So you may be planning your estate and looking forward to the distribution of your assets to your loved ones. You may have already written a will, but then you remember what you’ve been told: your will must pass through the probate process before your loved ones can inherit from you. And then you ask, “Why can’t they inherit without having to go through probate? Is probate really necessary?”
To answer the last question, the answer is no. Probate is not a must. Probate is necessitated by the manner in which you hold assets. The manner in which you hold or own your assets will determine if they are probatable or not. Typically, probate is only necessary when there are probatable assets in the decedent’s estate.
This leads us to probate and non-probate assets.
A probate asset is any asset which you own in your name alone, having no beneficiary designation in the document of ownership.
If the ownership of your car, piece of art or business bears only your name (nothing like Julius and sons, or Mr. and Mrs. James Smith), then you have to write down in your will who these assets will go to. And so the court has to verify your will if it is valid so that your instructions can be followed.
In the absence of a will, your wishes are not known and there is room for your family to squabble over your property. To avoid this, the court has to conduct probate all the same, invoking your State’s law of intestacy to determine who legally has a share in your estate.
Typically, only probate assets can go into your will. And most states have a threshold for probate. If your estate (the total value of your probate assets) does not surpass the threshold, then probate will not be conducted. The threshold is $30,000 in New York and $20,000 in New Jersey.
Conversely, non-probate assets are assets that do not bare only your name, or have designated beneficiaries.
Non-probate assets include:
- Assets held in trust
- Assets held jointly with rights of survivorship
- Retirement account
- Bank account with transferrable-on-death clause
- Life insurance policy.
These assets pass outside of probate.
How do these assets pass outside of probate?
Trusts avoid probate by the fact that any asset funded into the trust takes up the name of the trust rather than that of the individual. Hence, such an asset will pass directly to the beneficiary named in the trust.
Assets held jointly with rights of survivorship, such as real property, will pass directly to the joint tenant outside probate. Obviously, the surviving joint owner or tenant will take claim of the property when you pass away. It goes without saying that the beneficiary is already known and valid so there is no need for probate.
In your life insurance, 401k, and ToD accounts, you already designated a beneficiary when creating them. So these assets will pass down to the designated beneficiary immediately you pass away, whether you write a will or not.
Since probate is not always necessary, how can I avoid it?
With all you have heard about probate, you may not wish for your loved ones to go through such stress while dealing with the grief of your loss.
You can avoid probate simply by eliminating all your probate assets. If there is no probate asset in your estate, then probate will not be conducted.
How do you do this?
Simply hold all your valuable assets in trusts. You can create different trust for each beneficiary, or create a pool of trust for all your loved ones. It is advisable to get an estate planning attorney to go over your options with you.
Since your real estate is highly valuable, funding it into a trust is not always worth it. It is better to change the ownership and hold in by joint tenancy with whoever you want it to go to.
If the sum total of all that’s left in your estate falls below your state’s threshold, then you have just successfully avoided probate.
Get help from an estate planning attorney
Strategic estate planning can ease your loved ones of so much burden when you pass away. And to do strategic planning requires experienced hands. An estate planning attorney can give you all the help you need. In the long run, the cost of hiring one will be so worth it to your estate and your loved ones.