Explaning Probate Assets and Non-Probate Assets

In the course of my practice, whether it be planning a client’s estate or assisting a family in the administration of an estate, I often have to explain the nature of probate assets versus non-probate assets.

The distinction is important.  A probate asset is one which must go through the probate process after the death of the owner of that asset before it can be passed on to a new owner, while a non-probate asset avoids the probate process. 

The purpose of probate is protection.  Probate essentially freezes an asset before it can be passed on to a new owner.  Wills must be proven, heirs are identified and notified, debts are paid, and conflicts are resolved before ownership of the asset can pass on.

Non-probate assets don’t require the same protection, so they don’t need to be probated.  Common non-probate assets like IRAs and life insurance policies pass by beneficiary designation.  The company that administers the IRA or life insurance policy is contractually obligated to transfer the assets to the named beneficiary.  Thus, there is no need for the protection of a probate court.  If there is any wrongdoing, sue for breach of contract in a regular civil court.

So which assets are probate assets and which assets are non-probate assets?

The most common non-probate assets are life insurance and qualified retirement accounts such as an IRA, Keough Plan, 401(k), or 403(b).  They also include property held in joint tenancy form as well as certain bank accounts that pass my beneficiary designation like a payable on death account (POD).  Perhaps most importantly, non-probate assets include assets that are titled in the name of a trust.  Probate assets essentially include all other types of assets.

So why is it important to know this?

Wills are meaningless to non-probate assets.  For many people, the majority of their estate is constituted by their IRAs and life insurance policies.  Many people make the mistake of writing a will and not realizing that it won’t have an effect over most of their estate.  The most common mistake I see is where somebody writes a Will but does not change the beneficiary designations on their life insurance policy or retirement account.  They may have wrongly expected that their Will would give their entire estate to the beneficiary named in the Will.

It’s also important to realize the benefits of establishing a Revocable Living Trust.  While probate serves a legitimate purpose, it is still a time and money consuming process.  Take it from a lawyer, the less time your beneficiaries have to spend in court, the better.  Assets titled in the name of a Revocable Living Trust are non-probate assets, and, thus, avoid probate upon the death of the owner of those assets.


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Have Young Children? Take the Time to Nominate Guardians.

One of the most common concerns of my married couple clients is what will happen to their minor children if they were to both die?

In this case, the court will appoint a guardian or guardians to take of your children.  The court will appoint the guardian(s) that it believes will be in the best interest of your children.  However, the court will give great weight to the nominee of the parents.  You can nominate a guardian in your will.  You can also nominate a guardian in a separate signed writing.

Parents should strongly consider taking the time to nominate a guardian for their minor children in the event that they are no longer able to care for them.  You will be doing a great service to your children and their potential guardians by planning for this unfortunate possibility.  Kids who have already experienced the tragedy of losing parents should not have to face the added sorrow of observing their relatives fight over their future care.

The court can appoint a Guardian of the Estate of the Minor Child and a Guardian of the Person of the Minor Child.  This will often be the same person.  A guardian of the estate manages the financial affairs of a minor and is particularly necessary when a minor inherits a large sum of money.  A guardian of the person is responsible for meeting the basic needs of the child – their protection, safety, food, shelter, medical care, and education.  Sometimes it may be best to appoint different people for these two jobs as there may be someone who will be a perfect fit for entrusting the child’s personal care to, but that person might not be the most financially savy fit to take care of the child’s estate.

Parents need to take the time to talk over this important issue with each other.  It is rarely an easy decision to make, and of course, parents need to discuss this matter with potential guardians as well.  Reach out to an estate planning attorney for advice on this important issue.  I have found many potential clients who put off this issue because they did not think they had enough assets to warrant creating a will or trust, or they did not think they could afford to hire an attorney.  Since an entire will or trust is not necessary to nominate a guardian, taking care of this issue is more affordable than you think.

