Probate vs. non-probate assets concept: Coin stack on international banknotes with house model on table.

Probate vs. Non-probate Assets: What’s the Difference and Why Does it Matter?

Probate vs. non-probate assets concept: Coin stack on international banknotes with house model on table.

One of the most common questions clients ask us is what is the difference between a probate and non-probate asset?

Most clients own a mix of assets that fall into both categories or would fall into both categories with the passing of their spouse. As you will see below, it is very important to understand the difference between these assets so that your plan functions as intended when you pass away. 

Probate Assets

Probate assets are the items that you own solely in your name and which do not pass by way of beneficiary designations when you die. These are called probate assets because when you pass away, they will pass through probate to your beneficiaries if you have a Will, or to whomever your state law names as your intestate heirs if you do not. 

Some typical examples of probate assets are as follows: bank accounts with no joint owner, real estate with no joint owners with the right of survivorship, and life insurance policies, retirement accounts, and other investment accounts that do not have valid beneficiaries named. Accounts that you have failed to name a beneficiary for, or have chosen to name your estate as the beneficiary for are also probate assets. 

Non-probate Assets

Non-probate assets are the opposite of probate assets because when you die they do not require probate to wind up in the hands of your beneficiaries. These assets pass directly to another person or entity when you pass away and are not subject to the terms of your Will or the law of intestacy.

Examples of non-probate assets include real estate held joint tenants with right of survivorship or tenants by the entireties, bank accounts with joint ownership, life insurance policies, retirement accounts, and other investment accounts with valid beneficiary designations, accounts that have transfer on death or payable on death designations, and accounts that are owned by a trust. 

Why Does it Matter?

In order to make sure that your plan works the way you want it to, it is critical that you understand what assets that you own will pass through your probate estate and which will not. 

A common mistake that I see is that clients take the time to draft a Will which names multiple beneficiaries, but then they add just one child onto a bank account as a joint owner. Typically, this is done so that the chosen child can write checks for them or otherwise help manage their primary bank account. The downfall is that they have innocently thwarted the estate plan they created by doing so because at death only the child with joint ownership of the bank account will have any legal right to benefit from it.

Another thorny issue is that a parent may owe inheritance tax on part of their own bank account if their joint owner child passes away unexpectedly before them. It is important to understand that in Pennsylvania, non-probate does not mean non-taxable for purposes of the Pennsylvania Inheritance Tax. Unfortunately, just as a child would have to pay inheritance tax on the inheritance they receive from a parent, a parent would have to do the same on what they “receive” from their child under these circumstances. 

Are You Ready to Plan?

As you can see, there are many issues to consider when crafting your estate plan. Whether you are creating your plan for the first time, interested in reviewing your current planning, or just have questions about estate planning we would love to meet you. Our goal is to help make your entire planning process as simple as possible. 

We recommend registering for one of our free workshops to get your questions answered and learn more about our process. 

Contact an Experienced Pennsylvania Estate Planning Attorney

If you have questions about probate vs. non-probate assets, contact an Estate Planning attorney at Cardinal Estate Planning by calling 570-252-9043 to schedule an appointment.

Head shot portrait happy three generations of women hugging, touching cheeks, smiling little girl sitting on couch between young mother and mature grandmother, posing for family photo at home

Why Do People “Put Off” Estate Planning?

Head shot portrait happy three generations of women hugging, touching cheeks, smiling little girl sitting on couch between young mother and mature grandmother, posing for family photo at home

The statistics are rather alarming. In 2005, 50 percent of Americans had a will; today, only 32 percent of us have one. Meanwhile, only one in three Americans over the age of 55 has a durable power of attorney, and a mere 41 percent of this same demographic has advance health care directives. 

Why is this? According to statistics culled from a range of sources, Americans lack estate plans for the following reasons:

  • 47 percent say “they haven’t gotten around to it”
  • 29 percent think they “don’t have enough assets to leave to anyone”
  • 49 percent don’t believe their assets are worth enough to worry about estate planning

Other common explanations include being too busy, thinking estate planning is only for “old” people, and not wanting to think about the inevitability of death.

