Ever wondered why some of your stuff doesn’t have to go through that dreaded probate process when you pass away? You’re not alone! At our estate planning firm we’ve seen countless clients confused about what assets are excluded from their estate. This confusion can lead to messy situations for families during an already difficult time.
We will explain in detail what assets are not part of your estate, why that is important, and how you can use this information to make a better estate plan in this detailed guide.
Understanding the Basics: What Is an Estate?
Before we talk about what’s NOT in your estate, let’s talk about what an estate is. When you die, your estate is usually made up of all the things you own that would normally go through probate. Probate is the process, overseen by the court, of making sure that your will is followed and that your assets are distributed in the way you want.
But here’s the kicker – not everything you own is subject to this process!
What Assets Are NOT Considered Part of Your Estate?
Let’s get straight to the point. Here is a full list of all the things that usually don’t go through your estate:
1. Retirement Accounts with Named Beneficiaries
- 401(k) accounts
- Individual Retirement Accounts (IRAs)
- Pension plans
You can name beneficiaries for these accounts so that the money goes straight to them when you die, skipping the whole probate process.
2. Life Insurance Policies
Life insurance proceeds typically go directly to your named beneficiaries, unless you’ve made the unusual choice of naming your estate as the beneficiary.
3. Assets in Trusts
Assets held in a living trust aren’t considered part of your probate estate. This is one of the main reasons people create trusts in the first place!
4. Jointly Owned Assets with Right of Survivorship
When you own property jointly with right of survivorship, your ownership interest automatically transfers to the surviving owner(s) upon your death. This includes:
- Real estate held as joint tenants with right of survivorship
- Bank accounts owned jointly
- Property owned as tenancy by the entirety (a special form of ownership for married couples)
5. Payable-on-Death (POD) and Transfer-on-Death (TOD) Designations
- POD bank accounts
- TOD securities and investment accounts
- TOD real estate deeds (available in some states)
- TOD vehicle registrations (available in some states)
These designations allow assets to transfer directly to named beneficiaries without going through probate.
6. U.S. Savings Bonds
Savings bonds with a named beneficiary or co-owner don’t go through probate.
7. Certain State-Specific Exemptions
Depending on where you live, other assets might be exempt:
- Wages, salary, or commissions owed to the deceased (up to certain amounts in some states)
- Vehicles that pass to immediate family members under state law
- Household goods that pass to immediate family members under state law
- In Florida specifically, homestead property that serves as a primary residence
Why Does This Matter?
You might be wondering – so what if an asset isn’t part of my estate? Here are the key benefits:
- Faster transfer to beneficiaries: Non-probate assets typically transfer much quicker than probate assets
- Lower costs: Avoiding probate means avoiding probate fees and costs
- Greater privacy: Probate is a public process, while non-probate transfers are typically private
- Potential tax advantages: Some non-probate transfers may have tax benefits depending on your situation
- Less hassle for your heirs: Your loved ones won’t have to wait through the probate process to receive these assets
How to Keep More Assets OUT of Your Estate
Now that you know what assets naturally bypass your estate, here are some strategies to consider:
1. Review and Update Beneficiary Designations
Make sure all your retirement accounts, life insurance policies, and other accounts have current beneficiary designations. This is something we often see overlooked! It’s not enough to just mention these folks in your will – you need to actually file the proper beneficiary paperwork with each financial institution.
2. Consider a Revocable Living Trust
A revocable living trust allows you to transfer ownership of your assets to the trust while maintaining control during your lifetime. Upon your death, these assets pass to your beneficiaries according to the terms of the trust, completely outside probate.
3. Use Joint Ownership Strategically
For married couples or trusted partners, joint ownership with right of survivorship can be an effective way to keep assets out of probate. But be careful! This strategy has potential drawbacks, including exposure to the joint owner’s creditors.
4. Utilize POD and TOD Designations
These simple designations can be added to bank accounts, investment accounts, and in some states, even vehicles and real estate.
5. In Florida, Understand Homestead Exemptions
If you live in Florida, your primary residence may qualify for homestead protection, allowing it to pass to a spouse or children outside of probate.
Common Mistakes to Avoid
When planning your estate, watch out for these common errors:
- Forgetting to update beneficiary designations after major life events (marriage, divorce, birth, death)
- Naming minors as direct beneficiaries without proper trust provisions
- Failing to coordinate your will with non-probate transfers
- Accidentally naming your estate as beneficiary on retirement accounts or life insurance
- Not understanding the tax implications of various non-probate transfers
Real-World Example
Let me share a quick story from our practice. We had a client, let’s call her Maya, who co-owned her home with her partner Jamie as joint tenants with right of survivorship. When Maya died, her home didn’t need to go through probate. Jamie automatically became the sole owner of the entire house.
