When planning your estate, it is important to understand the difference between probate and non-probate assets. Why is this distinction so important? To make sure your intentions are carried out. Your will does not control the distribution of non-probate property. Moreover, non-probate property may have some advantages, such as avoiding ancillary probate for out of state real property, or avoiding delays in transferring property at your death.
Probate is the process through which a court determines how to distribute your property after you die. Some assets are distributed to heirs by the court according to your will (or the laws of intestacy if you don’t have a will). These are called probate assets because they require a probate court order to pass the title. For example, probate assets are any assets that are owned solely by the decedent. This can include the following:
- Real property that is titled solely in the decedent's name or held as a tenant in common (not joint tenants with rights of survivorship)
- Personal property, such as jewelry and furniture
- Bank accounts, boats and automobiles that are solely in the decedent's name
- An interest in a partnership, corporation, or limited liability company held in the decedent’s name
- Any life insurance policy or brokerage account that lists either the decedent or the estate as the beneficiary
In comparison, some assets bypass the court process and go directly to your beneficiaries based upon the form of title or a beneficiary designation. These are non-probate assets because they don’t require a probate court order to pass the title. Non-probate assets can include the following:
- Property that is held in joint tenancy with rights of survivorship
- Bank or brokerage accounts held in joint names or with payable on death (POD) or transfer on death (TOD) beneficiaries
- Boats or automobiles held in joint names with rights of survivorship
- Any property held in the name of a trust
- Life insurance or brokerage accounts that list someone other than the decedent’s estate as the beneficiary
- Retirement accounts that name a beneficiary other than the decedent’s estate
When planning your estate, it is vital for you to know whether your property will be probate property or non-probate property so you can take the appropriate steps to accomplish your goals for transferring your property at your death.
ONE NOTE OF CAUTION - You should be careful not to confuse the concept of your probate estate with the concept of your taxable estate. They are not the same! Whether property you own at death passes as a probate or non-probate asset has absolutely no bearing on whether it will be included as part of your taxable estate. For purposes of calculating any estate tax you may owe at death, some non-probate assets may still be included in your taxable estate. For example, you may own insurance on your life with a named beneficiary. This will pass to the beneficiary as a non-probate asset, but the entire death benefit will be counted in calculating the amount of your taxable estate (unless the policy is owned by an Irrevocable Life Insurance Trust, a.k.a. an ILIT, to avoid estate tax at your death). Moreover, the probate courts in Connecticut impose a probate fee on the amount of your taxable estate, which is often larger than the probate estate because it can include non-probate assets. Consequently, a probate fee may be due even if there are no probate assets! So, unfortunately, avoiding probate does not translate into avoiding probate fees.
