Probate and non-probate assets: the difference means a lot

After you die, you may assume that your will controls how all of your assets are distributed. However, this is a commonly believed myth. In reality, your will only affects how some of your assets are distributed. In order to ensure that your estate plan reflects your wishes, it is important to understand the fundamental rules of property distribution.

What does my will control?

Essentially, your will sets the rules of distribution for property that is subject to probate. During the probate process, the court examines your will, determines whether it is valid and ensures the property subject to probate is distributed according to your will. If you die without a will, the primary purpose of the probate process is to make sure that your property is allocated according to the intestacy laws of New Jersey. These laws set the "default" rules for asset distribution for those without a will (or cases where the will is invalid).

In general, the assets that are subject to probate include property titled only in your name. This may include real property (not owned with someone else), cars, investments and stocks, personal bank accounts, and personal belongings. Since these assets are subject to probate, your will (or intestacy laws, if applicable) will decide how they are allocated among your heirs.

Assets not affected by my will

Not every asset you own needs to go through the probate process before it may be distributed to your heirs. Some assets, called non-probate assets, avoid the probate process entirely. This type of asset includes property containing a beneficiary designation or that is owned with someone else. Examples of non-probate assets include:

• Trust assets

• Life insurance proceeds

• Pensions or annuities

• Bank accounts containing transfer-on-death or payable-on-death designations

• Retirement assets

• Real property owned with someone else having a right of survivorship

• Virtually any other assets containing a beneficiary designation

As alluded to earlier, the terms of your will do not affect the distribution of non-probate assets. Instead, these assets are always distributed according to the terms contained in your beneficiary designations. If you fail to periodically update your beneficiary designations, this can potentially cause problems. For example, if you die unexpectedly, your non-probate assets could go to an ex-spouse that you neglected to take off of your life insurance. Unfortunately, in such a case, there is little your heirs can do to remedy the mistake.

Since life is fraught with unexpected changes, it is important to ensure that your estate planning documents are updated following any major event, such as a birth, death, divorce, marriage or significant change in financial circumstances. The experienced estate planning attorneys at Michael A. Manna & Associates can ensure that your estate planning documents reflect your wishes while avoiding pitfalls that may arise in the future.