“THE LEGAL CORNER”
By Sam A. Moak
WHAT ARE NONPROBATE ASSETS
The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.
One of the more common complaints about attorneys is their use of too much legalese. Unfortunately legalese is all too common in real estate and estate planning practice. This week I will try and clarify one of these areas.
Probate is the legal process of administering a deceased person’s Will or the estate of a person who dies without a Will. Remember, just because someone dies with a Will does not automatically mean they must go through the probate process. This depends on what type of property they owned at their death and how well their Will was drafted. If someone passed away and left a Will, be sure to check with an attorney skilled in this area to determine if there is a need to probate the Will.
Only property owned by the decedent at death can be disposed of by a Will. A Will cannot dispose of “non-probate assets.” What are non-probate assets ? They are assets which pass at death other than by Will or intestacy. The principal types of non-probate assets include property passing by contract, property passing by survivorship, and property held in trust.
Property passing by contract includes life insurance proceeds, IRAs and employee benefit plan proceeds, such as the proceeds payable under a pension, profit-sharing, or employee retirement plan. These assets pass outside the Will to the persons named by the decedent in the appropriate beneficiary designations. Thus, it is important to periodically review the beneficiary designations with respect to these types of assets and to update them as necessary.
Property held by the decedent and another person as joint tenants with right of survivorship passes outside the Will directly to the survivor. Survivorship assets typically include certain types of bank accounts, certificates of deposit, stocks and bonds, and certain savings bonds issued by the United States Government, such as Series EE savings bonds. If these are not addressed when you prepare your Will, then all your careful estate planning could be for naught.
Another category of property that passes outside of probate is property held in trust for the benefit of the decedent. The trust may have been created by the decedent during his or her lifetime for property management purposes or by someone else, such as a parent of the decedent. Trust assets pass under the terms of the trust rather than under the terms of the decedent’s Will.
It is important to determine the extent of one’s non-probate assets when planning the disposition of one’s property at death. If a substantial portion of the assets are non-probate assets that do not pass under the Will, even a well-drafted Will may be insufficient to carry out the testator’s intent in disposing of his or her property. If you intend for life insurance proceeds, IRAs and employee benefit plan proceeds or bank accounts, certificates of deposit, stocks and bonds, and certain savings bonds to pass under your Will, these beneficiary and joint tenancy designations should be carefully examined. Therefore, be sure to provide your attorney with information regarding all of your possessions so that he may be sure to address them when discussing your Will.
Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.