In contrast, another client, Neil, co-owned a warehouse with his brother Damien as tenants in common. When Neil died, his share of the warehouse had to go through probate before passing to his daughter Ellie, who was named in his will. This delay caused unnecessary stress for the family during an already difficult time.
What About Small Estates?
Even if some assets need to go through probate, many states offer simplified procedures for “small estates.” The definition of “small” varies widely by state, but these simplified procedures can save time and money.
For example, if you die leaving a $400,000 jointly-owned house, a $200,000 POD bank account, a $100,000 IRA, and a $10,000 car with no beneficiary designation, only the car would need to go through probate. In most states, an estate with only $10,000 in probate assets would qualify for simplified probate procedures.
The Bottom Line
Understanding what assets aren’t part of your estate is crucial for effective estate planning. By strategically structuring your assets, you can save your loved ones time, money, and stress after you’re gone.
At our firm, we believe everyone deserves a clear, efficient estate plan that minimizes probate and maximizes the legacy you leave behind. The rules can be complex, which is why working with an experienced estate planning attorney is often the best approach.
Frequently Asked Questions
Q: If I have a will, does that mean my assets won’t go through probate?
A: No! This is a common misconception. Having a will doesn’t avoid probate – it just guides the probate court on how to distribute your probate assets.
Q: Can I avoid probate completely?
A: Yes, it’s possible to structure your assets so that nothing goes through probate. However, this requires careful planning and might not be the optimal approach for everyone.
Q: What happens if I don’t name beneficiaries for my non-probate assets?
A: Without named beneficiaries, these assets may default to your estate and end up going through probate anyway. For example, if you don’t name a beneficiary for your savings account, those funds automatically get transferred to your estate.
Q: Do non-probate assets avoid estate taxes?
A: Not necessarily. While non-probate assets avoid the probate process, they may still be included in your taxable estate for estate tax purposes.
Q: Can creditors reach non-probate assets?
A: It depends on state law and the type of asset. Some non-probate transfers offer protection from creditors, while others don’t.
Remember, estate planning isn’t a one-size-fits-all proposition. Your unique circumstances, family situation, and financial goals should shape your approach. We always recommend consulting with a qualified estate planning attorney to create a plan tailored to your specific needs.
By taking the time to understand and properly structure your estate now, you’ll be providing an invaluable gift to your loved ones when they need it most.
Have questions about your specific situation? We’d love to hear from you! Drop a comment below or schedule a consultation with our team today.
How do I transfer nonprobate property?
After the owner dies, transferring nonprobate property is fairly simple. For personal property like bank accounts and investments, youll need to contact the institution directly. They will likely ask you to fill out a claim, submit a copy of the death certificate, and verify your identity.
For nonprobate transfers of real estate, youll need to go through the county clerks office. You may have to submit a notarized affidavit of death, a copy of the death certificate, and other documents. This must be done in the county where the property is located.
- Guide for Beneficiaries on How to Claim Payable-on-Death Assets (Nolo): How to claim POD assets you inherit
- Transferring Real Estate After Death (Nolo): The steps for giving someone else’s house or land to a new owner after death depend on a lot of things.
- What to do With Retirement Accounts After Death (Debt. org) If the owner of a retirement account dies, the account can be left to a beneficiary, who can be anyone or anything the owner chose to receive the money.
- Setting up an estate or trust for a loved one: The executor’s guide Chapter 12: Property That Doesn’t Go Through Probate Chapter 13: Transferring Joint Tenancy and Other Survivorship Property. Chapter 14: Transferring Community Property. Chapter 15: Claiming Money in Retirement Plans. Chapter 16: Claiming Payable on-Death Assets.
What is nonprobate property?
Nonprobate property skips the probate process completely. The assets are transferred directly to the beneficiaries according to a contract or deed. The court doesnt have to approve nonprobate transfers.
Examples of nonprobate property include:
- Assets with Designated Beneficiaries. Among these are life insurance, 401(k) and IRA plans, payable-on-death (POD) bank accounts, transfer-on-death deeds (TODDs), and more.
- Joint Ownership with Right of Survivorship. If two people own property together and have signed a survivorship agreement, the person who is still alive will automatically get the share that the person who died owned. This is commonly done for marital homes. The agreement for the right of survivorship can be part of the deed or signed some other time.
- Real Property with a Life Estate Deed. Living on a piece of land for the rest of your life is possible with life estate deeds like “Lady Bird deeds.” They also give some ownership to a certain person, who will get full ownership when the first owner dies.
- Living Trusts. When someone dies, assets held in a living trust go straight to the people named in the trust document. This avoids the probate process.
However, nonprobate assets arent always fully protected. If the estate’s probate assets aren’t enough to pay off the debts of the person who died, the executor may have to use nonprobate assets to make up the difference.
See our Transfer of Property After Death guide for more information about estate planning.
- Texas Laws on Nonprobate Assets in Estate Administration can be found in Chapters 111–115 of the Texas Estates Code.