In truth, proper estate planning isn’t just about what happens to one’s assets after death, it’s about taking control of one’s life. Everyone can benefit from having an estate plan. At the very least, your plan should include all of the following documents:

Last Will and Testament

A last will and testament allows you to accomplish a number of important goals. You can name your beneficiaries and specify the assets you want them to receive; name a guardian for your minor children; and choose the person you want to settle your estate (known as the Executor). 

Power of Attorney for Health Care

Also known as a health care proxy, this important legal document allows you to name a person you trust to make health care decisions on your behalf if you are no longer able to make them on your own. 

Power of Attorney for Finances

A power of attorney for finances is similar in concept to a power of attorney for health care. It allows you to designate another person to make decisions about your finances, such as income, assets, and investments, when you can longer make them yourself.

Living Will

This allows you to express your wishes regarding what medical treatments you want, or do not want, in an end-of-life situation. A living will differs from a power of attorney for health care in that it details your specific wishes, whereas a power of attorney for health care allows someone else to make health care decisions for you. 

HIPAA Release

A HIPPA release lets you choose who can receive information about your medical condition. Hospitals and medical providers can be prosecuted for violating the Health Insurance Portability and Accountability Act (HIPAA) if they reveal your medical information to people not named in your HIPPA Release. 

Estate planning can help you accomplish many other goals as well. For example, trusts can protect your privacy and enable your estate to avoid the delays and frustration of probate. Trusts can also stipulate when and under what conditions your heirs will receive their assets, which is helpful if you think your children are not mature enough to manage an inheritance. An irrevocable trust can protect your assets against threats like long-term care costs, divorce, creditors, lawsuits, and more.

As you can see, proper planning allows you to seize complete control of your affairs while you are alive and after you pass away.

Contact Us

If you have additional questions or concerns regarding estate planning, contact the experienced Pennsylvania Estate Planning attorney at Cardinal Estate Planning by calling 570-252-9043 to schedule an appointment.

Estate planning attorney speaking with smiling senior couple

Estate Planning Fundamentals

Estate Planning attorney talking with smiling senior couple

Clients often ask us about the estate planning tools we use and what each of them can accomplish. Here is a list of the most commonly used tools and brief descriptions of their purpose.

Last Will and Testament

This allows you to specify “who gets what” when you pass away. Without your own Last Will and Testament, your assets will be distributed according to state guidelines. A Will also allows you to name guardians for your minor children. This is important because if something happens to you and your spouse, the state will decide who will have legal authority over your minor children. This could very well be a person or institution you would never have chosen to have such authority. 

Durable Powers of Attorney

These allow you to name people of your own choosing to make decisions for you in the event of incapacity. A power of attorney for healthcare lets you designate a person you trust to make decisions about your medical care, while a power of attorney for finances lets you name the person you want to make financial and legal decisions on your behalf.

Advance Directives

An advance healthcare directive, also known as a living will, allows you to choose, in advance, the types of medical treatments you want (or don’t want) in an end-of-life situation. 

HIPAA Authorization

The Health Insurance Portability and Accountability Act (HIPAA) established national standards to protect the privacy of patients’ health care information by regulating the use and disclosure of “protected health information.” A HIPAA Authorization ensures your loved ones and decision makers can gain access to medical information about your condition when they need it. 

Trusts

There are many types of trusts, capable of helping you accomplish a variety of goals. However, when most people think about trusts, a revocable living trust is the one they have in mind. 

A revocable living trust allows you to maintain complete control over your assets while you are alive and after you have passed away. You don’t have to transfer your assets to the trust all at once, you can do so over time and even add to the trust as you acquire new assets. 

Other benefits of a revocable living trust include: 

  • Avoiding probate. The probate process is time-consuming, needlessly expensive and exposes your assets and estate to public scrutiny
  • It can be changed over time, to compensate for changes in your financial and family situation
  • Basic wills can lead to disagreements among family members. A revocable living trust can help eliminate challenges to the will and ensure beneficiaries receive what you have intended for them
  • It allows for ongoing financial management. As your wealth accumulates, so too will assets in the trust

Contact Us

If you have additional questions or concerns regarding estate planning tools and strategies, contact the experienced Pennsylvania Estate Planning attorney at Cardinal Estate Planning by calling 570-252-9043 to schedule an appointment.