Non-Probate Assets

02/06/2011

Assets which are funded in a Revocable Living Trust will not go through probate at death.  This is because the assets when a Revocable Living Trust forms a part of a person's estate plan and assets are funded in that trust, those assets are not titled in a person's individually name any more.  Rather, they are titled in the name of the trust.  Generally, assets are only subject to the probate process when they are owned in a person's individual name at death. 

Whenever I do a Revocble Living Trust for a person, one key step is to make sure I have a good handle on how assets are owned.  This is important in order to determine what assets need to be funded or put in the Revocable Living Trust. 

Often, when I go through clients' assets with them, they are confused about what should go into their Revocable Living Trusts.  This confusion generally stems from a misunderstanding of the probate process and what assets are subject to probate and what assets are not subject to probate.

So here are some types of assets that would avoid probate after death:

  • Assets you own jointly with others with rights of survivorship ("JTWROS");
  • Assets you own jointly with your spouse as tenants by the entirety ("TBE");
  • Assets owned by your Revocable Living Trust;
  • Assets in which you retain a life estate and the remainder passes to a non-charitable beneficiary other than yourself; and
  • Assets owned by you and payable to a designated beneficiary who survives you, including:
    • Payable on death ("POD") accounts, transfer on death ("TOD") accounts, in trust for ("ITF") accounts and Totten trusts
    • Life insurance policies
    • Retirement accounts, including IRAs, 401(k)s and annuities
    • Health or medical savings accounts

You should note that if a Revocable Living Trust forms a part of your estate plan, you should review how your assets are titled.  While owning property as JTWROS or TBE may avoid probate, it might be better to title those assets in your Revocable Living Trust depending on your estate planning goals and objectives.  The same is true for life insurance, retirement assets and other POD-type accounts.