Probate (or Estate Administration where there is no Last Will & Testament) refers to the process whereby an estate representative (e.g. Executor, Administrator) is appointed by the Surrogate’s Court to act on behalf of an estate. Once an estate representative is appointed, he or she then has the authority to collect the assets of the estate and distribute them according to the decedent’s Last Will and Testament (or laws of intestacy where there is no Will). However, a distinction must be made between probate assets and non-probate assets. Distinguishing between the two types of assets is important for several reasons including the following:
- Determining whether the Last Will & Testament (or laws of intestacy where there is no Will) controls the disposition of the asset;
- Determining who has the authority to collect the asset; and
- How accessible the asset is after the decedent’s death.
Probate assets are those owned individually by the decedent; they do not have a survivorship right or named beneficiary. For example, real property held in the decedent’s name alone is a probate asset. All bank accounts, retirement benefits, life insurance policies, and other accounts with no named beneficiary are also probate assets. If the estate is named as the beneficiary of a particular asset, then it is considered a probate asset. The decedent’s share of real property held as tenants in common is also considered a probate asset. When it comes to probate assets:
- They must be distributed in accordance with the terms of the decedent’s Last Will & Testament (or laws of intestacy where there is no Will);
- The estate representative possesses the authority to collect and dispose of the asset;
- The asset is accessible only after the estate representative is appointed through a Surrogate’s Court Proceeding; and
- Probate assets are includable in the gross estate for tax purposes.
Non-probate assets are those with rights of survivorship or a beneficiary designation. Examples of non-probate assets are as follows:
- A piece of real property held by two individuals as joint tenants with rights of survivorship (or held as tenants by the entirety);
- A jointly held back account;
- A life insurance policy or retirement benefit with a named beneficiary;
- A bank account held “In Trust For” (ITF) another named individual; and
- Property held in the name of a trust.
Ownership of a non-probate asset passes automatically to the beneficiary (or survivor in the case of jointly held property) upon the death of the decedent. This is known as transfer by operation of law. When it comes to non-probate assets:
- The type of ownership dictates who is entitled to the asset – not the Last Will & Testament nor the laws of intestacy;
- While the beneficiary (or survivor) has authority to collect the asset, in certain circumstances the estate representative also has such authority.
- Non-probate assets can usually be collected immediately upon death without going through a Surrogate’s Court proceeding. If the named beneficiary presents the decedent’s death certificate and personal identification to the institution holding the account, then this usually satisfies the institution’s requirements to release the funds. This can be a time-saving advantage, and serves as an estate planning tactic, due to the fact that an account with a named beneficiary can be accessed much sooner than an individually owned account, which requires a Surrogate’s Court proceeding.
- Depending on the specific type of non-probate asset, a portion, or all of the asset’s value is includable in the gross estate for tax purposes.
Generally, non-probate assets flow outside of the estate and are not subject to an estate proceeding. However, in some situations, non-probate assets don’t completely avoid an estate’s obligations. For instance, in some circumstances, a non-probate asset may be used to pay estate debts when the estate lacks sufficient funds.