The Basics: Probate vs Non-Probate Assets

Redding Law, PLLC thinks every adult should have a valid Will; however, did you know that even with a Will and good planning there are likely to be assets which will pass outside of your will that require separate planning?  

Non-Probate Assets –

Non-probate assets are, to put it very simply, assets which pass outside of the terms of a properly probated Will. These are things that you own but on your death pass on their own terms. Common assets of this type include bank accounts, Certificates of Deposit, life insurance brokerage accounts, tax advantaged retirement accounts like IRAs, pensions, 401K plans, and other investment accounts. These all share the fact that there is a contract delineating how these assets are held or managed and what happens to them under various circumstances.

              When you open a new bank account you would have filled out an account agreement, forming a contract with a bank or other institution. Generally, that agreement includes provisions to tell the institution “in case I die, pay my money you are holding to this person or persons.” There are other more sophisticated types of non-probate dispositions which can be created by legal instruments.  For example, you can create a special type of deed to transfer a home or car on your death.  It is also possible to create types of trust instruments which transfer assets without a Will and Probate proceeding.

              The advantage of non-probate assets? They avoid the need to go through court proceedings and associated legal expenses, which in many cases can be very desirable.  Generally, really all you must do to transfer a non-probate asset to you after the prior owner dies is produce a death certificate and the holder, such as a bank, will transfer the asset to the designated beneficiary. The risk? Non-probate assets is that it is so easy to transfer large amounts of assets without much thought – writing one name down on an account form can send a huge amount of money one way or another.

Probate Assets –

Probate assets are simply those assets which pass under the terms of a Will. Generally, these are assets which have a form of formal title – like your home or your car.  However, these can often also be extremely valuable assets. Any asset which doesn’t pass on its own terms would be considered a Probate Asset.

Probate assets are transferred by a process in a Probate Court – either a Probate of a Will or alternatively, a determination of heirship proceeding.  Then the Court will appoint a executor or Administrator to transfer the asset to the assets new owner.  It is most important therefore that a Will be put in place to ensure that the assets are given to the person you want to have them.

The advantage of a probate asset is, through its formalized transfer, it helps ensure that an asset gets exactly where you want it to go.  However, because these assets are transferred through a court proceeding, unless a Will is in place, the assets may not end up where you want them to go – as they follow the default rules for inheritance in Texas.  

Finding a Good Mix –

A well-formulated estate plan will likely contain a mix of probate and non-probate disposition of assets.  For example, you may want flexibility for the Executor of a Will to use assets to pay various debts or equalize shares gifted to property. However, in a family situation it may also be very desirable to have other cash pass non-probate to a family member, so some cash is immediately available for immediate expenses.

As part of planning, whether with a Will or another type of planning, it is important to take time to review non-probate designations on all of your accounts and similar assets to make sure your assets would end up where you thought they would.

Redding Law, PLLC intends this educational hypothetical illustrate a situation where the laws of the State of Texas could lead to extremely unexpected results. However, the reader should note that this explanation is specific to Texas and is not intended to be legal advice for any person or situation. To receive additional copies of this newsletter or permission to reprint any portion please contact Redding Law, PLLC.