Probate vs. Non-Probate Assets
Transferring property after someone dies can be complicated. Many people mistakenly believe that their will is sufficient to transfer their assets. They fail to consider the difference between probate and non-probate assets and the effect that transfer on death (TOD) and payable on death (POD) designations will have on their estate plan.
Probate vs. Non-Probate Assets
Probate is a formal legal proceeding that involves some degree of supervision by the probate court. An important aspect of estate planning is understanding which assets are subject to the probate court’s jurisdiction, and which are not.
Many people incorrectly believe that all of their assets will be subject to oversight by the probate court. In fact, the probate court only has jurisdiction over probate assets.
Probate assets are owned solely by the decedent and do not have co-owners or designated beneficiaries. Probate assets are managed by the decedent’s personal representative and distributed according to the terms of the will. If a person did not have a will, assets are distributed according to Michigan’s laws of intestate succession.
Non-probate assets are those that have a co-owner, a beneficiary, or a transfer on death (TOD) or payable on death (POD) designation. In cases where an asset is jointly owned, the asset transfers to the co-owner(s). When there is a named beneficiary, these assets are paid directly to the beneficiary and are not transferred according to the terms of the will.
Non-Probate Asset Examples
Accounts that have a payable on death (POD) or a transfer on death (TOD) designation are common examples of non-probate assets. When an asset has a beneficiary designation, the decedent’s will does not override the designation. Instead, the beneficiary designation overrides the terms of the will.
Other examples of assets that have a beneficiary designation and are non-probate assets include:
- Individual retirement accounts (IRAs)
- 401(k) plans
- Life insurance policies
- Bank accounts or investment accounts that are jointly owned
For example, suppose a person had a life insurance policy that named their children as the designated beneficiary. Because the asset has a designated beneficiary, it is a non-probate asset. It is not subject to probate court jurisdiction, and the life insurance proceeds would be paid directly to the designated beneficiaries.
Using Asset Titling as a Beneficiary Designation
Similarly, the way a person’s assets are titled can effectively serve as a beneficiary designation. If a person jointly owns an asset, that asset will pass to the co-owner at the time of the joint owner’s death.
For example, if you co-own your home with your spouse, the home will not be treated as a probate asset and will automatically pass to your spouse upon your death. Similarly, if you co-own the home with a child, the home becomes that child’s property upon your passing.
Seek Advice When Completing Beneficiary Designations and Preparing Your Estate Plan
Be wary of completing a beneficiary designation form on an account that should not have one. Do not rely on the advice of a low-level bank or investment firm employee when completing beneficiary designation forms. You should first consult with your lawyer and other professional advisors to understand and ensure that any beneficiary designations fit within your overall estate plan.
You should also periodically review your beneficiary designations, especially after significant events such as retirement, the birth of a child or grandchild, marriage, divorce, or a death in the family.
While many people treat beneficiary designations as an afterthought, they are actually an important part of your estate plan that can minimize estate taxes and ensure that your wishes are carried out.
Contact Ager Law for Probate and Estate Planning in Ann Arbor
When you work with Ager Law Office, Michigan probate and estate planning attorney Bill Ager will guide you through the estate planning process, explain the importance of how you title your assets and designate beneficiaries, and help you complete the appropriate designations so your assets are transferred according to your wishes. He will work to reduce the assets that pass through probate and minimize estate taxes while preserving your legacy and ensuring that your wishes are honored.
Ager Law Office has been proudly serving Ann Arbor and Washtenaw County since 1982. Bill Ager will ensure that your probate and estate planning matter receives the attention it deserves, and will provide comprehensive guidance to create and execute an estate plan that meets your goals.
Ager Law Office offers a wide range of probate and estate planning services for reasonable flat fees. Bill Ager is proud to serve clients in Ann Arbor, Ypsilanti, Saline, Chelsea, and Dexter, and throughout Washtenaw County.