Probate is a common legal process that may be required to transfer certain assets after someone passes away. However, it can take time and may involve added costs. If you are wondering what probate is and when it can be avoided, here are a few key points to consider when planning an estate.
What Is Probate & When Is It Necessary?
Probate is a legal process that helps confirm assets are handled properly after death. While not all property or wills must go through probate, it may be the only way to legally transfer ownership of certain assets in some situations.
During probate:
- A personal representative and the court review the will to confirm it is valid
- Assets in the estate are identified and accounted for
- Creditors are given a chance to collect any unpaid debts.
Personal representative identifies beneficiaries and distributes assets according to will. In some cases, such as when there is no will, the probate process can happen so state law can dictate how the personal representative handles assets.
When Is Probate Avoidable?
In some situations, assets may transfer without going through probate. Even then, some paperwork or steps are usually still required to complete the transfer. Below are common examples.
Designated Beneficiary
Assets with a named beneficiary often bypass probate. For example:
- Retirement accounts like IRAs and 401(k)s
- Life insurance policies
When a beneficiary is listed, the asset typically transfers directly to that person.
Joint Property
Property owned by more than one person may pass directly to the surviving owner.
Examples include:
- Joint bank accounts
- Homes owned as joint tenants with rights of survivorship
When one owner dies, their share may transfer automatically to the remaining owner. This is often called transfer by operation of law. State laws may affect how this works.
Payable-on-Death
Some financial accounts allow you to name a recipient to receive the funds after death.
These may include:
- Bank accounts with payable-on-death (POD) instructions
- Brokerage accounts with transfer-on-death (TOD) designations
When set up, ownership transfers directly to the named individual.
Assets in a Trust
Assets held in a trust may avoid the probate process. Trusts can serve a variety of purposes, including facilitating the transfer of assets after death without probate. When placing assets in a trust, the trustee becomes the owner — the person who previously owned the assets gives up ownership. When that person dies, the trust may avoid probate.
Small Estates
Even if somebody dies with assets in their own name, probate might be unnecessary if the assets are not substantial and if other factors are met.1
Is Probate Necessary for Your Family?
Several factors determine whether or not probate is required when somebody dies with assets. As you start estate planning, consider speaking with a legal expert to find out more about what probate is and what the specific laws in your state are.
Sources
- Small Estate Probate Shortcuts: Why Even Large Estates May Qualify. https://www.nolo.com/legal-encyclopedia/free-books/avoid-probate-book/chapter8-2.html.
