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Probate v. Non-Probate

David Silver teaches The Legal Environment of Business in ECU's Department of Finance. Dave is also a Partner with The Graham.Nuckolls.Conner Law Firm in Greenville, NC, concentrating in Elder Law

You have created a Last Will and Testament ("Will") that perfectly describes your wishes for how you want to distribute your assets at your death. However, your Will only controls your probate assets. If the majority of your wealth are non-probate assets, then your Will is relatively useless. What are probate assets?

Think of a probate asset as something you need the court's help to transfer. If there is an uncashed check written to a dead person, no one can legally endorse that check without court authority (remember, a power of attorney dies with the person). The DMV wont issue a new car title if the owner hasn't signed it without a court order, and just try to get any information from a bank about someone else's account, let alone making a withdrawal. These are all probate assets, and they get distributed according to the directions left in your Will. North Carolina has a 0.4% fee that is charged against probate assets (not including real estate) with a maximum fee of $6,000.00.

Some types of property are transferred at death without the need for assistance from the court. These non-probate assets have no fee, but the get distributed to pre-designated people or entities, even if you have contrary instructions in your will.

Property owned jointly-with-right-of-survivorship with another person are non-probate assets because they automatically are owned by the surviving person upon death. The most common example of this is a joint bank account. While each bank's own rules govern these accounts, the presentation of a death certificate is typically all that is required in order to have the account placed in the sole name(s) of the surviving person(s). Another common example of jointly-owned property is real estate owned by spouses as Tenants By The Entireties (basically, this means the house was purchased during the marriage) or real estate owned by more than one person jointly-with-right-of-survivorship. In both of these instances, ownership of the land transfers automatically at the death of the spouse or the joint owner. Unless jointly-owned property specifically designates a right-of-survivorship, then the deceased person's share of the property will be a probate asset. This means that, if you and your child are both on the car title or the deed but you did not designate a right-of-survivorship, your half will not automatically go to that child but will be distributed according to your Will.

Assets with beneficiary designations are also non-probate assets. The most common example of this is a life insurance policy. The life insurance company doesn't need authority from a court to distribute the proceeds at your death, they just need a death certificate and your beneficiary designation. However, if you signed a beneficiary designation naming your sister as the beneficiary when you bought the policy, then the life insurance company will write the check to your sister even if you subsequently get married and create a Will stating, "I want my life insurance policy to go to my spouse." The only way the life insurance proceeds will become a probate asset and be distributed according to your Will is if you name your estate as a beneficiary or if all the beneficiaries named in the insurance policies pre-decease you. Retirement accounts (like IRAs and 401ks) and other investment accounts also have beneficiary designations, and bank accounts can sometimes contain beneficiary designations (these are often referred to as "POD" or "Payable-On-Death" accounts).

Accounts with beneficiary designations can be tricky. If you designate all of your kids as the beneficiaries of your life insurance policies and investment accounts, but one of your kids predeceases you or dies at the same time, then that deceased child's children will usually not receive a share of these accounts. All life insurance companies, investment companies and banks have their own rules, but usually your beneficiaries have to survive you in order for them to get their share. This is usually contrary to most people's desires or intentions, but there are limits to the instructions that you can put on these generic beneficiary designation forms. In order to make sure all of your assets are distributed according to your wishes, you could either designate your estate as the beneficiary of all of your accounts and accept the probate fee (and accept that it will all be public knowledge) or you could consider the following two-step approach: 1) create a simple Will that leaves everything to a trust; 2) create a trust that does everything that you wanted your Will to do. You would then designate this trust as the beneficiary (or contingent beneficiary after your spouse) of all your accounts.

Having a Will is great. However, having a well-thought-out estate plan that makes sure all of your assets go according to your wishes should be your goal.

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