What is a Probate Asset and What is a Non-Probate Asset?

When talking to your lawyer about creating a will and how you will distribute your estate, your lawyer should ask about all of your assets and categorize some of them as “probate assets” and others as “non-probate” assets. What does she mean when she says this?

A probate asset is one that is held in your name or in a tenancy in common with another person (or persons). These are the assets that are distributed through your will and the distribution is supervised by the court through the probate process.

A non-probate assets is one that is held in a joint tenancy with a right of survivorship, an account that has a “payable on death” or “transferable on death” designations, life insurance, and retirement accounts (IRAs and 401K accounts). These assets have specific rules as to who will inherit these assets from you and are not subject to the terms of your will.

Many clients that I have counseled wish to leave their estates in equal shares to their children. I have to ask them about all of their assets and how they are titled to show them if their desire to leave equal shares to their children is being accomplished. For example, if you have a joint bank account with the child that lives near you and helps you with your banking and there is $100,000.00 in that account, the money in that account goes directly to that local child, outside of probate. If you own another account that is transferable on death to a second child who lives across the country and that account has $25,000.00, that $25,000.00 goes to the second child. Then, you propose to put in your will that you will leave your estate of $500,000.00 to your two children in equal shares. Will your two children receive the same amount of money?

No they won’t. The first child has the $100,000.00 from the joint bank account plus $250,000.00 from the assets that are distributed through the will, for a total of $350,000.00. The second child who lives far away gets $25,000 from the “transferable on death” account plus $250,000.00 from the assets that are distributed through the will, for a total of $275,000.00. That’s not equal.

Of course, you may not want to distribute your assets to your heirs equally. Maybe you wish to give one child more because the other child is financially wealthy and only one child needs your money. Or, perhaps, one child has been taking care of you for the last 10 years and you feel that this child should inherit the majority of your estate.

By knowing how whether your assets are “probate” assets or “non-probate” assets, your estate planning lawyer can help you achieve your goals.