When a person expires, his assets are divided amongst surviving family members, or outsiders, according to the terms and conditions mentioned in the individual's will. There are several laws that govern the distribution and classification of such assets, and one way of distinguishing between is knowing the difference between probate and non probate assets.
In simple terms, addition of both types of assets a deceased leaves behind gives the sum of his total assets. Distribution of both these assets is done very differently, so it is essential to know the differences between both. Some people say that after non probate assets are distributed accordingly, anything left of the property is a probate asset.
Difference Between Probate and Non Probate Assets
The simple difference between the two is that a non probate asset is passed on to a beneficiary, irrespective of what is mentioned in the will. Even if the deceased person specifies to whom a non probate asset should be passed on in his will, it makes no difference as the asset will be passed to the beneficiary by law. Any mention of such an asset is void.
On the other hand, a probate asset is something that can be distributed according to the terms of the will. The deceased individual has the final say in this matter, so whatever is mentioned in the will needs to be adhered to strictly.
Examples of Probate Assets
The very first thing that is considered in a probate asset is the tangible property that belongs to an individual. This includes private belongings like cars, furniture, jewelry, electronics etc. These items will always be distributed according to the will of the person.
Secondly, if the deceased person has some interest in a partnership, or a limited liability company or any corporation, he can pass this on to his beneficiaries in any manner possible. Thirdly, if the individual has a bank account that is not a joint account or does not have a beneficiary listed, then he can distribute it to anyone that he sees fit.
Lastly, and most importantly, any property or land that the deceased person owns can be transferred to an individual of his choice, or can be distributed accordingly.
The underlying concept here is that any property that will not automatically pass to some other individual upon the death of a person, can be considered to be a probate asset. Hence the deceased person gets to decide how these assets are divided and distributed, and this information is passed on through his will.
Examples of Non Probate Assets
Conversely, non probate assets are assets not governed by the will of the deceased individual. These are assets that need to be transferred to another individual, by law, as soon as the person in question passes away. The biggest example of non probate assets is the life insurance amount that an insurance company pays upon the death of an individual.
This amount will directly go to the beneficiary that has been listed, and no words in the will can change this. If the deceased person was a Trustee for someone in a Totten Trust account, all the money in the account will pass on to the person for whom the individual was a Trustee.
Pension payments and retirement plans are also required to pass the pension money to a beneficiary of the individual, and not to someone who has been mentioned in the will.
Other assets like a mutual fund, a brokerage account, a joint account or a payable on death account also have beneficiaries listed out, so the proceeds from them will always pass to the beneficiary, no matter what the will of the individual says.
Lastly, if the deceased individual owns a property or piece of land jointly with someone else, the ownership of that asset will pass on to that person alone.
With all this in mind, it becomes clear why an individual creating a will needs to know the difference between probate and non probate assets so that he does not overlook certain members of his family. There are certain proceeds that will go to certain other people for sure, so he should make it a point to divide his probate assets accordingly.