Probate vs Non-Probate Assets
A point of confusion I often see is a failure to appreciate probate vs. non-probate assets. It is a critical distinction. For example, I receive many calls from people wanting to contest a will. When I ask about the assets, I often hear that their mother had a million dollars in a brokerage account. I then have to explain that very often financial and investment accounts do not pass through probate. Instead, they pass through beneficiary designations.
Beneficiary designations can be challenged. But not through a will contest. And the assets may have already passed before I ever receive a call, because there is no requirement to probate a will. Instead, the financial institution may pay quickly after they receive a death certificate.
The distinction is very important for estate planners to counsel their clients to understand the difference. Doing so could prevent problems down the road. For example, I see wills that purport to divide financial accounts or life insurance proceeds. But that only works if the estate is listed as the beneficiary. That is not common.
Understanding Probate Assets
Probate assets are those that pass through the probate court after a person’s death. In Texas, this process involves proving the validity of a will, appointing an executor, and distributing the assets in accordance with the will or state law if there’s no will. Common probate assets include:
Residential real estate solely owned or as a tenant in common.
Rural land.
Personal assets like cars and jewelry.
Bank accounts without survivorship or beneficiary designations.
Understanding Non-Probate Assets
Non-probate assets bypass the probate process and are transferred directly to beneficiaries. These assets typically have designated beneficiaries or allow for the transfer of ownership upon death. Examples include:
Jointly owned property with rights of survivorship.
Retirement accounts like IRAs and 401(k)s.
Bank accounts with “payable on death” (POD) or “transfer on death” (TOD) designations.
Comparing Probate and Non-Probate Assets
The primary difference lies in how these assets are transferred after death. Probate assets go through the court system, potentially leading to a longer and more public distribution process. Non-probate assets, on the other hand, provide a faster and more private transfer. It’s important to note that while non-probate assets can simplify the distribution process, they still need to align with overall estate planning goals and legal requirements. Often, it is apparent that the owner of the assets mistakenly believed it could be passed through the terms of a will.
We regularly handle will contests. We also dispute account and life insurance beneficiary designations. The process is not the same. It is important to contact lawyers who understand not only the differences in how these assets pass upon death, but how to challenge them in court successfully.