Typically, estate planning involves a variety of inter-related goals that go beyond just planning for the disposition of estate assets after your death. One of the most popular of those goals is probate avoidance. While there are numerous tools and strategies that can be used to help your estate avoid probate, a good starting point is to learn which assets actually have to go through probate. With that in mind, a Waukegan probate attorney at Hedeker Law, Ltd. explains which assets are subject to probate and which assets bypass the probate process.
What Is Probate and What Function Does It Serve?
At the time of your death, you will leave behind an estate that consists of all the assets you owned or had an ownership interest in at the time of death. This includes both real and personal property as well as both tangible and intangible assets. Probate is the legal process that many of those assets must go through before eventually being transferred to the intended beneficiaries or legal heirs of the estate. Probate also ensures that all estate assets will be identified, located, secured, and valued as well as all creditors notified and provided with the opportunity to file claims against the estate. Federal and/or state gift and estate taxes are also paid as part of the probate process. If there is a Last Will and Testament, probate also authenticates the Will, or in the alternative, provides the legal forum for contesting the authenticity of the Will.
Why Does It Matter If Assets Are Subject to Probate?
If you are unfamiliar with what happens during the probate of an estate, you may wonder why it matters if assets are required to be part of that process. The answer can be found in the time and money expended on the probate process. In the State of Illinois, for example, creditors have a minimum of three months and may have up to two years just to file claims against the estate. Those claims must then be evaluated and paid if approved. That means that even a relatively simple estate could take anywhere from several months to several years to make it through the probate process. The assets that are art of this process, therefore, remain tied up in probate until the end of the process. Add to that the cost of probate and it becomes clear why limiting your estate’s exposure to probate is a worthwhile estate planning goal. One of the easiest ways to accomplish this goal is to convert as many assets as possible to non-probate assets.
What Is a Non-Probate Asset?
Fortunately, not all assets are subject to the probate process. These non-probate assets bypass probate altogether and can be distributed to the intended beneficiaries almost immediately after your death. Among the more common non-probate assets are:
- Assets held in a trust – whereas your Will must be submitted for probate, a trust does not. Assets held by the trust are also not subject to probate and can, therefore, be distributed to beneficiaries right away if the terms of the trust dictate that they be.
- Certain types of jointly held property – real property, for example, can be held jointly with rights of survivorship, allowing your interest in the property to pass directly to the co-owner upon your death without first going through probate.
- Accounts designated as POD or TOD – certain accounts can also be designated as “Payable on Death (POD)” or “Transfer on Death (TOD)” accounts which allows you to designate a beneficiary who will automatically become the owner of the assets held in the account upon your death. Unlike jointly held assets, however, a beneficiary of a POD or TOD account has no ownership interest in the asset while you are alive.
- Proceeds of a life insurance policy – proceeds of an insurance policy can be paid out directly to the named beneficiaries without going through probate.
- Retirement accounts – funds held in many types of retirement accounts, such as an IRA or 401(k) are also often non-probate assets.
By converting as many of your estate assets as possible to non-probate assets you can significantly decrease your estate’s exposure to the probate process after you are gone.
Contact a Waukegan Probate Attorney
For more information, please join us for a FREE estate planning seminar. If you have additional questions or concerns relating probate, contact an experienced Waukegan probate attorney at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.