Will, Trust and Probate - Probate and Non Probate Assets

The probate process is the legal procedure to settle a deceased person's estate. It involves validating the will, appointing an executor, and distributing assets after paying debts and taxes. In this article, we will discuss what happens to different types of assets once the owner is deceased and what should be done to avoid probate. We will also look at one scenario common to all these assets when minor children are involved.

• Life Insurance Policies
• 401k, IRA accounts
• Brokerage accounts
• Bank accounts
• Real Estate

Life Insurance Policies

In general, a life insurance policy has a single owner. On the owner’s death, the death benefit goes to the beneficiaries listed on the policy. If no beneficiaries are listed, the death benefit becomes part of the deceased’s estate and will go through the probate process.

401k, IRA Accounts

These are individual retirement accounts and can have only one owner. The beneficiaries are listed in the same way as on a life insurance policy. If no beneficiaries are named, the funds go to the deceased’s estate and will go through probate.

Bank Accounts

Unlike life insurance or retirement accounts, bank accounts do not usually have a simple “beneficiary” field. Most banks allow you to set up a Payable on Death (POD) designation, which works the same way as naming a beneficiary. With POD, the funds transfer directly to the named person after proof of death is provided. Another option is joint ownership with right of survivorship, where the surviving co-owner automatically inherits the account. If neither POD nor joint ownership is in place, the account becomes part of the estate and must go through probate.

Brokerage Accounts

Brokerage firms such as Fidelity and Vanguard allow you to list beneficiaries directly on the account. On the owner’s death, investments transfer smoothly to the named beneficiaries without probate. If the account is opened as a joint account with right of survivorship, the surviving owner automatically becomes the sole owner. If no beneficiaries or survivorship ownership are in place, the account becomes part of the deceased’s estate and will go through probate.

Real Estate

For real estate, the way ownership is set up determines whether the property goes through probate or transfers directly. The common options are:

• Sole Ownership
  • Property is in one person’s name only.
  • At death, it becomes part of the estate and must go through probate before heirs can receive it.
• Joint Tenancy with Right of Survivorship (JTWROS)
  • Two or more people own the property together.
  • When one owner dies, their share automatically passes to the surviving owner(s).
  • Avoids probate.
• Tenancy by the Entirety (for married couples, recognized in New Jersey and many states)
  • Similar to joint tenancy but available only to spouses.
  • Includes survivorship rights and often provides some creditor protection.
  • Avoids probate.
• Tenancy in Common (TIC)
  • Each owner holds a share of the property, which can be unequal.
  • When one owner dies, their share does not automatically pass to the other owner but instead goes to their estate (probate required).
• Transfer on Death (TOD) Deed
  • Available in more than 30 states, this lets you name a beneficiary directly on the deed.
  • When the owner dies, the property transfers directly to the named beneficiary without probate.
  • Not available in all states (including New Jersey).

A common challenge across all assets is what happens if both parents pass away while their children are still minors. In these cases, naming beneficiaries or relying on joint ownership is not enough. Minor children cannot legally take control of inherited assets, and the court will appoint a guardian to manage the funds until the child turns 18. This often means probate involvement, even if beneficiary designations were in place.

A revocable living trust solves this problem by allowing trustees to manage assets without probate and according to the parents’ wishes. The trust can also include provisions for phased distribution, such as releasing part of the inheritance at age 21, more at 25, and the remainder later. This helps protect children from receiving too much too soon.

While minor children make the importance of a trust very clear, the benefits apply to all families. Trusts provide privacy, avoid probate delays, and give flexibility in how and when assets are passed on. Whether or not young children are involved, a properly funded trust is one of the most effective estate planning tools.

That's a wrap for this week.