Probate vs. Non-Probate Assets: Estate Planning Without Wills and Trusts

In a previous post we covered a method available to transfer real property without probate called the Arizona Beneficiary Deed. The purpose of the beneficiary deed is to allow the owner to retain control over his or her lifetime but avoid the need for the probate court to administer the transfer of the asset to the intended beneficiary. This post will cover some methods available to transfer other types of property without the need for probate while still retaining lifetime control for the owner.

First of all, let’s define probate property: probate property is any property that is held by a decedent for which there is no death beneficiary designation. The easiest way to recognize a probate asset is that it does not have a title; collectibles, jewelry. Without a title, there is no legal means to designate a death beneficiary and probate (or trust administration) will be necessary to transfer the asset upon the death of the owner. Also, if an asset has a title, but no death beneficiary has been designated by the owner, then it will also be a probate asset.

At least some probate property can be converted to non-probate property by completing a death beneficiary form specific to the asset. The quintessential non-probate asset is life insurance. Life insurance typically benefits someone other than the owner’s estate. By completing the beneficiary designation form when purchasing the policy, the owner has created a property interest that will transfer the asset to the beneficiary without the assistance of the probate court.

Most deposit, brokerage and retirement accounts can have a Pay on Death or ‘POD’ designation for the intended beneficiary which turns the account into a non-probate asset. The beneficiary typically only needs to provide the death certificate for the owner to receive the asset. The financial institution can provide you with the necessary forms to make this designation.

Although the ownership shares of partnerships, corporations or limited liability companies are probate assets by default, they can also be made into non-probate assets by proper completion of the controlling bylaws or operating agreement.

The downside of these designations is that they fragment your estate and require individual attention in the event that the owner wants to revise her estate plan. For example, two beneficiary designations may be made when assets are roughly equal in value; but when market conditions change, there will now be unequal distributions to the beneficiaries unless each asset is revisited and reallocated prior to the owner’s death.

Having covered a few of the ways to avoid probate in regard to specific assets, the best way to avoid probate is by conveying all of your assets to a trust. These same assets, life insurance, financial accounts and ownership shares can all be conveyed to a trust to avoid probate and simplify their distribution to beneficiaries. A trust is the by far the easiest way to accomplish equal distributions for intended beneficiaries.

Estate plans can be complex and they require strategic planning to accomplish your goals with the least administrative cost for your estate. It is important to obtain the help of a seasoned estate planning attorney at Nielsen Law Group for help. You can schedule your initial consultation by calling (480) 888-7111 or submitting a web request here.