A lot of clients have come to me recently with concerns about the costly and time-consuming headache that probate may create for their family.
Many seek to draft revocable trusts to transfer their property at death to their family fairly and proportionately. A revocable living trust allows you to direct who manages your property and benefits from your property after your death. Basically, whatever property is held in the name of the revocable living trust passes without the probate court’s statutorily required supervision.
However, some property by its very nature passes outside of probate, that property is categorized as a “non-probate” asset. In general, there are 6 types of non-probate assets that may avoid proba
e after you die:
Assets you own in your name but have a payable on death (POD), in trust for (ITF), or transfer on death (TOD) designation. These include Transfer on Death or Beneficiary Deeds and Health Savings Accounts.
Assets you own jointly with right of survivorship (JTWROS), with your spouse or others, such as a sibling, child or parent.
Assets you own with your spouse as joint tenants by the entirety (TBE).
Assets owned by your revocable living trust. The common mistake is not transferring assets into t he name of your revocable living trust. Those assets in your individual name will not avoid probate.
Assets in which you retain a life estate and the remainder passes to a non-charitable beneficiary other than yourself.
Assets owned by you through contract rights that are payable to designated beneficiaries, such as, life insurance policies, IRAs, 401(k)s and annuities.
*A Word of Caution About Non Probate Property: While avoiding probate may seem like a good result, not having a trustee or court supervise the distribution of your assets may lead to some of your non-probate property being distributed to beneficiaries or creditors you did not intend. Also, if the designated beneficiary passes away before you and no successor living beneficiary is named, the asset will need to go through probate. In that case, if you do not have a last will and testament, the court will use statutory guidelines to distribute the asset among a list of beneficiaries.
In sum, while it may be advantageous to own a diverse category of non-probate assets, circumstances may warrant the need for a revocable living trust to ensure your assets end up in the hands of those you intend.