Probate and Non-Probate Property

While it is easy to say that probate property is only the property that passes under the terms of your Will, the definition doesn’t help much. The best way to look at probate property is to realize its what’s left over after all of the non-probate property has passed.

Non-probate passes to someone upon the owner’s death, either by “operation of law” or as a result of a contract right. So let’s look at non-probate property.

Contract rights

You may have a policy of life insurance. It is a contract with the life insurance company that says, “when I die, pay the beneficiary.” Regardless of what’s in your Will*, the proceeds will be paid to the named beneficiary.

You may have a pension plan, profit sharing plan, 401(k) plan, 403(b) plan, IRA or similar retirement plan. That plan is a contract with the plan administrator or custodian or trustee to pay your retirement benefits to you during life, and to your designated beneficiary upon your death. Regardless of what’s in your Will*, the proceeds will be paid to the named beneficiary.

You may have a bank account with someone else’s name on it (other than as a agent under a power of attorney). The signature card or CD will say somewhere “either may draw, payable to survivor.” That account is a contract with the bank that says “when I die, pay the survivor.” Regardless of what’s in your Will*, the proceeds will be paid to the survivor.

You may have a bank account in your name alone, but the CD or signature card is marked “POD” or “payable on death” with a named beneficiary. That account is a contract with the bank that says “when I die, pay the named beneficiary.” Regardless of what’s in your Will*, the proceeds will be paid to the named beneficiary.

You may have stocks, bonds, or other securities, or a brokerage account that has your name on it, and the name of another, followed by the letters “JTWROS” – Joint Tenants with Rights of Survivorship. That security is a contract with the issuer, or that account is a contract with the brokerage house that says “when I die, pay the survivor.” Regardless of what’s in your Will*, the proceeds will be paid to the survivor.

You may have stocks, bonds, or other securities, or a brokerage account that has your name on it alone, followed by the letters “TOD” – Transfer on Death. That security is a contract with the issuer, or that account is a contract with the brokerage house that says “when I die, pay the named beneficiary.” Regardless of what’s in your Will*, the proceeds will be paid to the named beneficiary.

*If you’ve named your estate as the beneficiary of the asset, you have converted a non-probate property to probate property! If the named beneficiary predeceases you, and all successor beneficiaries have also predeceased you, that which would have been a non-probate asset will pass under the terms of your Will.

Operation of Law

You may own real estate with another person. Whether that property will pass by operation of law depends upon the “magic words” on the deed. If you bought your house with your spouse prior to April 4, 1985 and have certain magic words on the deed, you may have an “entireties deed”, or if you bought your house with anyone else, including your spouse, you might have a “joint tenancy with survivorship” deed. If you bought a house with someone else after that date, you might have a survivorship deed. It all depends on the magic words. With the right magic words, the house will pass to the surviving spouse or other person named in the deed by operation of law. If the magic words are missing, your interest passes under the terms of your Will. If you would like to contact us and provide us with a copy of the deed, we can tell you whether your house will pass outside of probate or not.

You may also own real estate purchased after August 2000, in your name alone, but with another person named on the deed, as a beneficiary under a Transfer on Death deed. As long as the beneficiary has survived you, upon your death, regardless of what’s in your Will, the property will pass to the named beneficiary.

You may own a car or other vehicle with a certificate of title. If it was issued after July 23, 2002 it may have a second name on it, either as a Transfer on Death beneficiary or as a survivorship beneficiary. If so, so long as the beneficiary or co-tenant has survived you, upon your death, regardless of what’s in your will, the property will pass to the named beneficiary or co-tenant.

Probate Property.

After you have determined what property will outside of the Will, whatever is left will pass under the terms of your Will. Included will be vehicles titled in your name alone, bank and other financial assets titled in your name alone, your interest in real estate titled in your name alone or under a deed without the “magic words”, securities titled in your name alone, and tangible personal property titled in your name alone.

The state of Ohio has made it pretty easy for a person to set things up so that probate may be avoided upon death. The question then becomes “why wouldn’t I want to avoid probate?”

Remember, however, whether or not property is probate property has little or no bearing as to whether the property is subject to estate tax.