Following the death of a loved one, families are bombarded with choices and decisions regarding funeral preparations. This can often be overwhelming, especially when coping with a loss, and it can be made worse by the confusion of the probate process. While all estates must go through probate, some assets are exempt from the probate process. To help alleviate some of the stress caused by probate, here is a quick guide to what constitutes a probate asset and what does not.
WHAT IS PROBATE?
Before discussing what constitutes a probate asset, it is essential to have a general idea of what probate is and the process behind it. Probate is an official process overseen by the court to ensure the proper transfer of the deceased’s assets. Probate is often divided into a three-step process that includes opening an estate through the court and administering the estate through a personal representative. Once all debts have been satisfied and the estate has been properly distributed, the estate can finally be closed.
During the administrative stage of probate, an estate will be divided into probate assets and non-probate assets. A probate asset is any asset that the decedent owned solely. This can include:
- Real estate
- Personal items such as clothing or jewelry
- Bank accounts
- Shares in a business
- Securities, bonds, and other financial assets
For example, Anna has passed away and has left a large estate to her husband and kids. Among Anna’s belongings is an emerald ring that her mother gave her. This ring would be considered a probate asset because Anna owned the ring outright.
In contrast to probate assets, the non-probate ones do not pass through probate. These assets are wide-ranging and are identified by the South Carolina Probate Code. Here are a few examples:
- Retirement accounts such as a 401k or IRA,
- Pay on death bank accounts
- Real property owned with right of survivorship,
- Joint bank accounts
- Asset held in a living trust or revocable trust
Returning to the example of Anna, she and her husband shared a joint account to pay for household bills. After her death, Anna’s husband would be entitled to the entire balance because the account was jointly owned and therefore is considered a non-probate asset.
Knowing what constitutes a probate asset will lend itself to another example of a typical estate. For example, suppose David has an estate consisting of a house owned with his wife titled with the right of survivorship language, a 401k, a family business, life insurance, over $500 thousand in stocks, and numerous rental properties. You may wonder how this estate would be settled if David passed away without a will, so here is a quick analysis.
House and Rental Properties
Since both the house and rentals are real estate, these are considered probate assets if the decedent owned them solely. However, if the house or any rental properties are jointly owned, the properties would bypass probate and go to the co-owner as long as it’s owned with the right of survivorship.
A 401K is unique in that it does not have to go through the probate process. When establishing a 401K, the paperwork requires a person to name a beneficiary, so upon death, the funds from the 401K would go directly to the named individual.
If the decedent was a part-owner of a family business, their interest in the company would be subject to probate. This is true regardless of whether the family business is a partnership, corporation, or an LLC. If the decedent does not leave a will designating their share, it will pass through probate to determine who receives those shares. This can be very complicated depending on what the operating agreement says and if the company owners own real property together. It’s important to consult a lawyer if the decedent leaves behind business interest.
Life insurance is typically not a probate asset as long as a beneficiary has been named.
Typically, any stocks the decedent has upon death would have to go through probate. However, South Carolina allows people to register stocks in a Transfer-on-Death (TOD) Form, which allows a person to name a beneficiary of those stocks upon death. If the decedent had a TOD form in place, the stocks would go to the named beneficiary, but it would pass through probate if no form existed.
Probate can be tricky. One aspect that makes it challenging is determining what is and what is not probate property. Consult with a lawyer to help better understand how the probate process works and determine how to handle the assets in an estate.
Should you have any questions about estate planning or probate, please give Henderson & Henderson a call at 843-212-3188. You can also visit the firm’s website for more information about estate planning.