At death, your assets are figuratively divided into two piles – probate assets and non-probate assets – but why should you care?
The division has nothing to do with whether or not you owe federal or Minnesota estate taxes. For that purpose, all of your assets are counted, including the value of any life insurance benefits that are paid out to your beneficiaries upon your death.
However, the categorization into probate and non-probate assets matters when it comes to determining whether or not the aid of the probate court is needed to transfer title to the new owners or whether the transfer can occur without the court’s involvement.
Whenever court involvement is avoided, time and money are saved.
Stated another way, your Will covers only your probate assets. Probate is required in Minnesota if, at death, you own real estate titled in your name alone, or you have probate assets in excess of $50,000.
Non-probate assets include assets, such as real estate, held as “joint tenants with rights of survivorship”. Non-probate assets also typically include those assets that required you to designate beneficiaries — retirement plans, life insurance and annuities. Trust assets are non-probate assets. “Transfer-on-death” (T.O.D.) (for securities) and “payable-on-death” (P.O.D.) (for bank accounts) are also non-probate assets.
So what is in the probate asset pile? Assets titled in your name alone are probate assets. They could include bank accounts, brokerage accounts, certificates of deposit, motor vehicles, real estate, personal property, and business interests, for example. Property that carries no title – such as your personal property a/k/a “your stuff” – is also a probate asset.
A note of caution: Some assets may end up in a category other than what you expect. For example, if the beneficiary on your life insurance policy is listed as “my estate” rather than the name of a specific individual or your trust, the life insurance suddenly becomes a probate asset rather than a non-probate asset.
Although real estate held in joint tenancy is a non-probate asset, real estate held with another as “tenants in common” is a probate asset. Why? Joint tenancy involves an automatic transfer of the deceased’s interest to the other owner, but the “tenants in common” designation has no such automatic transfer. The Will determines the new owner of property held as tenants in common. If there is no Will, Minnesota’s intestate laws determine who inherits.
(Even with the automatic transfer under joint tenancy, note that the county recorder still needs a certified copy of the death certificate and an affidavit to formally transfer title to the remaining joint tenant.)
An attorney can assist you in planning ahead so that your heirs may be able to avoid a probate proceeding.
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