When someone passes away in California, their assets are distributed to heirs and beneficiaries, either through probate or by bypassing probate altogether. Non-probate assets are those that automatically transfer to designated beneficiaries without the need for court supervision. Understanding what qualifies as a non-probate asset can help you simplify estate planning, speed up the distribution process, and avoid the delays and costs associated with probate.
In this post, we’ll explore the types of non-probate assets in California, how they are transferred, and why they are an important consideration in any estate plan.
What Is Probate?
Before diving into non-probate assets, it’s important to understand the basics of probate. Probate is the court-supervised process in which a decedent’s estate is settled, including paying off debts, filing taxes, and distributing assets according to a will or state intestate laws (if there is no will). Probate can be time-consuming, expensive, and public, which is why many individuals seek to minimize probate involvement through careful estate planning.
What Are Non-Probate Assets?
Non-probate assets are assets that pass directly to a beneficiary outside of the probate process. These assets typically have built-in mechanisms for transferring ownership upon death, often through beneficiary designations or forms of joint ownership.
The main benefit of non-probate assets is that they do not require court approval to transfer, allowing heirs to receive their inheritance more quickly and without the fees associated with probate. Below are the most common types of non-probate assets in California.
1. Assets with Beneficiary Designations
Some assets are set up with designated beneficiaries, meaning that the asset will pass directly to the named individual(s) upon the account holder’s death. These beneficiary designations override any instructions provided in a will, making them an efficient way to transfer assets outside of probate.
Examples of assets with beneficiary designations include:
Life Insurance Policies: If you have a life insurance policy, the death benefit is paid directly to the named beneficiary(ies) after your passing, avoiding probate.
Retirement Accounts (401(k), IRA): Retirement accounts such as 401(k) plans and IRAs typically allow you to name beneficiaries. Upon your death, the account balance is transferred directly to your beneficiary without going through probate.
Payable-on-Death (POD) Accounts: Also known as “Totten Trusts,” these accounts allow you to name a beneficiary who will inherit the account balance upon your death. POD designations are commonly used for bank accounts.
Transfer-on-Death (TOD) Accounts: Similar to POD accounts, TOD designations can be used for brokerage or investment accounts. Upon your death, the assets in the account transfer to the named beneficiary.
Key Takeaway: Keeping beneficiary designations up to date is crucial. If your named beneficiary has passed away or your life circumstances change (such as a divorce or remarriage), you should update the beneficiary information to ensure the correct person inherits the asset.
2. Jointly Owned Property with Right of Survivorship
In California, certain forms of joint ownership allow assets to transfer directly to the surviving co-owner(s) without going through probate. The most common form of joint ownership that bypasses probate is joint tenancy with right of survivorship.
Joint Tenancy: When two or more individuals own property as joint tenants, each owner has an equal share of the property. Upon the death of one joint tenant, their share automatically passes to the surviving joint tenant(s) without probate. Joint tenancy is commonly used for real estate, but it can also apply to bank accounts, vehicles, and other assets.
Community Property with Right of Survivorship: In California, married couples can hold property as community property with right of survivorship. This form of ownership allows the surviving spouse to automatically inherit the deceased spouse’s share of the property without the need for probate. This is a particularly beneficial arrangement for spouses who own real estate together.
Key Takeaway: Joint ownership with right of survivorship is a powerful tool for transferring assets without probate. However, it’s important to be clear about ownership structure when creating joint accounts or purchasing property.
3. Living Trusts
A living trust is one of the most effective ways to avoid probate in California. When you create a living trust, you transfer ownership of your assets into the trust during your lifetime. As the trustee, you still have control over the assets, but upon your death, the assets are managed and distributed by a successor trustee according to the terms of the trust, bypassing probate.
Benefits of a Living Trust:
Avoids probate: Any assets placed in the trust pass directly to your beneficiaries without going through probate.
Privacy: Unlike probate, which is a public process, trust assets are distributed privately.
Flexibility: You can amend or revoke a living trust at any time while you are alive, allowing you to adjust your estate plan as circumstances change.
Key Takeaway: For a living trust to be effective, it must be properly funded. This means transferring assets such as real estate, bank accounts, and investments into the trust during your lifetime.
4. Small Estates and Simplified Probate Procedures
In California, estates that fall below a certain value can take advantage of simplified probate procedures or avoid probate entirely.
Small Estate Affidavit: If the total value of the decedent’s assets is $184,500 or less (as of 2024), beneficiaries can use a small estate affidavit to claim the assets without going through probate. This process requires no court involvement and can significantly speed up asset distribution.
Summary Probate: For estates that qualify, summary probate is a simplified court process that allows for quicker resolution compared to traditional probate.
Key Takeaway: If the estate qualifies as a small estate, using a small estate affidavit can save time and legal expenses.
5. Community Property Agreements
In California, spouses can use community property agreements to ensure that assets are passed directly to the surviving spouse without probate. This type of agreement covers any property considered community property under California law and allows for its seamless transfer upon death.
Key Takeaway: If you are married and own community property, this can be a useful tool to avoid probate and ensure your spouse inherits your share of the property.
6. Gifts Made During Lifetime
Assets that are gifted during your lifetime are not part of your estate and therefore do not go through probate. If you gift assets to family members or others while you are still alive, those assets transfer directly and avoid the probate process.
Key Takeaway: Making gifts during your lifetime can help reduce the size of your estate and avoid probate for certain assets. However, be mindful of federal gift tax laws and California property tax reassessment rules.
Why Non-Probate Assets Matter in Estate Planning
Incorporating non-probate assets into your estate plan can provide several benefits:
Speed of Distribution: Non-probate assets transfer quickly to beneficiaries, often immediately after death, bypassing the lengthy probate process.
Reduced Costs: By minimizing the assets that go through probate, you can reduce the legal fees, court costs, and executor fees typically associated with the process.
Privacy: Probate is a public process, meaning anyone can access court records related to the estate. Non-probate assets are transferred privately, protecting your financial information from public scrutiny.
Avoiding Court Involvement: Non-probate assets can be distributed without the delays and complications that sometimes arise in probate court, particularly when there are disputes among heirs.
Conclusion
Non-probate assets play a vital role in efficient and effective estate planning in California. By strategically using tools like beneficiary designations, joint ownership, living trusts, and small estate affidavits, you can ensure that your assets are passed to your heirs with minimal legal hurdles and costs.
If you’re unsure about how to structure your estate or whether your assets qualify as non-probate assets, working with an experienced California estate planning attorney can help you create a comprehensive plan that aligns with your goals.
This blog post explains what non-probate assets are in California, how they are transferred, and the role they play in efficient estate planning, highlighting the advantages of avoiding probate when distributing assets to heirs.
Contact Us for Legal Help
If you have questions about estate planning and estate taxes, a California probate, your responsibilities as a Trustee, or how to properly administer a California trust, contact the top-rated California trust and probate attorneys Moravec, Varga & Mooney – today to schedule a telephonic consultation. Have questions, call (626) 460-1763 or email LV@MoravecsLaw.com.
Southern California Probate Lawyer Serving all counties in California, including Los Angeles, Riverside, San Bernardino, Sacramento, Santa Cruz & Beyond.
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