When planning your estate, there are normally two basic types of properties that you deal with:
- The probate estate
- The non-probate estate
What is the Probate Estate?
The probate estate is part of the testator’s property that can be governed and distributed through their last will & testament. Normally, these probate assets/properties include:
- Real estate
- Financial accounts
- Personal property
All of the above should be solely or jointly in the name of the testator with no beneficiaries designated by the instrument itself for inheritance after the testator’s death. Also part of the probate estate are the funds receivable by the estate following the testator’s death and any property, the power of appointment for which rested with the testator at the time of their death.
What is Non-Probate Estate?
Contrary to the probate estate, the non-probate estate is not governed by the last will of the testator. This class of assets and properties passes to the designated beneficiary, joint owner, or the remainderman by operation of the law. The most common types of non-probate assets consist of but aren’t limited to:
- Assets such as stocks, joint bank accounts, and real estate jointly owned with survivorship rights for all remaining owners.
- The retirements accounts that are payable to designated beneficiaries only
- Policies for life insurance payable to designated beneficiaries only
- Property in which the testator holds a life estate
- Property held in trust created during the testator’s lifetime.
It is extremely important for the testator to carefully coordinate the ownership of property and its beneficiary designations in order to minimize the estate and income taxes that may be applicable following their death. This is also important to ensure that the proper person receives their due share of inheritance.
Since probate laws differ from state to state, you should hire a probate lawyer to get a clearer picture of the applicable law in the state in which you reside.