How Non-Probate Assets Affect an Estate Plan

After taking the necessary steps of creating an estate plan, you should have peace of mind that your family can avoid the hassle of following intestacy laws (which are the laws that mandate a specific distribution of property to certain relatives when someone dies without a will), which may or may not distribute your property according to how you would want it distributed. Your estate plan should provide certainty, not only for you, but for the ones who will benefit from your estate. The attorneys at Arnold & Smith, PLLC are experienced in helping clients from all backgrounds prepare an estate plan that best suits them and their family’s needs.

However, not every asset fits neatly into the category of probate assets that are distributed through a will. Therefore, it is important to understand, as you work with your attorney to create an estate plan, as well as after your plan has been created and you acquire additional non-probate assets, how the distribution of your estate can be altered by non-probate assets.

What is a Non-Probate Asset?

A majority of wealth in the United States is held in non-probate assets, which means in contemplating an estate plan, assets such as the ones listed below, should be given special consideration. The following are examples of non-probate assets that could affect the distribution of your wealth after death:

Life Insurance Policies and Pension Plans: When one enters into a life insurance policy or pension plan, they enter into a contract that creates a right to a distribution of money to certain named beneficiaries.
Pay on Death Accounts: When one sets up certain bank account, the bank will often designate have them designate a beneficiary of the funds in the account, who will be able to claim a right to the account when the one who set up the account dies. This contractual assignment creates a right of survivorship in the designated beneficiary, who will have an interest in the account upon the death of the settlor (the one who created the account).
Revocable trusts: A revocable trust resembles a will, in that it is created during life, can be altered up until death, and can be used to distribute the decedent’s property according to their specific intent. The settlor (the one who sets up the trust) can give anyone they choose, an interest in the property of the trust upon the settlor’s death. The individuals with a right in the trust property after the settlor’s death are called beneficiaries.

How do These Assets Affect Your Estate Plan?

Structurally, the assets described above distribute property similarly to a will. They each name a specific beneficiary who will take the property upon the death of the settlor. When an estate plan is able to take into account property being distributed through non-probate transfers, everything will run smoothly. However, it is often the case that people spend time and effort working with an attorney to create an estate plan, and then later sign documents relating to non-probate transfers, such as those described above. For example, imagine a father goes to an attorney and sets up an estate plan in which he will distribute his estate, equally among his four children. A week after executing his will, the bank calls, asking him to designate a pay on death beneficiary for his account, which holds a significant portion of his total assets. The father inserts his eldest child as the pay on death beneficiary, creating a contractual right to the distribution of those funds to the eldest child upon the father’s death. The will states that the estate is to be divided equally amongst the children; however, the pay on death beneficiary is listed as only the eldest child. In these types of cases, the distribution of assets becomes unclear, often leading to fighting between those with a claim over the property. The only way to ensure clarity is to ensure that your estate plan accounts for non-probate assets.

If you have an estate plan and someone from a bank, or life insurance company asks you to designate a beneficiary for an account or policy, the safest step you can take is to contact an attorney to ensure any action you take does not affect your desired distributions under your estate plan. The attorneys at Arnold & Smith, PLLC are experienced in guiding clients through the difficult issues of estate planning. If you have any questions about your existing estate plan, or setting up a new estate plan, we have locations in Charlotte, Lake Norman and Monroe, it has never been easier to get access to an experienced legal advocate. Call us today at 704.370.2828