Avoiding Probate Administration

Differences Between Probate and Nonprobate Property

Aug 4, 2009 Suzanne Bechard

Nonprobate property passes directly to one's heirs without going through probate court. Removing property from one's estate can spare probate costs.

Avoiding probate involves making sure one's property is not subject to estate administration under the terms of a will, or to the laws of intestate succession in the absence of a will. Many people prefer to try and convert most or all of their property to nonprobate property in order to avoid probate administration. To do so, it is important to first understand the basic differences between probate and nonprobate assets.

What is Probate and Why Avoid It?

Probate property is all real and personal property that one owns either as a single owner (in "severalty") or as a co-owner with someone else in a tenancy in common. Probate is the process of handling the will and administering the estate of a deceased person. Nonprobate property is not subject to probate; it passes to the named beneficiary or the surviving tenant by operation of law.

Many people choose to avoid probate administration because probate property is subject to the claims of a decedent's spouse and creditors. Converting all or part of one's property into nonprobate property avoids those claims. Additionally, probate costs are tied to the monetary value of the estate. Converting as much property as possible to nonprobate property lowers the cost involved in administering the estate.

Ways to Create Nonprobate Property

There are a number of methods available to convert real and personal property into nonprobate assets. These include placing the property into trusts, holding the property in joint tenancy with the right of survivorship, creating payable-upon-death accounts, or giving the property away during one's lifetime. The advice and counsel of a licensed estate and trust attorney would be helpful before attempting to make any changes to one's estate.

The following are various methods for converting one's property to nonprobate assets:

Joint Tenancy with the Right of Survivorship. Real and personal property held in a joint tenancy with the right of survivorship passes automatically to the surviving owner(s) upon the death of one of the owners. The deed or other ownership document usually must specifically reflect the right of survivorship.
Revocable Living Trust. With a revocable living trust, real and personal property is transferred into a living trust that is registered as owned by the trustee (i.e., someone else). After the decedent's death, the trustee passes the property to the intended beneficiaries without probate.
Payable-Upon-Death Accounts. Bank accounts, employee benefits accounts, annuity contracts, individual retirement accounts (IRAs), savings bonds, life insurance proceeds, and security registrations may all be converted into payable-upon-death accounts. This means that, upon the decedent's death, the funds or proceeds go directly to the named beneficiary and not to the decedent's estate, thereby avoiding probate.
Giving it Away. Another way to remove property from the probate estate is to give it away during one's lifetime. An inter vivos gift is a voluntary transfer of property to a recipient during one's lifetime. Both real and personal property may be given away to avoid probate. Additionally, the IRS allows annual gifts of money up to specified amounts without the payment of federal gift taxes.

Estate and Inheritance Taxes Still Apply

If all of a decedent's property has been removed from the estate, then probate can presumably be avoided, thereby saving money otherwise spent on administration. Nevertheless, it is important to note that nonprobate assets remain part of the decedent's gross estate for federal and state estate tax purposes. That means that nonprobate property is still subject to federal and state estate taxes and state inheritance taxes. Accordingly, even though nonprobate property avoids the probate process, one should keep careful records of each item for the preparation of tax returns.

Source: Hower, Dennis R. Wills, Trusts, and Estate Administration for the Paralegal. St. Paul: West, 1996.

Other Resources:

Requirements for a Valid Will in Florida

Grounds for Contesting a Last Will and Testament

Disclaimer: This article is in no way intended as legal advice. For help with specific legal issues, one should contact a licensed attorney in one's own jurisdiction.

The copyright of the article Avoiding Probate Administration in Law, Crime & Justice is owned by Suzanne Bechard. Permission to republish Avoiding Probate Administration in print or online must be granted by the author in writing.

Payable-Upon-Death Accounts are Nonprobate	Avoiding Probate can Save Money	Joint Tenancy with Right of Survivorship
Inter Vivos Gifts Avoid Probate	Avoiding Probate Administration