Does all Property go Through Probate?
The purpose of a Last Will and Testament is to control the distribution of property in your probate estate after your death. But what property makes up your probate estate? Not all of it! Anything that is not part of your probate estate is not controlled by your Will and therefore will not be distributed according to its terms.
What’s in my Probate Estate?
How do you know what is in your probate estate? The probate estate is made up of property you own that is not automatically transferred to someone else at your death. But many assets do transfer automatically at death, as a matter of law or pursuant to a contract. We call those “nonprobate assets.” Here are some common types of nonprobate assets:
- Real estate owned in joint tenancy with rights of survivorship (a common form of ownership between spouses);
- Jointly owned bank accounts;
- Motor vehicles with joint owners; and
- Accounts or assets with named beneficiaries (life insurance, annuities, retirement assets, transfer on death accounts, pay on death accounts).
Example: Shared Property
For example, an unmarried woman named Sarah dies owning a house and one bank account holding $10,000. In her Will, Sarah stated that her house and bank account go to her daughter. Sarah is the only owner of the bank account, but she owns the house jointly with Rachel. Rachel and Sarah were best friends when they bought the house together, but now they are arch nemeses. Upon Sarah’s death, the $10,000 bank account becomes part of Sarah’s probate estate and will be distributed to her daughter according to her Will. However, the house never becomes part of Sarah’s probate estate. Why? The moment that Sarah died, her ownership interest in the house automatically passed to Rachel as the surviving joint owner. It did not become part of her probate estate, so it is not controlled by the terms of Sarah’s Will. Rachel now owns the whole house. Sarah thought that one-half of the value of the house would pass to her daughter through her Will, but she was wrong. Her daughter does not get any portion of the house, and evil Rachel ends up with the whole thing.
Don’t let your arch enemy end up with your property. Understanding the difference between probate and nonprobate property is important when you are setting up your estate plan. Read more about probate versus nonprobate property.