When a person passes away, they generally have two broad categories of property: probate property and non-probate property. Understanding the difference during the estate planning process now can save your family members considerable time and expense after you are gone. The knowledgeable estate planning team at Roulet Law Firm, P.A. may be able to advise you on making non-probate property transfers so that your estate can be administered more efficiently when the time comes. To learn more, call our Minnetonka, Minnesota office at (763) 420-5087, or our Sarasota, Florida office at (941) 909-4644 today and request a confidential consultation to discuss your estate plan.
What Is Probate?
Probate is the legal process of settling a deceased person’s affairs, resolving their final debts, and distributing their remaining property. Estates that are subject to probate must be administered according to the probate code of the state with jurisdiction (generally, either the state of which the decedent was a legal resident prior to death or where the asset is). In Minnesota, probate estates are administered under the Uniform Probate Code; in Florida, Chapter 732 (also known as the Florida Probate Code) contains the relevant statutes.
The probate process, in any state, can be time-consuming and in some cases costly. Consequently, many astute estate planners take steps to ensure that some or all of their assets may be transferred outside the probate process after their deaths. Assets that are thus excluded from the probate estate are known as non-probate property.
Benefits of Non-Probate Property Transfers
Transferring property directly to beneficiaries, rather than relying on estate administration through probate, can have a number of advantages. Some of the benefits of non-probate property transfers may include:
- Cost savings – Probate can be a costly process, with fees that are often based on the value of the probate property. By minimizing or eliminating the value of the property that is part of the estate, estate planners may be able to conserve greater assets to leave to their beneficiaries.
- Time savings – Probate can often be a lengthy process, in many cases lasting for more than a year. Assets are not distributed to beneficiaries until the decedent’s final debts and other matters have been settled. As a result, the probate process can result in an extended time period during which bereaved family members are subject not only to emotional distress, but to financial privation as well, unable to access the assets intended for their benefit.
- Simplification – Probate can be a complex process that involves confusing laws. By transferring some or all of their assets outside of probate, forward-thinking estate planners can sometimes simplify the process for their loved ones.
- More difficult to contest – Probate is a court-supervised process. Therefore, anyone with an interest may potentially contest the matter. One-time, non-probate transfers that an individual authorized during their lifetime may be more difficult to contest.
- Privacy - Probate is a completely public process. That means anyone can see what you had, but also who is going to receive your assets along with their contact information. Avoiding probate allows you to keep your affairs private.
In many cases, non-probate property transfers also allow the parties involved to complete these transactions privately. Probate is a public process, and families may have any number of reasons, including a simple desire for privacy during a time of grief, to wish to avoid having their personal financial matters aired in public.
Types of Non-Probate Property Transfers
There are many different means by which individuals can transfer property outside the probate process. A non-exhaustive list of non-probate property transfer types follows below. However, there may be risks to some of these strategies. Therefore, you may want to consider obtaining legal assistance from a knowledgeable lawyer with Roulet Law Firm, P.A. to seek legal advice and guidance for your particular situation.
Joint Property
You may own property with your spouse or someone else as joint tenants with the right of survivorship. Right of survivorship means that when any of the co-owners passes away, their share in the property reverts to the surviving owner or owners. In the situation of joint tenancy with right of survivorship, there is no need for an additional step, through probate or otherwise, to transfer the property; the transfer is already assured by the terms of co-ownership.
Joint tenancy frequently applies to real estate, but it can also apply to other types of assets, such as:
- Bank accounts
- Other financial accounts
- Vehicles
- Personal property
However, it is important to note that joint property does not entirely avoid probate, it just kicks the can down the road until the passing of the surviving joint owner unless additional planning is done. So for example, if you and your spouse own a home together and your spouse passes, you as the surviving joint owner will own the home without needing to go through probate. However, unless you do additional planning, probate will be required upon your passing in order to transfer ownership of the home.
Beneficiary Designation
Certain types of accounts allow you to name a beneficiary to receive the assets they represent upon proof of your passing. After your death, the named beneficiary can receive the account proceeds without going to court. Examples of property that can transfer with a beneficiary designation include:
- Life insurance proceeds
- Retirement accounts
- Annuities
- Pensions
Some types of accounts, such as many life insurance policies, make it a standard practice to ask the holder to name contingent beneficiaries in case any of the primary beneficiaries named on the account predeceases the account holder or refuses the inheritance.
Trust
Property in living trusts can be transferred without going to court. With a trust, an individual can transfer certain property for a designated trustee to manage for the benefit of named beneficiaries. The trust can contain information about what should happen to the property in the trust at the time of the grantor’s death, as well as during their lifetime.
Various types of property can be placed in a trust, including:
- Real estate
- Vehicles
- Bank accounts
- Personal property
- Gifts you receive from others
The document used to form the trust, also known as the trust instrument, should provide clear instructions for whether the property should be immediately transferred to beneficiaries upon the grantor’s death. If immediate transfer is not the goal, then the trust instrument will also need to provide instructions for the trustee regarding how the assets are to be managed.
Payable-on-Death Designations
Estate planners may be able to add a payable-on-death designations to common types of bank accounts such as checking accounts, savings accounts, and certificates of deposits (CDs). A payable-on-death designation does not provide any rights to the funds in, nor access to, the account immediately upon signing. However, when the account holder passes away, the beneficiary named in the designation can claim the funds directly from the bank without having to go through probate.
Transfer-on-Death Deeds
Minnesota §507.071 imposes a number of restrictions on the use of transfer-on-death deeds, but the state does still permit their use within the parameters outlined by law. This type of deed says that, upon the property owner’s death, the beneficiary named in the transfer-on-death deed will receive the real property described in the deed. This deed is recorded at the local county recorder’s office. Property owners have the right to revoke the deed at any point during their lifetime, nullifying its applicability after their death.
It is important to note though that a recent Court decision held that homeowner’s insurance coverage does not extend to beneficiaries of a transfer-on-death deed. Also, since Minnesota law requires all beneficiaries and their spouses to sign off on the transfer of a home, many clients find the use of a trust a better vehicle for avoiding probate of real estate in Minnesota and elsewhere.
Florida takes a somewhat different route to a substantially similar conclusion. The state does not allow for a simple transfer-on-death deed in the same way that Minnesota and several other states do. Instead, Florida law provides for what is sometimes known as a “ladybird” deed. According to the American Council on Aging, a ladybird deed grants the beneficiary an “enhanced life estate” in the property. This enhanced life estate gives the beneficiary no rights to the property during the grantor’s lifetime, but transfers the real property to the beneficiary directly upon the grantor’s death.
Transfer-on-Death Securities
Estate planners who own securities, such as stocks or bonds, may wish to set up transfer-on-death arrangements for those as well. As with the other assets described above, this designation does not provide any immediate rights to the property. At the time of the owner’s death, however, the named beneficiary can receive the stocks and bonds you left to them without having to go through probate.
Get Help Developing a Comprehensive Estate Plan
Non-probate property transfers can be an integral part of a comprehensive estate plan, allowing individuals to transfer essential property to the beneficiaries of their choice. However, you may still want to establish a Last Will and Testament to help direct the transfer of other property that may not qualify for any of the above non-probate transfers. An experienced lawyer may be able to review your situation and explain your options, as well as assisting you in preparing estate planning documents that are targeted to achieve your goals. Consider contacting an estate planning lawyer at Roulet Law Firm, P.A. for help by calling our Sarasota, Florida office at (941) 909-4644 or our Minnetonka, Minnesota office at (763) 420-5087 to schedule a meeting. Or you can fill out the form on this page and a member of our team will contact you.
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