WHAT ARE NON-PROBATE ASSETS?

Assets that are not required to go through probate are commonly referred to as “non-probate assets.” This term causes significant confusion amongst our clients and readers. This term simply refers to any assets which transfer automatically at the time of death, and therefore aren’t considered an asset of the estate. Here are some common examples of assets that might be classified as non-probate:

  • Life insurance –If there is a proper beneficiary named on the life insurance policy, the proceeds of the life insurance do not pass through probate and instead go directly to the named beneficiary (or beneficiaries). This is one reason that life insurance is such a great estate planning tool. One caveat here: Always make sure your insurance beneficiary designations are accurate. If you get a divorce, your beneficiary predeceases you or you fail to name one, the default rule is that proceeds become payable to the estate of the policy holder. In that scenario, you’ve just failed to take advantage of a great opportunity to avoid taxes, probate fees and creditors.
  • Retirement Accounts – Most retirement accounts allow for the naming of a beneficiary. When you name a beneficiary (or two, or three), the beneficiaries are automatically entitled to the assets in the account at the time of death. Similar to life insurance policies, failing to name a beneficiary or not updating your beneficiary can destroy this benefit. It’s important to discuss with your investment advisor and attorney how these accounts should be considered in your estate planning.
  • Payable on Death (POD) Accounts – Bank and brokerage accounts can also have designated beneficiaries. While it’s advisable to make sure there is some cash in your estate to handle funeral bills, probate fees and other expenses, transferring the bulk of your cash using a POD account is a smart strategy.
  • Property Held Jointly with Rights of Survivorship – We have previous posts that cover this form of ownership in detail. For this discussion, just remember that your real property, vehicles, boats and other titled assets can be set up in this structure so that upon death, the interest automatically conveys to the other owners. While this is great for a spouse or to transfer assets to an only child, make sure to understand why you should be careful when using this as an estate planning tool if you’re single, remarried or have more than one child! More information on that can be found on here.
  • Trust Assets – Any asset transferred to a trust prior to death is considered a non-probate asset. The reason is simple, probate only controls assets owned by the decedent at his/her time of death. Assets in a trust are in control of the trust, not the decedent, and therefore don’t require probate.

This information is important both for Personal Representatives handling an estate and for clients doing estate planning. The rules that must be filled to keep them classified as “non-probate” also highlight the importance of checking your titles, beneficiaries and estate plan regularly to make sure everything is in place. So many events can trigger a need to update your planning including the birth of a child, divorce, death of a beneficiary, change of employment, purchase of property and more.

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16 Responses to WHAT ARE NON-PROBATE ASSETS?

  1. Lisa coates says:

    Does a spouse have to disclose non probatable items to a lawyer that’s representing the deceased spouses children?

  2. Unfortunately, I can’t answer the question without further details. For example, if an attorney representing another party requests a list of non-probate assets as part of the discovery process during litigation then it is likely that has to be provided or else the court will compel the release of the information. It’s also not clear from the question if the spouse is serving as Personal Representative or not. In general, when there is any type of contest, the Court is going to require ALL assets be disclosed, both probate and non-probate.

  3. Ross Luken says:

    What about an interest in an LLC that names a designated beneficiary? Would this pass outside of probate?

  4. Ross,

    Assuming the beneficiaries were properly named in the articles for the LLC then this would be a non-probate transfer. The only exception would be if a beneficiary pre-deceased, etc. such that the naming of the beneficiary failed.

  5. Ross Luken says:

    Tiffany,
    Thank you for your timely response. I believe that LLC documents correctly name the beneficiaries, but I am not an attorney. I have a phone appointment ( I am located in MN) set up with your firm tomorrow to see this they can help verify the document are done correctly.

    Thanks again

  6. Ross Luken says:

    Tiffany,
    During the phone consultation this afternoon I receive the opposite view than your regarding if whether or not the LLC interest would transfer outside of probate, but it does not seem very cut and dry.

    The managing member of the LLC believes that it would transfer outside of probate as well. The LLC will be concluding business after the sale of one property and thinks the initial capital and profits so go to directly to me and not into the estate where they would be used to pay off creditors. Of course this is what I like to see as well.

    Would creditors contest something like this?

    Thanks

  7. Allison says:

    Hello,
    Can an ex-spouse named as a beneficiary on a checking be contested (been divorced for 5+ years)? The deceased did not have a will and the probate court has appointed the only next of kin as the executor of estate. There are no other children.

