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Probate or Not?

By: Financial Hotline
Spring 2019 (Vol. 37, No. 1)

Q: My father passed away and my brother and I are his only heirs. He has a will and not many assets. Do we have to file probate?

A: The exact laws on probate vary by state. For specific information, you will need to contact the circuit or probate court in the county or state where your father resided. Many states offer an abbreviated probate process for smaller estates. It also depends on the type of assets your father left and how they are titled.

In general, life insurance proceeds, bank accounts with payable-on-death designations, some retirement accounts, and some forms of real estate ownership pass directly to named beneficiaries without probate.

Most financial institutions (i.e.: insurance, banks, retirement accounts, investment accounts) will ask the account owner to provide names of beneficiaries when the account is opened. If you are a beneficiary, you would just notify the financial institution and follow their instructions for transferring the accounts to your name. The same goes for accounts that are held jointly, however some states require a court order to remove a decedent from title of real estate.

Anything that you cannot transfer without a court order is considered part of the estate and is a probate asset. The most common examples include:

Individual assets. If the asset does not name any co-owners, beneficiaries or have a payment on death designation, then you will probably need a court order to transfer the account or the title. As I mentioned before, most financial accounts will have one of these provisions but many times assets like vehicles and real estate do not. If the asset is small and doesn’t need a court order to transfer the title (i.e.: household goods, jewelry, artwork, etc.) and the heirs all agree, you can usually handle those assets outside of probate.

Tenants-In-Common Property. When property is titled in the decedent’s name as a tenant-in-common with one or more other individuals that means each owner has a percentage interest in the property. Unmarried individuals will typically use this type of ownership for real estate but it is also common with business partnerships. You may see it with vehicles and financial accounts as well. You can’t have a tenancy-in-common alone, but you can have an unlimited number of co-owners. Basically, if your loved one owns a percentage of a property as a tenantin- common, then the other owners don’t automatically inherit his share. There are no rights to survivorship.

(Don’t confuse this with joint tenants or other arrangements with rights of survivorship. Property held with rights of survivorship passes directly to the survivor when one owner dies. It usually does not require probate.)

If the decedent retitles his tenant-in-common interest into the name of a living trust before his death, the tenant-in-common interest is then converted into a non-probate asset which will pass directly to the beneficiaries.

Beneficiary Assets With Predeceased Beneficiaries or No Beneficiary Designations. As a rule, you should update your estate plan every three to five years, but the death of a beneficiary or heir should always trigger a review. If a beneficiary dies before the owner of the asset, the asset will most likely need to go through probate. The same applies when a decedent fails to name any beneficiaries at all, or if he names his estate as the beneficiary.

Assets Left out of a Trust. Quite often, people will create a trust, move all their assets into it and then forget about it. If the decedent acquired more assets and failed to add them to the trust, those assets may have to go through probate. You can reduce the confusion by creating a pour-over will to direct property outside of the trust into the trust at death, but these assets may still be subject to probate.