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Mary Owens: All about assets

Mary Owens

This month we will be discussing which assets are includable in the probate process and which assets are excluded. There is a common misconception that all assets of a decedent must go through probate, however, many assets are excluded and are not subject to the court supervision process.

There are three basic types of assets in your estate after you pass away: assets not included in your estate and usually not subject to estate tax or probate, assets that are includable in your estate but not subject to probate, and assets that are includable in your estate and subject to probate.

Assets not includable in your estate

Only a few estates will hold these types of assets. The most common include: life insurance proceeds that were owned by an Irrevocable Life Insurance Trust, gifts made under the annual gift exclusion amount, assets held in a credit shelter trust, exemption trust, bypass trust or exempt generation skipping trust.

Assets includable in your estate but not subject to probate

The first group of assets that are includable in your estate, but not subject to probate, are items that have a specific named beneficiary, provided the beneficiary is a person or an estate other than your estate.

The most common examples are Individual Retirement Accounts, survivor pension benefits, jointly held property with full rights of survivorship, annuities, transfer on death accounts (aka TOD accounts) and life insurance proceeds. Each of these has a named beneficiary or beneficiaries.

At proof of death, the holder of the assets distributes the death benefits according to your instructions without having to go through probate. Assets specifying beneficiaries that should have been changed prior to your death, but were not properly updated, will result in your assets not going to the person you desired.

The most common long forgotten assets that frequently do not get updated timely are life insurance policies and pension benefits. These assets are frequently left to an ex-spouse long after a divorce has occurred.

If you own assets that have specific beneficiaries attached to them, it is a good idea to review them annually. If you do not have written evidence in your file who the current beneficiates are, don’t assume you know who they are without getting written confirmation from the company holding the asset.

Incorrect assumptions frequently lead to unintended consequences. You may also consider who you would want these assets to go to if the loved one you named as a beneficiary is deceased at the time of your death.

Do you want their children to get the proceeds, their spouse, or possibly someone else? It is important to think through all the potential alternatives of asset beneficiaries. It is especially important to plan ahead if your primary beneficiaries accompany you on long distance travels on a regular basis.

Naming contingent beneficiaries will help your assets avoid being involved in the probate process of the primary beneficiaries’ estate.

Assets includable in your estate and subject to probate

This category is almost an “everything else” bucket. This list can be long, so I will detail the most common assets.

The most frequent asset involved in probate is separate real property not titled in a trust, followed by real property held as tenants in common not titled in a trust. And lastly, real property that is community property and not titled in a trust.

Are you sensing the pattern here? Holding real property in a revocable trust avoids probate. Real property named in a testamentary trust does not avoid probate.

Other assets that are includable in probate are personal property items and unincorporated businesses, again, not held in a trust. Incorporated businesses can be includable in probate if the stock of the decedent is held in the name of the decedent.

If held in a trust, it usually avoids probate. Personal property can be artwork, collectibles of value, antiques, gold and silver, coins and more.

Other very common items subject to probate are investment and bank accounts held in the decedent’s name, and assets that allowed the naming of a beneficiary such as an IRA, life insurance policy, or annuity, but one was failed to be named.

As mentioned before, these types of accounts can avoid probate by properly naming a beneficiary. In short, all assets of more than insignificant value held in the decedent’s single name that do not have a beneficiary attached to them are usually subject to probate.

In the state of California, if the total California estate is less than $150,000 the executor of the estate may be able to avoid probate by filing a Small Estate Affidavit.

When dealing with estate and probate issues, always seek the advice of an estate planning attorney. The process is complicated and deserves the evaluation and guidance of a qualified professional.

Next month we will explore the benefits of a revocable living trust. There is a common misconception that only large estates should utilize this vehicle.

Every estate is different and the need for this type of trust depends upon the size of the estate, the complexity of the assets held within the estate, and the liquidity issues the estate may be facing upon the death of the decedent.

Mary Owens, principal/branch manager, RJFS, 426 Sutton Way, Suite 110, Grass Valley, CA 95945, 530-272-7500. Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC. Owens Estate and Wealth Strategies Group is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax, legal or mortgage issues, these matters should be discussed with the appropriate professional.


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