What Assets Skip Probate

What Assets Skip Probate

When someone dies, not all their assets have to go through probate court. Some assets transfer directly to beneficiaries without any court involvement. This saves time, money, and hassle for your loved ones. Understanding which assets skip probate helps you plan better and makes things significantly easier for your family during an already difficult time.

Assets with Named Beneficiaries

The easiest way to skip probate is by naming beneficiaries on your accounts. When you die, these assets go straight to the people you chose. No court needed. This method of probate avoidance is both simple and effective for many types of financial accounts.

• Life Insurance: Your policy pays directly to your named beneficiaries. Make sure you keep these updated, especially after major life changes like marriage, divorce, or the birth of children. Some policies allow contingent beneficiaries in case your primary choice predeceases you.
• Retirement Accounts: 401(k)s, IRAs, and pension plans all pass to your designated beneficiaries. These accounts have special tax rules, so beneficiaries should understand their options and may want to consult with a financial advisor about distribution strategies.
• Bank Accounts with Payable-on-Death (POD): You can add a POD designation to checking and savings accounts. When you die, the money goes directly to your chosen person. Most banks offer this service at no additional cost, and you can usually name multiple beneficiaries with specific percentages.
• Investment Accounts with Transfer-on-Death (TOD): Stocks, bonds, and brokerage accounts can have TOD beneficiaries. The investments transfer automatically without probate. This includes individual stocks, mutual funds, and entire brokerage portfolios.
• Annuities: Most annuities allow you to name beneficiaries who receive the remaining value when you die. Variable annuities, fixed annuities, and immediate annuities typically all offer beneficiary designations.

Jointly Owned Property

Property owned with someone else often skips probate automatically. The type of joint ownership matters though. Not all forms of co-ownership provide automatic survivorship rights, so understanding the distinction is crucial for effective estate planning.

• Joint Tenancy with Right of Survivorship: When one owner dies, the surviving owner gets everything automatically. This works for real estate, bank accounts, and other property. The transfer happens by operation of law, meaning it's automatic and immediate.
• Tenancy by the Entirety: Similar to joint tenancy but only for married couples in certain states. When one spouse dies, the other automatically owns the entire property. This form of ownership also provides some creditor protection during the couple's lifetime.
• Joint Bank Accounts: Most joint accounts pass to the surviving account holder. Just make sure the account is set up correctly at your bank. Some banks offer "convenience accounts" that don't include survivorship rights, so verify the specific terms.

Be careful with joint ownership though. Adding someone as a joint owner gives them immediate access and control. They can withdraw money or sell property even while you're alive. This strategy works best with trusted family members who understand their responsibilities.

Trust Assets

Assets held in a trust skip probate completely. That's one of the main reasons people create trusts. When you put assets in a trust, you technically don't own them anymore - the trust does. For more detailed information about setting up trusts, you might want to read our guide on how to make a living trust.

• Revocable Living Trusts: You control everything while you're alive, but the trust owns the assets. When you die, your successor trustee distributes everything according to your instructions. These trusts offer flexibility because you can modify or revoke them during your lifetime.
• Irrevocable Trusts: You give up control of these assets permanently, but they're completely protected from probate and often from taxes too. Once established, these trusts are difficult to change, but they offer stronger asset protection and potential tax benefits.

The key is properly funding your trust. You have to actually transfer ownership of your assets into the trust's name. A deed for real estate, new account titles for investments, and updated ownership documents for other property. Many people create trusts but forget this crucial step, leaving assets outside the trust structure. To learn more about this process, check out our article on how to avoid probate with a living trust.

Small Estate Procedures

Some assets might technically go through probate but use simplified procedures. Many states have special rules for small estates that make the process much faster and cheaper. These procedures recognize that full probate administration isn't always necessary for modest estates.

• Small Estate Affidavits: For estates under certain dollar amounts, beneficiaries can collect assets with a simple sworn statement. The process typically takes days or weeks rather than months or years.
• Summary Administration: A shortened probate process for smaller or simpler estates. Courts can often complete these cases in a matter of weeks with minimal paperwork and lower fees.
• Family Allowances: Immediate family members can often access some money right away for living expenses. This helps surviving spouses and minor children meet immediate financial needs.

