Non - Probate Transfers, Assets
Probate assets are those assets which pass under the provisions of someone’s Will or by Texas law if they died without a Will. Non-probate assets, on the other hand, are those assets that pass according to a beneficiary designation card or other contract.
Non-probate assets generally include life insurance, retirement plans, payable on death bank accounts, and joint tenant with rights of survivorship accounts. For each of these types of accounts, the owner of the account has the option to complete a beneficiary designation card on which they designate who shall receive the proceeds of the life insurance or other account upon their death. When someone completes one of these beneficiary designation cards, they create a contract with the financial institution holding their money that the financial institution will the money pursuant to the beneficiary designation card rather than under the Will.
If no beneficiary is ever designated or if the named beneficiary dies prior to the owner of the account, then the account or life insurance will revert to the estate of the account owner, and it will pass according to the provisions of his Will or under Texas law if he had no Will.
Coordination with Probate Assets
When someone has significant non-probate assets, they should pay close attention to coordinate those assets with the assets passing under their Will. It is important that all of the assets someone owns at the time of death be coordinated as part of a comprehensive estate plan. In our section entitled Coordinating the Estate Plan, we discuss this issue in more detail. Failure to coordinate the non-probate assets with the provisions of the Will can jeopardize the planning put in place with the Will. This can result in higher estate taxes, and it can also cause certain beneficiaries to benefit in greater proportions than the decedent intended.
Estate Tax Consequences of Non-Probate Asset
As a general rule, all non-probate assets are included in the Decedent’s estate for purposes of computing the Estate Tax. Proceeds from life insurance, retirement plan benefits, payable on death accounts, and the like are all included in the estate for purposes of paying taxes, even if beneficiaries have been designated to receive one or more of these accounts. Because the provisions of the Will can be designed to reduce or eliminate estate taxes, it is important that you fully discuss the types of non-probate assets that you have so that your lawyer can adequately advise you regarding the coordination of your assets.
Conclusion
In the last several years, the use of beneficiary designations as a method of avoiding probate has exploded. As we have pointed out in other sections of this website, the probate process in many other states is much more burdensome than in Texas, and the use of non-probate designations can reduce or eliminate the difficulties involved in probate. However, Texas has a much easier probate process, which reduces the necessity of non-probate assets. Likewise, the non-probate beneficiary designations need to be carefully coordinated with other assets to ensure that the entire estate plan works together. When meeting with an Estate Planning client, the attorneys at Ford & Mathiason LLP routinely review the client’s non-probate assets to ensure that they are correctly coordinated with the provisions suggested for the overall estate plan. If changes need to be made, we provide advice on the most appropriate way to make those changes. Please feel free to contact us if you would like to discuss the coordination of your non-probate assets as part of your Estate Plan.