    Thank you

  8. Allison says:

    Hello,
    Can an ex-spouse named as a beneficiary on a checking be contested (been divorced for 5+ years)? The deceased did not have a will and the probate court has appointed the only next of kin as the executor of estate. There are no other children.
    Thank you

  9. Allison –

    Thank you for submitting your question. We need a little more information. Is this a joint account or the ex-spouse is named as a pay on death beneficiary? Also, it’s relevant as to whether the ex-spouse was named before or after the divorce? The South Carolina law that applies is S.C. Probate Code §62-2-507 which you can easily research and read. It explains in detail the effects of a divorce on assets including life insurance policies, payable on death accounts and more.

  10. allison says:

    pod beneficiary. been divorced for 10 years. account set up while they were married but not a joint account. thanks for your help

  11. Allison,

    I believe the code section I mentioned will apply in this situation. You can read it here:
    http://law.justia.com/codes/south-carolina/2013/title-62/article-2/section-62-2-507

  12. Judith Hall says:

    Couple divorced in SC. One of their divorce orders states, “Any asset in existence at the time of the divorce that was not on either party’s financial declaration, if discovered, will become the property of the other party.” There were no limitations on time for discovery nor means of discovery.

    Ex-husband died and ex-wife’s claim in Probate Court for discovered NON-probate assets and back alimony is pending.

    Per estate attorney, the probate estate is “in-solvent”. It has $20K of artwork and that will go toward administrative and funeral costs if liquidated. All other assets are non-probate items.

    Ex-wife is awaiting a money judgment from the Family Court Judge.

    1a. If a settlor (ex-husband) used their fraudulently hidden marital assets (and their profits) to fund any type of trusts (except a charitable trust), is the ex-wife also a settlor of those trusts, or at least a settlor of the marital-assets portion of the trust(s) (including their profits)?

    1b. If yes, how does that affect the the pending lawsuit?

    2a. Can the judge from either court order the hidden assets and their profits to be turned over DIRECTLY to the ex-wife/petitioner/creditor since they are already owned by her?

    2b. If no, what criteria will determine if the probate judge will order the non-probate assets to be “taken back” or “pulled back” into the probate estate?

    3a. May ex-wife transfer her case to Family Court or to Civil Court (for fraudulent transfers and concealment of marital assets)?

    3b. Do you advise a transfer to either court?

    Thank you so much for your answers.

  13. Renae says:

    My brother died, leaving behind a 10 yr old child and a 19 yr old adopted son. He had no life insurance or will. We have been told now that the ex wife is “next of kin”. Is there any way I can contest as his sister to be the administrator of his estate? He didn’t own a car fully and had a motorcycle. He rented a small home. Are all of his clothes and other belongings to be listed in the estate? Do I have any rights as his sister? If so, how do I go about hiring an attorney to help us get a small piece of our brother? (She paid for the cremation even though my sister and I had to sign for permission and we haven’t been allowed any ashes either.)

  14. J. Hall says:

    1. Ms. Provence, will you soon be responding to Judith Hall’s post of April 14, 2017 ?

    Due to opposing atty’s illegal refusal to produce ex-wife/creditor’s requested documents , she had no proof/evidence at the hearing. Thus, the judge ruled vs. her claims for the previously hidden marital assets. Privilege was the basis for the refusal. Her requested documents are financial docs which she believes are not privileged.
    2. Is that correct?

    3. Are the next two sentences correct? Technically, attorney misconduct is not reversible error. Failure of the judge to remedy it during the trial is reversible error. (Judge knew of atty’s refusal to cooperate in the Discovery, yet, based on procedural error (Motion to Compel full Production was faxed to Court, not sent by U.S.mail), the judge did not remedy the lack of evidence.

    4. Couldn’t the judge, on his own (i.e., without a party’s Motion to Compel full Production), order a Continuance and an Order to Compel?

    5. Should ex-wife motion for a new trial or appeal the final judgment? It seems that if the circuit ct. rules in her favor, the probate ct. will have to hold a new trial anyway.

    Thank you.

    In cases such as unfairly or illegally concealing evidence, there is no error on the part of the court but the court’s decision may still be vacated and the matter returned for a new trial, because there is no other way for justice to be granted.

  15. Thank you for your comment and posts. On this blog, we respond to general questions that impact a large number of readers. We specifically email (privately) those users who post fact specific issues or who are discussing a pending case where details or strategy might be viewed by another attorney involved on the other side. We appreciate your understanding.

  16. Renae – I apologize. Apparently your comment was auto-flagged as spam despite the fact that it’s clearly relevant to our blog. If you still have a need for a consult please email me at Tiffany@ProvenceMesservy.com.

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