If you want to learn more about Guardianships and Estate Planning, give us a call at (805) 966-0282.  While this post discusses legal issues, it is not intended as legal advice, and use of this site does not create an attorney – client relationship.


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Special Needs Trusts Can Provide for Disabled Loved Ones While Preserving Their Eligibility for Government Benefits

Do you have a child, family member, or loved one with a disability?  Whether your loved one was born with their disability or acquired it later in life, they may have become dependent upon the benefits of certain government assistance programs.  If this loved one is a potential heir or beneficiary of your estate, you should strongly consider drafting a Special Needs Trust for them.

A Special Needs Trust (sometimes called a Supplemental Needs Trust) allows a disabled beneficiary to receive gifts (and other funds) without losing their eligibility for government benefits.  Most government assistance programs require the recipients of their benefits to have a minimal amount of assets in order to remain eligible.  If you make a gift in your estate plan to a disabled beneficiary in the form of a Special Needs Trust, the gifted assets will not be considered to belong to the beneficiary in determining their eligibility for government benefits.

With a Special Needs Trust, a beneficiary’s basic support and needs can continue to be met through specific government programs.  The trustee of the Special Needs Trust is then able to pay for the beneficiary’s comfort beyond the basic necessities of life.  The Special Needs Trust can be used to pay for education, travel, and recreation.  It can also provide the disabled beneficiary with spending money so they can enjoy every day activities like shopping or going to the movies.

If you have a child with a disability currently receiving government assistance and have not created a will or trust for your estate plan, strongly consider doing so and making sure that any assets your disabled child receives are put into a Special Needs Trust.

If you want to learn more about Specials Needs Trusts and Estate Planning, give us a call at (805) 966-0282.  While this post discusses legal issues, it is not intended as legal advice, and use of this site does not create an attorney-client relationship.


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Plan For Your Incapacity

When clients and prospective clients speak to me about estate planning, their focus is usually on what will happen to them and their estate once they die.  What most clients don’t think about is what will happen to them if they lose the ability to take care of themselves.  This is particularly true for middle aged and younger clients. That is unless they have seen the consequences for themselves.

I often represent clients seeking to establish a conservatorship over a parent who has reached old age.  A conservatorship is much like the guardianship of a child, except a conservatorship is designed to protect an adult who lacks the capacity to take care of themself or their finances.  Most of my clients in these situations come away dismayed at the time and cost spent dealing with the court supervision involved in a conservatorship.  Take it from a lawyer, while court supervision is sometimes very necessary, the less time you have to spend in court, the better.  Much of that time and money could have been saved if their parent had just planned for their incapacity.

I tell all my clients involved in conservatorships, “Let this be a lesson to you.  Plan for your future incapacity!”

While there is no guarantee that a conservatorship may not be needed at some point, you can go a great way to avoid the possibility and also provide a great deal of guidance to your family by planning for your potential incapacity.  Your Revocable Trust can nominate Successor Trustees to manage your Trust Estate.  You can create a Power of Attorney giving a trusted person the power to manage your assets.  You can also provide a great deal of guidance to your family and avoid potential headaches by nominating a Conservator in case one is ultimately needed.

The lesson is simple.  Your loved ones are already going to have a challenge in taking care of you should you lose your ability to take of yourself.  Make it easier on them by planning for this unfortunate possibility.

If you want to know more about Conservatorships and Estate Planning, give us a call at (805) 966-0282.  While this post discusses legal issues, it is not intended as legal advice, and use of this site does not create an attorney-client relationship.


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New Blog/Website

Welcome to the new Santa Barbara Estate Planning Blog brought to you by the Law Office of Timothy R. Deakyne. We are pleased to announce both the launch of this new blog and our new website as well. We welcome you to follow our blog as in the coming weeks and months we will regularly update it with news, updates, and opinions on all matters dealing with estate planning, probate, wills, trusts, and our Santa Barbara community.


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