The rules vary significantly by state. Some states allow up to $100,000 in assets to use simplified procedures. Others set the limit much lower. California, for example, allows up to $184,500 for small estate procedures, while other states might cap it at $25,000 or $50,000.

Assets That Usually Require Probate

Understanding what goes through probate helps you plan better. These assets typically need court involvement unless you take specific steps to avoid it:

• Property in Your Name Only: Real estate, cars, and other property with no joint owners or beneficiary designations. This includes your primary residence, vacation homes, rental properties, and vehicles titled solely in your name.
• Personal Belongings: Furniture, jewelry, collections, and household items usually go through probate unless they're in a trust. Valuable collections like art, antiques, or rare items can significantly increase probate complexity and costs.
• Business Interests: Your share of partnerships, sole proprietorships, or closely-held corporations. Business succession planning requires special attention to ensure smooth transitions and continued operations.
• Bank Accounts Without Beneficiaries: Accounts in just your name with no POD designation. Even small checking accounts can force an estate into probate if they lack proper beneficiary designations.

Common Mistakes to Avoid

Even with good planning, mistakes can force assets through probate unnecessarily. These oversights often create exactly the delays and expenses that careful planning was meant to avoid:

• Forgetting to Update Beneficiaries: Life changes like marriage, divorce, or deaths in the family require updates to beneficiary designations. Review and update these designations every few years or after major life events.
• Naming Your Estate as Beneficiary: This forces the asset through probate. Always name specific people or trusts. Some people mistakenly think naming their estate provides more control, but it actually defeats the purpose of beneficiary designations.
• Not Funding Your Trust: Creating a trust is only half the job. You must actually transfer your assets into it. Empty trusts provide no probate avoidance benefits whatsoever.
• Assuming Joint Ownership Always Works: Some types of joint ownership don't include survivorship rights. "Tenants in common" ownership, for example, doesn't provide automatic transfer to surviving owners.
• Overlooking Contingent Plans: What happens if your primary beneficiary dies before you? Always name backup beneficiaries and have contingency plans in place.

Planning Your Estate Strategy

The best approach often combines several probate-avoidance strategies. You might use beneficiary designations for some assets, joint ownership for others, and a trust for the rest. This layered approach provides comprehensive coverage and backup protection. Understanding why you should have a trust can help you decide if this tool fits your overall strategy.

Consider your family situation too carefully. If you have minor children, a trust might be better than direct beneficiary designations. Young kids can't manage large sums of money on their own. Courts may require guardianships or conservatorships for minors receiving substantial inheritances.

Think about taxes as well. Some probate-avoidance strategies have tax implications. IRAs passed to non-spouse beneficiaries have required distribution schedules. Joint ownership might affect your estate tax planning, particularly for larger estates that might face federal or state estate taxes.

Geographic considerations matter too. If you own property in multiple states, probate avoidance becomes even more important. Without proper planning, your estate might face probate proceedings in every state where you owned real estate.

Taking Action

Review your current assets and how they're titled. Make a comprehensive list of what would go through probate if you died today. Then systematically work on fixing the gaps in your planning.

Start with easy fixes like adding beneficiaries to retirement accounts and bank accounts. Then tackle bigger issues like funding a trust or changing property ownership. Document your progress and keep records of all changes you make.

Remember to review your plan regularly and comprehensively. Life changes, and your estate plan should change with it. What works today might not work in five years. Annual reviews help ensure your planning stays current and effective.

Getting assets to skip probate isn't just about avoiding court proceedings. It's about making things easier for the people you love when they're already dealing with the emotional impact of loss. A little planning now can save them months of legal procedures, thousands of dollars in costs, and enormous amounts of stress during their time of grief.

Arya Firoozmand, Esq. Arya brings clarity, accessibility, and innovation to streamlining the estate planning process for his clients. Learn More

Disclaimer: The content on this blog is for general informational purposes only and does not constitute legal advice. Reading this material does not create an attorney-client relationship with ElmTree Law. For advice regarding your specific situation, please consult a qualified attorney.