How often have you heard the term “probate” estate or assets? Do you know what that term means? What about “non-probate” assets?
Upon your death, the assets of your estate are divided into two different categories; probate and non-probate assets.
Probate assets are typically those assets that are titled in your name alone that do not have beneficiary designations or some other transfer on death designations. Probate assets are also those assets in which you have a divisible interest, such as a joint tenancy – not joint with rights of survivorship.
The distribution of probate assets upon your death is governed either by your Will or Pennsylvania intestacy laws (watch for future blog posts about intestacy). When you die with a Will, you are said to have died testate (with a last will and testament) as your Will directs the distribution of your probate estate. If you die without a Will, you are said to have died intestate (without a last will and testament), in which case the intestacy laws will govern and dictate to whom your estate is to be distributed. Intestacy laws are the “default rules” that apply only if you never had a Will or do not have a valid Will or your Will does not effectively dispose of your probate estate.
Your probate assets are distributed through the court-supervised probate process. In order to begin the probate process, the County Register of Wills issues Letters Testamentary to the person you appoint in your Will as Executor, or Letters of Administration to the person(s) entitled by the intestacy laws to serve as the administrator of your estate. Letters Testamentary and Letters of Administration are evidenced by a short certificate issued only by the Register of Wills.
Non-probate assets are special types of property that at your death do not become part of your probate estate. Their distribution is not controlled by your will or the intestacy laws, instead they are distributed by one of two ways: by operation of law or by operation of contract.
Those non-probate assets that pass by operation of law become the property of your heir immediately upon your death. An example is real estate that you own as a joint tenant with right of survivorship with another individual. The heir of such real estate is the surviving co-owner and not the beneficiaries listed in your Will. (If you owned real estate jointly with another as “tenants in common”, ownership of that interest in the real estate cannot be transferred to your heir except by your executor.)
The distribution of non-probate assets by contract is handled in accordance with the agreement you signed with the bank or other institution when you established the account or purchased the assets. The most common contractual arrangement is a beneficiary designation, such as for life insurance policies or retirement accounts. Other transfer on death designations include “POD” (payable on death), “TOD” (transfer on death), and “ITF” (in trust for).
It is important to understand that your Will alone will not govern the distribution of your non-probate assets. When preparing your Will, you need to review the beneficiary designations of your non-probate assets, as well as the title to assets you own jointly with a third person to be sure that such assets are distributed so as to fulfill your desired estate plan.
It is always best to consult with an experienced estate planning attorney who can provide guidance and help to ensure that your probate and non-probate assets will be distributed according to your intentions. I review detailed information with all of my clients so that, in addition to executing the usual estate planning documents, we also confirm that all beneficiary designations and other documentation align with my clients wishes for distribution of every part of their estate.