Distribution of probate and non-probate assets explained
Knowing the difference between asset classes is important for an effective estate plan.
If you are not familiar with the rules surrounding the distribution of assets after death, you may assume that the terms of your will control how all your property is distributed. However, this is only partially true. There are actually two types of assets: probate and non-probate. The rules regarding distribution are different for each type. To ensure that your assets are distributed according to your wishes, it is important to have a basic understanding of both asset classes and how they are distributed.
Distribution of probate assets
Probate assets must first go through the probate process before distribution. During probate, the court examines your will (if you have one) to determine whether it is valid and enforceable. In addition, the court appoints a personal representative to perform important tasks such as finding your heirs and paying your outstanding bills and taxes.
At the completion of the probate process, your probate assets are distributed according to the terms of your will. Even if you do not have a will, your probate assets must complete the probate process before they may be distributed. However, in such cases, your property will be distributed according to Colorado’s intestacy statutes. These laws serve as the default choices of distribution for residents without wills.
What assets are probate assets? In general, probate assets include things that are solely owned by you or are titled in your name only. These assets may include real property not jointly owned, motor vehicles, bank accounts, stocks and investments, as well as personal belongings.
Non-probate asset distribution
Non-probate assets, on the other hand, do not have to go through the probate process in order to be distributed. In general, these assets include jointly owned property or property that has a beneficiary designation associated with it. As such, common non-probate assets include:
• Life insurance proceeds
• Real estate owned jointly with someone else
• Retirement plans
• Pensions or annuities
• Trust assets
• Joint bank accounts
• Any other asset or account with a beneficiary (e.g. “payable on death”) designation
The rule of distribution of probate assets is quite simple-they are always distributed according to their beneficiary designations. In other words, your will does not affect their distribution. As a result, it is imperative to ensure that the beneficiary designations on your non-probate assets reflect your wishes, as you will not be able to countermand them in your will. However, you are able to change beneficiary designations at any time before your death in most cases.
Failing to account for the differences in distribution between the two asset classes in your estate plan can cause significant headaches for your heirs and lead to probate litigation after your death. To ensure that everything is in order, it is important to seek the assistance of an experienced estate planning attorney during the planning process. The attorneys at Vincent, Romeo & Rodriguez, LLC can ensure that pitfalls and conflicts are avoided, ensuring the smooth administration of your estate.