Estate vs. Non-Estate Assets
In the process of probating and administering a Last Will and Testament of a Decedent, questions may arise whether assets owned by the Decedent are considered Estate assets or non-estate assets. This is called the distinction between probate and non-probate assets. It is important for determining Estate taxes to make this distinction.
In general, probate assets are all assets which pass under the terms of the Last Will and Testament. This could include specific bequests or property, transfers of sums of money, or any other type of tangible or intangible asset that is specified to pass pursuant to the terms of the Last Will and Testament. Additionally, accounts which are titled only in the name of the Decedent without a right of survivorship, insurance policies which are similarly situated, or other investment vehicles which contain no beneficiary designation, could likewise be considered assets of the Estate which pass under the Will.
Assets which are considered non-probate are assets which pass outside of the Estate. These may be joint accounts with a right of survivorship which pass to the remaining account holder upon the death of one of the parties. Further, most residences are titled as joint tenants with the right of survivorship whereby the residence passes to the remaining surviving member upon the death of the other. Obviously, if a house is owned solely by one person than it can pass to the Estate. Other common forms of non-probate assets could be insurance policies where a specific beneficiary is named, as well as IRA’s or other investment vehicles whereby beneficiaries of the accounts are named.
When preparing an accounting for an Estate, it is important that the Executor and their counsel know whether assets are classified as probate or non-probate due to the tax consequences which may result therefrom. It is a bright line rule that if an asset is named under a Last Will and Testament and there is no beneficiary designation with regard to the asset, than it is a probate asset. On the other hand, if an asset is not named under the Will and contains a beneficiary designation on the instrument itself, than it is a non-probate asset. Obviously, there are exceptions to this process rule. For insurance, if the purported beneficiary predeceased the Decedent. Nonetheless, it is always important to determine whether an asset is probate or non-probate in the context of administrating an Estate.