What happens to your assets when you die? Unfortunately, there isn’t a cut and dry answer to that question.
Some of your things will go through probate, while others won’t need to. It depends on the type of property you have and where you live.
The process varies from state to state. What happens to your assets if you live in Michigan might be different than if your residence was in Washington.
If you create a will before you die, you can control who gets your property even if they go through probate.
But some of your belongings can skip the probate process altogether.
Here’s a rundown on how to know if you need to probate your assets.
What is Probate?
Probate is a legal process governed at the state level. Each state has its own set of probate laws to direct how the court oversees and manages the property of a deceased person.
Even though the laws can vary, a few general concepts are common across most jurisdictions.
When you pass away, the court appoints a person to handle your estate.
Your estate contains all the things you left behind, such as a home, a business, clothing, antiques, bank accounts, and investments.
Depending on the state, the appointed person can be called the:
- Estate executor
- Estate administrator
- Personal representative
Do You Need a Will for Probate?
A will is a legal document that lets you list how you want your belongings to be distributed when you die. If you have someone specific in mind to serve as your estate executor, you can designate that person in your will.
A common misconception is that if you have a will, you don’t need to go through probate.
Some states require probate whether or not you have a will, so be sure to check with an attorney or the local probate court to find out what the legal requirement is.
Without a will, state law will determine how your property is dispersed. The court also decides who is appointed as a personal representative to manage your estate.
You’re better off having a will so you have a say in who gets your stuff.
Do All Assets Go Through Probate?
Your estate consists of probate assets and non-probate assets. Non-probate assets will transfer to the designated beneficiary without having to go through probate court.
For instance, a life insurance policy with a designated person named as beneficiary is a non-probate asset.
Property that is owned by the deceased person only, such as a home or a car, must go through the probate process.
Before going to the court to open a probate estate, the heirs must review the property left behind to know whether probate is necessary.
Common Assets that Skip Probate
Probate isn’t a requirement in every circumstance.
You may have a living trust that includes all of your property. In that case, the terms of the trust outline what happens to those items when you pass away. In most circumstances, a successor trustee will take over control of the trust and the assets it contains.
Other assets that skip probate include those that are held jointly. Joint ownership gets a little tricky and can depend on the state you live in, but there are three basic types:
- Joint tenancy with rights of survivorship
- Tenancy by the entirety
- Community property
Joint Tenancy with Rights of Survivorship
When two or more people own property with rights of survivorship, the property transfers to the remaining survivors when one passes away. The court doesn’t oversee the transfer; it occurs automatically as a matter of law.
The title document must clearly state the intent of survivorship rights. A common way to say this is that the property is held “as joint tenants with rights of survivorship.” It can also be abbreviated as JTWROS.
Real estate is a common asset where rights of survivorship are used.
If you buy a house with someone, such as if you purchase a home with your spouse or adult child, the title to the property typically includes joint tenancy with rights of survivorship. When one person dies, the other will become the sole owner of the property.
Joint bank accounts generally come with survivorship rights, too. The money goes to the surviving person named on the account with no need for probate court.
Tenancy by the Entirety
Tenancy by the entirety is the same as joint tenancy with rights of survivorship with one exception: tenancy by the entirety only applies to married couples.
Not every state uses the term, but it is used in some places. When a married couple owns an asset with tenancy by the entirety, the living spouse gets full ownership if the other passes away.
Tenancy by the entirety only applies if the owners are already married to each other at the time they receive the title. Some states allow this ownership only for real estate purchases, but it can also apply to bank accounts and other assets.
Community property is another type of joint ownership that only applies to married couples. It includes all the money earned and assets gained during the marriage. Community property is everything a husband and wife own together.
Not every state follows community property guidelines, but it applies in:
- New Mexico
4 Types of Assets that Must Go Through Probate
If the asset is only owned by the deceased person or held as tenants-in-common, the items become part of the estate and must go through the probate process.
1. Individually Owned Assets
Individual assets list only one name as the owner. Bank accounts, investment accounts, vehicles, and real estate can all be individually owned assets.
Keep in mind that some items don’t have a title document at all, and those assets become part of the probate process, too.
For instance, there is no title to say your stamp collection is jointly owned with rights of survivorship, so it would be subject to probate.
2. Tenants-in-Common Assets
Two or more people that own property can own it as tenants-in-common. Under this arrangement, each person has a percentage interest in the property. You might each have 50% ownership or split it 80% to 20%.
Tenants-in-common is often used when you buy real estate with someone you’re not married to.
If you buy a house with your best friend, you could each share 50% ownership interest. Unlike joint ownership, if your friend passes away, his share would transfer to his heirs.
Remember that with joint tenancy with rights of survivorship, the property would transfer without the need for probate. With tenants-in-common, the property doesn’t automatically transfer. Instead, it goes through probate court, and the estate executor would manage the change in ownership.
3. Assets with No Beneficiary or a Predeceased Beneficiary
Some assets allow you to name a beneficiary. Life insurance policies usually list a beneficiary to receive the payout when the policy owner passes away, and that doesn’t have to go through probate.
You can also set up a bank account as payable on death to give someone access to the funds without probate.
But what happens if you don’t list a beneficiary or the beneficiary dies before you do? The asset becomes part of your probate estate and must go through the court process.
Your personal representative will oversee your estate. If you have a will, they will distribute the non-beneficiary assets according to your wishes.
Without a will, the estate representative will transfer ownership according to the probate laws in your state.
4. Assets Not Held in a Trust
Items you place in a living trust don’t go through probate. It only works if you remember to put all of your assets in the trust. As the years go by, you may purchase more property and forget to pass it to your trust.
While the property in your trust can avoid probate, the assets you own that are not in your trust must go through court. This situation is more common than you might think. There is an easy solution known as a pour-over will.
A pour-over will is like a regular will because it is subject to probate. If you pass away without placing all of your assets in your trust, the pour-over will allows your estate executor to transfer the items to the trust.
Closing Thoughts on Probate Assets
You’re in control of what happens to your property when you pass away. Properly setting up your financial house will not only benefit you during life but the heirs you leave behind.
Create a trust or a will to designate how your belongings will be distributed. And make sure your loved ones know where to find the documents.
For life insurance, investment accounts, retirement plans such as a 401(k), 403(b) or IRA, and bank accounts, take the time to assign beneficiaries.
If you don’t have a will or named beneficiaries when you die, the state is in charge of who gets ownership of your assets.
You may have promised your nephew your prized baseball card collection but, without putting it in writing, there’s little chance he’ll end up with it.
Article written by guest contributor Amy Beardsley
Amy Beardsley is a Freelance Writer and Professional Ghostwriter, whose work has appeared in dozens of financial planning and real estate blogs and magazines. Amy has also ghostwritten content for hundreds of social media profiles. With a background in the legal field, she transforms complex ideas and information into engaging easy-to-understand stories.