Getting Your Ducks in a Row: Understanding How Non-Probate Assets fit into your Estate Plan.
Carefully assessing your non-probate assets is a critical part of estate planning that is often overlooked. In order to ensure your estate is distributed in the manner you desire you must first understand what your non-probate assets are, and second, how they will be distributed upon your death. This article provides an overview of probate and non-probate assets, and a discussion of how, through effective planning, non-probate assets can decrease the time and cost associated with administering your estate.
Probate property includes those assets you own in your individual name. Upon your death, these assets will pass through your will or trust to the beneficiaries you designate. If you do not have a will or a trust, the North Carolina Intestate Succession Act will govern who receives this property. Probate is the process by which the court oversees the proper distribution of these assets. An individual’s probate property might include individually held bank accounts, real estate, vehicles, jewelry, furniture, and other items of personal property.
Non-probate assets are those that are held jointly and with a right of survivorship, or individually held assets with a beneficiary designation or a transfer on death payee. Non-probate assets often include joint bank accounts, jointly held real estate, life insurance proceeds, investments, 401Ks, and IRAs. It is important to note, not all joint bank accounts have a “right of survivorship.” Similarly, not all insurance policies or investment accounts have named beneficiaries. Check with your financial institutions to understand how your accounts or policies are setup.
Notably, wills do not govern non-probate assets. Even if your will includes a broad clause such as “I give all of my property to my children” – that bequest will have no effect upon non-probate property such as a life insurance policy which names another individual as the beneficiary.
A mistake in estate planning often occurs when individuals let significant time pass without reviewing and updating beneficiary designations. This can have an unfortunate impact if the beneficiary named is no longer the intended recipient. Beneficiary designations should be updated upon the occurrence of any major life events, for example: the death of a named beneficiary, divorce, remarriage, the birth of children and grandchildren, etc. Designations should also be reviewed at least every three to five years. Additionally, it is important to name contingent beneficiaries to provide for the event that your primary beneficiary predeceases you.
Updating non-probate assets can be a great tool for simplifying the process of administering your estate upon your death. Having an effective plan in place for your non-probate assets can save your loved ones a great deal of time, effort, and money. It can also allow them quick access to funds which may be needed for their continued care and maintenance. If your non-probate assets have a beneficiary named, or a transfer on death payee, that individual can (in most cases) access the funds quickly and easily. Usually, they simply need to present a death certificate to the financial institution and complete some paperwork. They will not have to wait for the full administration of your estate through the probate process. On the other hand, failing to name a beneficiary or a transfer on death payee for assets such as life insurance or investment accounts can cause those funds to go through your probate estate – significantly increasing the cost of administering your estate, and in some cases having negative tax consequences.
This spring, take time to review all of your non-probate assets to ensure they are up to date and in accordance with your wishes. Doing so can make the process of administering your estate much easier on your loved ones. If you have never made an estate plan or need to review an estate plan you previously created, be sure to contact Hudson Legal Services today for guidance.
