Introduction

Understanding "non-probate asset" opens the door to understanding trusts and understanding probate. A non-probate asset already has a place to go when you die. It's fate is determined, not by a will, not by a trust, but by other factors.

Examples of Non-Probate Assets

A life insurance policy offers the insured person the opportunity to name a death beneficiary. If the insured signs a death beneficiary, then the life insurance policy is well on its way to becoming a non-probate asset. But wait, why isn't it a non-probate asset once the beneficiary designation is signed? Well, what if the named beneficiary dies before the insured does? At that time, the life insurance policy will be a probate asset, unless the insured as also named an alternate beneficiary who has survived the insured.

What this example taught us about non-probate assets is that they are not intrinsically "non-probate", that there is a modicum of luck that is also involved, i.e. the beneficiary has to survive the owner.

Other examples of possibly non-probate assets include:

  • joint tenancy with right of survivorship deeds
  • community property with right of survivorship deeds
  • bank accounts that name a POD (payee on death)
  • multi-party bank accounts or multi-party investment accounts
  • investment accounts that are transfer on death
  • real property beneficiary deeds
  • IRAs and 401(K)s and other retirement plans
  • motor vehicle titles that have the word "or" between the names of joint owners

Should Non-Probate Assets be held in trusts?

The typical revocable living trust is actually a set of instructions. "I make myself my trustee. If I become incapacitated, my sister will be my trustee. Take care of all of my property and use it for my benefit during my lifetime. Once I die, give the property to Joe and Paul equally, or if one of them dies, give his share to his descendants."

The instructions talk about what happens during life and what happens after death. Yes, you can transfer the ownership of most types of non-probate assets into a trust. What that accomplishes is substantial. It gives the successor trustee the ability to manage those asset for you if you become incapacitated.

But, if the non-probate asset is held in the trust, and you die, its beneficiary designation will trump the dispositive provisions contained in your trust.

One of the things that is so great about trusts is that they do not have "check-a-box" beneficiary designations. You can go into great detail to specify who is to receive an asset when you die. By contrast, most non-probate assets, by their very nature, make it difficult to go into much detail at all about naming contingent beneficiaries. Therefore, it may be wise to take beneficiary designations off any assets that are going to be owned by your trust.

Do non-probate assets have to be probated?

Probate assets have no beneficiary designations on them, or all the named beneficiaries have not survived the decedent. They have nowhere to go. They have remained in the deceased person's estate. How they leave the deceased person's estate is by probate, or by a small estate's affidavit.

Non-probate assets have working beneficiary designations on them, and so by definition, the asset has a place to go when the owner dies. And those assets will go to the named beneficiaries, provided the named beneficiaries will step up and claim what is theirs.

Death Claims

Most non-probate assets must be claimed by their beneficiaries after the owner's death. Here is a chart with the non-probate assets, how to claim them, and whether you typically need a lawyer's help:

Asset How to Claim Need a Lawyer
Joint tenancy with right of survivorship deeds Affidavit and Death Certificate Yes
Community property with right of survivorship deeds Affidavit and Death Certificate Yes
Bank accounts that name a POD (payee on death) Go to the bank with death certificate No
Multi-party bank accounts or multi-party investment accounts Go to the bank or brokerage with death certificate No
Investment accounts that are transfer on death Go to brokerage with death certificate No
Real property beneficiary deeds Affidavit of Surviving Beneficiary and death certificate Yes
IRAs and 401(K)s and other retirement plans Death Certificate Need Tax Advice
Motor Vehicle Title with "or" No action required No