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Mary Owens: Assets includable in probate

In June and July, I discussed the continuing saga and problems that arose in Joe Smiley’s estate administration because his intent for the disposition of his assets did not match the titling on his assets. In a nutshell, he was duped by his son Eric to put his house in joint tenancy with him to avoid probate. Eric was to be the executor of Joe’s estate and the house was supposed to go to his sister Jean. Eric promised his dad that he would sell the house after he died and give the proceeds to his sister, but instead he kept all the proceeds for himself, and his sister had little legal recourse available to her.

In prior months we discussed why the joint tenancy titling was one of the poorest choices available to Joe. We also went over how a trust would have solved all these issues and allowed a path for legal recourse if Eric, as the trustee, did not follow Joe’s instructions in his trust.

Next month I will explain other options that would have been available to Joe if he was still insistent not to have a trust. I want to emphasize that a discussion of other options in not in fact a recommendation. I still prefer a trust in most situations, even for a simple estate, but understanding your options and their attributes empowers you to make better decisions regarding your own affairs.



I am going to start this discussion first by briefly outlining assets that are subject to probate and those that are not. It is important to understand these distinctions so you understand which assets you own will be potentially subject to this process if you have just a will and not a trust.

Let me start with what is NOT includable in probate:



Any assets you own that have a predetermined beneficiary already designated by you in writing prior to your death. Below is a list of the types of assets that are usually associated with this pre-death beneficiary appointment

All types of IRA accounts including Traditional, ROTH and inherited beneficiary IRAs

Annuities

TOD brokerage accounts (Transfer on Death)

Life insurance proceeds

Retirement accounts including but not limited to 401Ks, 403(b)s, pension plans, 457 deferred compensation, SERPs (Supplemental Employee Retirement Plans) and more

Employer sponsored employee benefit plans

These types of assets are not subject to probate because they automatically pass to the designated beneficiary upon the death of owner who chose them as the recipient.

Assets held as joint tenants (or also know as joint tenants with rights of survivorship or joint tenancy). Below is a list of the type of assets that are usually associated with this pre-death ownership agreement.

Brokerage accounts held in joint tenancy

Other investments held in the names of joint tenants (land, buildings, mineral rights, or other investments)

Bank accounts held in joint tenancy

Personal property (autos, boats, trailers, RVs, etc.)

Any other assets by pre-death written agreement that is intended to be owned as joint tenants with rights of survivorship

TOD accounts (transfer on death). These are usually bank and brokerage accounts

These assets are not subject to probate since the beneficiary has been determined by the legal rules surrounding the titling of these assets.

Assets that are titled in the name of a trust (with some rare exceptions). For this exclusion to apply, the assets must be titled in the name of the trust prior to the death of the decedent. Assets mentioned in a schedule attached to a trust but have not been retitled to the name of the trust prior to death go through probate.

Even though these assets can avoid probate, there are rare times when the executor of an estate can reach over and take control of these assets if needed to pay the final expenses of a decedent. This process – known as “marshalling the assets” – allows the executor to gain control of the distribution of the pre-death designated assets and demand payment from the beneficiaries if the total assets of the probate estate are not large enough to pay all the debts of the decedent. This action of law prevents a decedent from avoiding paying all their legal debts by designating more of their assets to heirs than they have in net worth after deducting their legal debt that is owed to others.

The following is a list of the assets that are subject to probate. It is a shorter list in concept, but its application can be potentially any assets not held in a trust.

All the decedent’s assets that are not excludable from probate by action of law or pre-death designation. Examples would be as follows:

Brokerage accounts or other investment accounts held in the decedent’s single name

Real estate held in the decedent’s single name

Any assets held in the decedent’s name and held jointly without “tenants-in-common” titling. The decedent’s percentage of the asset would go through probate. The portion belonging to the other joint owner does not

Assets held in any type of account that should have a pre-death beneficiary and none was named prior to death. This would include all types of IRA accounts, annuities, life insurance, all pension and employer sponsored employee benefit plans, bank accounts, titled personal property, and more. If the decedent’s name is on the asset and there is no named joint tenant or designated beneficiary, it goes through probate

Personal property

Inheritances that occur shortly before or after the death of the decedent

This is not an exhaustive list, but it is detailed enough to give you an idea of the importance of proper titling to allow your assets to go to the person of your choice after you die. Frequently reviewing the titling on all your assets is one of the most important exercises in an estate plan review. It catches unintended errors and assists in avoiding future problems.

See you next month when I explore other titling options. Wishing you clean air, no more fires and good health for you and your entire family. Stay safe out there.

Mary Owens, Founder, Owens Estate & Wealth Strategies Group, Financial Advisor, RJFS, 426 Sutton Way, Suite 110, Grass Valley, 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.


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