The process of probate is somewhat like a funnel: upon death, assets pass through, so that decisions about where they end up are formalized, publicly and on the record. However, if beneficiaries have been named on accounts, such as insurance policies or retirement plans, the related assets bypass probate and go directly to the beneficiaries.
Debts Paid, Assets Distributed
Probate courts are responsible for ensuring that the debts of the deceased are paid and the remaining assets appropriately distributed. If a will was made, the probate court validates the will and directs the designated executor or personal representative to distribute the assets accordingly. If there is no will, state laws of intestacy are used to determine the distribution of assets. While there is nothing inherently bad about the laws of intestacy, they date back to the 1950s, and can result in unfortunate surprises especially when applied to today’s modern family structures.
Whether or not a will has been made, not all the assets of the deceased must pass through probate. While it is typical for real estate and possessions like cars to pass through probate, because they were titled solely in the name of the deceased, assets that involve the prior designation of beneficiaries do bypass probate. Examples of nonprobate assets include assets placed in trusts, as well as:
- IRA or 401(k) retirement accounts with designated beneficiaries
- Life insurance policies with designated beneficiaries
- Pension plan distributions
- Assets assigned to a living trust
- Funds in a payable-on-death (POD) bank account and payable-on-death U.S. savings bonds
- Securities designated as transfer-on-death (TOD)
- Wages, salary, or commissions owed to the deceased (up to an allowable limit)
- Vehicles intended for immediate family (under state law)
- Household goods and other items intended for immediate family (under state law)
Keep in mind that even when beneficiaries are named on accounts, it’s still best to have a corresponding will, as part of a solid estate plan. Indeed, because even modest gifts turn out to be life changing for our loved ones and charities, the best way to ensure assets pass efficiently and in alignment with our intentions is through thoughtful estate planning, which likely involves both a trust and pour-over will.
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