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Last Updated on October 10, 2022 by Carlos Lopez
When it comes to inherit decedent’s estate and related assets, beneficiaries – or also known as creditors – must undergo a probate process, so they can obtain benefit and receive fair share.
At this point, usually creditors and other parties involved have questions and doubts. One of the most frequent ones is about the assets not considered in a probate case, and which of them actually do.
Let’s dive in deeply into this estate and probate concepts, which assets are applicable and which are not and their corresponding examples, exceptions and inventorying procedure.
What is considered an Estate Asset?
A probate is the process of validating, identifying, inventorying and distributing the remaining estate that belonged to the decedent, between the corresponding beneficiaries by law.
With probate carried out, heirs can get their fair share of the estate’s assets, only after related taxes and debts are properly covered and not before.
Due to the complexity of this legal process, it is a court-supervised litigation that follows the probate court guidelines, according to jurisdiction.
Now, what is exactly considered an estate asset? Do all properties owned by the deceased count as estate assets?
Actually, the short answer is yes; all decedent’s property counts as estate as general heritage or personal wealth: real estate, vehicles, bank accounts, funds, personal effects, stocks and more.
The important thing here is, it is different when you refer to an estate asset than when you do it for a probate asset, which is completely different.
What is considered a Probate Asset?
In detail, a probate asset is the good that actually applies as property that requires being validated, evaluated, inventoried and eventually distributed among the creditors. This is when you ask; why not all estate assets qualify as probate assets?
This is due to the fact that while estate asset is simply all of the decedent’s belongings and properties left behind, probate assets is actually the patrimony that applies for probate case and eventual distribution.
The distinction between estate assets as general deceased´s patrimony and specific probate asset to be evaluated and distributed is given by jurisdiction and corresponding law.
Actually, the type and size of estate asset for probate is relevant in the case and its duration and complexity.
The good news is, assets considered for probate as part of the decedent’s estate are usually similar from one jurisdiction and county to the other, with slight differences in estate size thresholds and asset exceptions.
Examples of Probate Assets
Whether the decedent has left an estate plan like a will or not, probate is a mandatory process for every asset that applies, even when the case is considered an intestate succession or not.
Either way, when I get to talk about probate assets something that is mentioned and easy to understand is; estate’s assets held in the deceased´s sole name at the moment of passing apply as probate assets.
Therefore, they must be validated, assessed and distributed accordingly to local laws and probate court supervision.
Probate assets in most cases and jurisdictions are:
- Real estate: real estate and similar property that is owned by the deceased in sole name apply for probate. Even in tenants in common ownership, properties must be appropriately probated, with the only exception the existence of Playable on Death or Survivorship clauses.
- Bank accounts: liquidity in bank accounts in the decedent’s sole name must undergo probate. Accounts held jointly do not apply for the process, along with POD clauses and similar.
- Life insurance policies: when it comes to life insurance policies that establish deceased as owner of the policy and beneficiary or policyholder. Also, in case of life insurance that establishes other creditors and not the decedent, it can go through probate if beneficiaries fail to appear or pass away.
- Vehicles: vehicles like cars, motorcycles and other models go probate if they were held in sole name at the moment of the decedent´s passing.
- Personal property: other types of personal property apply for probate like jewelry, household furniture and other considered valuable objects like art and collections.
Example of non-probate assets
If probate assets are usually the ones that were held in sole property by the deceased at the moment of passing, like real estate, bank accounts and others, with non-probate property, occurs the exact opposite.
This means, every estate´s asset that shares ownership in some way with another party or is held jointly is not subject to probate, although proprietorship can be affected by some clauses and depend on some situations to take effect.
A great example is the POD or Playable of Death clause, which allows direct ownership transfer to a creditor or described beneficiary, only after the estate´s owner passes. This can be related to a will or not.
Along with property held jointly, those assets in the estate that have a designated beneficiary – with the help of an estate plan tool like a will – are not subject to probate as well.
In some cases, a will is not required for an asset to be classified as directly transferable to a third party, such as in community property situations like marriages when spouse or husband is direct beneficiary of a shared estate via marriage.
These are some non-probate assets frequently considered like so in most jurisdictions:
- Property or asset held in living trusts: with living trusts, property owners are able to protect their wealth in lifetime, designating it to the related trust and establishing a beneficiary. At the moment of death, assets in the living trust do not apply for probate, since due to the way trusts work property in it is owned by the trust itself.
- Jointly held bank accounts: bank accounts held jointly are not subject to a probate process, since ownership and money transfer directly to the surviving owner of the account. With bank accounts arrangements like POD can also be managed, establishing direct beneficiaries at the moment of passing.
- Retirement plans: since retirement plans usually require beneficiary designation, these are not considered probate assets in the majority of jurisdictions.
- Property held in joint tenancy: joint tenancy of different assets like real estate, bank accounts and others with survivorship and POD clauses like community property ownership do not apply for probate. With the survivorship feature, assets transfer directly to the surviving party.
- Life insurance policies with designated creditors: if the deceased had a life insurance policy with designated beneficiaries to take effect at the moment of passing, such assets are not applicable for probate.
According to jurisdiction, there are some characteristics that make an estate non-applicable for probate, such as estate size threshold. For instance, in the state of Washington D.C. estates under $40.000 do not undergo probate process.
How detailed does an estate inventory need to be?
It is the probate executor´s job to carry out a proper and detailed estate inventory, including every estate asset to be distributed.
By doing this list, related debt and taxing can be done, as well as separating non-probate from probate assets, establishing value and then finally distributing the wealth.
An estate inventory must include:
- Real Estate
- Bank accounts and brokerage
- Business interests
- Stocks and bonds
- Life insurance
- Retirement plans
- Intellectual property
- Household property
- Personal effects
If you are probate´as executor designated by court or a will, you should know this is demanding job that deserves to be paid with a legal fee, due to the time it takes.
Probate Attorney in Washington D.C.
Getting help is a great idea for probate executors and a lawyer can give you exactly that, with valuable legal representation and advice in the process.
For probates in Washington D.C., contact Lopez Law Firm LLC.