Differences Between Probate and Non-Probate Assets?

The distribution of estate assets to beneficiaries may or may not be subject to probate. The probate process can be lengthy, taking several months or even over a year to complete. While some assets may need to pass through probate, there are certain assets that generally do not need to pass through probate. A knowledgeable PA estate planning and probate lawyer can help you plan accordingly to help save your loved ones from the time-consuming and expensive process of probating assets.

Probate Assets

Any property that you own individually in your name (and which does not have a designated beneficiary, as might be associated with a financial account) must pass through probate. Probate assets can include real property, jewelry, furniture, bank accounts, and investments. Real property is a bit more complex. Even if you own property jointly with other parties, the type of ownership will determine if the property can avoid probate. For example, real property owned equally between two or more parties (whether or not married), known as joint tenancy with right of survivorship, will avoid probate, while property owned by multiple parties as tenancy in common, will have to pass through probate (but only the portion which was owned by the person who died).

Some individuals may choose to specify what assets should be distributed (and under what circumstances) to which heirs in their will, known as a testamentary trust. While a testamentary trust can protect your assets from creditors and may come with tax benefits, this type of trust does not escape the probate process.  A lifetime (or inter vivos) Trust may be used to avoid probate, though.

Non-Probate Assets

Some property will automatically be a non-probate asset, including any accounts that require or permit a beneficiary designation (such as retirement accounts and life insurance policies). Any assets that you own jointly with another person, including bank accounts, motor vehicles, real property, and businesses, will typically avoid probate, if specified as joint with a right of survivorship. 

Even if you own individual property, you can convert property to avoid probate. The most common way to achieve this is by placing the property in a living trust. Also known as an “inter vivos trust,” a living trust is created by a settlor (owner), naming a trustee to manage the assets. If the trust is revocable, the settlor has the power to change the terms of the trust. For property to qualify as non-probate assets, the property must be placed in the trust during the settlor’s lifetime (known as “funding the trust”).

Upon the settlor’s death, the trust becomes irrevocable, meaning that none of the terms can be changed. 20 Pa.C.S. §7708 (b)(2)(ii) specify which courts will have jurisdiction over the trust upon the settlor’s demise. Unlike probated assets, which are part of public records, an inter vivos trust allows your affairs to remain relatively more private (because inheritance tax is levied on probate and non-probate assets, and the inheritance tax return is a public document, non-probate asset transfers are not “entirely” private).

Speak with Our PA Estate Planning and Probate Lawyers

Decisions surrounding distributing estate assets can be emotionally charged, making it difficult to make informed decisions. At Cunningham, Chernicoff, & Warshawsky, P.C., our PA estate planning and probate lawyers are dedicated to helping you plan for when you are gone. If you have questions about the probate process, we are here to address your concerns. To schedule your free consultation, contact our office online or by phone at your earliest convenience.