Non-probate assets are commonly overlooked in estate planning.

Estate planning involves a lot of unique words like last will and testament, probate, and assets.

While these words are uncommon in the daily vocabulary of most individuals, they are important words to understand.

A last will is a formal legal document used to guide a probate court regarding the administration of an estate subject to probate.

Probate is the legal process of settling an estate through the local probate court when the estate owner has died.

Estate assets consist of everything you own, in whole or in part.

According to a recent The Mercury article titled “Planning Ahead: Pay attention to your non-probate assets, ” certain estate assets do not pass through probate and are not governed by a last will and testament.

Incorporating non-probate assets into a comprehensive estate plan can be confusing without help.

These are known appropriately as non-probate assets.

What are examples?

Non-probate assets include retirement accounts, investment accounts, life insurance proceeds, and  jointly titled assets (think of a home titled in the name of both spouses).

The vast majority of retirement accounts whether 401(k)s, 403(b)s, or IRAs will not be distributed through your last will and testament, unless you fail to designate a beneficiary to inherit them.

Applicable investment accounts are those with Transfer on Death (TOD) and Payable on Death (POD) designations.

Assets held in a trust are also non-probate assets.

How does this impact estate planning?

Using, reviewing, and updating beneficiary designations becomes essential.

If a person fails to retitle assets after a divorce, then an ex-spouse could inherit these non-probate assets.

Confusion could also ensue if a parent of adult children remarries and retitles assets jointly with the new spouse.

If the parent wants to leave the adult children assets, then the parent may want to leave all non-probate assets to the adult children rather than splitting them between the new spouse and children in the last will and testament.

Another commonly overlooked issue with estate planning involves designating one child as a beneficiary on non-probate assets rather than updating it when additional children are born.

If only one child can be named, then parents can work with an experienced estate planning attorney to to ensure inheritances are equal when it all shakes out.

When preparing a comprehensive estate plan, one should also take taxes into account.

Just because an asset passes outside of probate, it does not mean the asset is not subject to taxes.

The estate or heirs may be unintentionally left with a significant tax bill.

Assets can be placed in irrevocable trusts to help pass assets to heirs.

Specific instructions can be provided regarding distributions to be made.

Because the assets are not owned by the grantor in an irrevocable trust, they are not considered part of the probate estate.

Working with an experienced estate planning attorney is the best way to create a comprehensive estate plan for both your probate and non-probate assets.

Reference: The Mercury (April 12, 2022) “Planning Ahead: Pay attention to your non-probate assets”