. It is equally important to note that these designations are NOT affected by a will. So even if your will states you leave that asset to someone, it does not supersede a designation form.
Property Owned in Trust: Property in a living trust, a revocable trust, or so-called nominee trust is property in effect a contract between the creator of the trust and the trustee. Often the trustee is also the creator of the trust. We call the person who created the trust the Grantor, Donor, Trustor or the Settlor. They all mean the same thing. The trust property will pass according to the terms of the trust. Avoiding probate is just one of the many benefits of holding one’s property in trust. It may or may not have any tax consequences so be careful to know which consequences it does have.
Jointly-Owned Property: This includes property owned as joint tenants with rights of survivorship or as tenants by the entirety. If the right phrase is chosen for the real estate, the bank account or the brokerage account, then the property passes to the surviving tenant by operation of law immediately upon the death of the first tenant. This is true even if no one knows this for quite some time. So, for ex., if joint real estate is attached by a creditor and many years later a death certificate is recorded showing the debtor died with the surviving joint tenant now in owning it in full, the creditor is defeated even though the attachment was while the debtor was alive and even though the death certificate was recorded years after.
Understanding the distinction between probate and non-probate property can be crucial in making sure your estate goes to who you want. We know of a case involving a woman who held property jointly with her sister. Her will left her interest in the property to her daughter, but that provision was ineffective and trumped by the fact that she had already converted the property to non-probate property during her life. Despite what the will said, the house went directly to her sister, the co-owner with rights of survivorship, not her daughter.
Avoiding probate saves a decedent’s family members the cost and hassle of having to go through the probate court to distribute assets and settle the estate. It also provides privacy in settling the decedent’s final affairs because anything filed at the probate court is a matter of public record. But beneficiary designations are often made without the thought and consideration going into a will and sometimes are inconsistent with other parts of estate plans. It’s important to speak with an estate planning attorney if you seek to avoid probate in order to ensure your final wishes will be realized. In some cases, having the court’s oversight may provide welcome protections to both beneficiaries and those responsible for settling a loved one’s estate.