Probate vs. Non-Probate Assets: What Every Kentucky Family Should Know

Welcome to another episode of the Protect Your Nest podcast. I’m Louisville Estate Planning attorney Brandon Lawrence. Ladies and gentlemen, we’re talking about assets today. We divide assets up into two categories, probate and non-probate. Probate is a process. I’ll give you the definition of probate. Probate is a process when the court will supervise the legal process of validating the Will that you write, settling debts and transferring property. Before you die, there’s no reason not to determine who gets your assets, once you die.

Now, there’s a couple more words I’m going to give you a definition of, and I’m going to try to break it down a bit simpler for you. So when you have, okay, everybody knows you’ve got Wills and trusts and other mechanisms to leave your assets to people prior to your death or once you die.

What Does Intestate Mean and Why Is It Important?

So if you do not have a Will and a trust when you die what they call that intestate, okay? Without a Will or without some mechanism that’s going to say, Hey, this is who my property goes to, my assets go to. Now, you don’t want to die intestate, alright? You do not want to do that because what happens is if you die intestate, all the property that you have, who it goes to is going to be determined. It’s already pretty much predetermined who it’s going to go to. And that’s covered by a statute in Kentucky generally to get into it is Kentucky Revised Statute 391, all right? That’s going to cover the intestate stuff.

Basically, if you’re married, your property’s going to go half to your spouse. If you’ve got children and married, half to your spouse and the other half is going to be divided by whoever, however many children that you have, the law predetermines that.

But if you want to take precaution and have a plan in place before you pass away, then what you can do is you can make the decision on who you want to give your property and your assets to. Alright? And then that comes in, that’s where we come in with the probate and the non-probate stuff. Once you pass away, you probably don’t want to go through probate or you want to go through a small portion of probate is you can because even a Will, the Will is got to be probated, right? Even if you write a Will, it’s got to be probated. It goes through the courts. So a lot of people believe that, hey, if I got a Will, you read it, stuff goes to people and that’s it. But no, that’s not what happens. The Will is got to be, as I said previously, the Will’s got to be processed by the court.

But if you put your property in any type of trust, revocable or irrevocable, that’s the best way to get that property and those assets directly to the people that you wanted to go to. That process is quicker if you got some type of trust. Mechanism is just quicker, as I said, it goes, the assets are distributed directly to the people that you wanted to go to without the court intervention. You avoid the probate. You don’t have to worry about court. Court doesn’t determine anything because you’ve already predetermined it now and it’s a private proceeding.

If you don’t want a bunch of people in your business, the trust is the way to go because Wills have to be, Wills are a public record because they’ve got to be filed in court and the process possibly could be drawn out, take a little bit more time and cost you more money because people like to contest Wills, but you could put mechanisms in there to avoid that and to lower the chance of them contesting your Will.

But the trust probably is the way to go. You’re going to lose less of your assets. The time is going to be lowered regarding how you’re going to distribute your assets in your property.

Which Assets are Probate Assets?

So let’s get into which assets are probate assets, alright, that’s going to have to go through the court. Real estate and land is titled only in your name are probate assets. Alright? Checking accounts, savings accounts solely in your name with no beneficiary designated are probate assets. Personal belongings like jewelry, that DaVinci that you’ve got hanging on above your kitchen sink, vehicles, furniture that you own alone are probate assets.

If you’ve got a business sole proprietorship or if you own shares in the business and that business doesn’t have a succession plan or a buyout agreement, those are probate assets.

And if you have an insurance policy or retirement account that names your estate as your beneficiary, some people do that, some people don’t name individuals, they name estate as the beneficiary. Then that policy or account is going to be considered a probate asset. I hope you see some type of theme that’s developing here.

If you don’t leave your property to someone, that’s going to be probate and it’s going to be a drawn-out process. As I said before, it’s going to take away more of your assets that are going to be able to be distributed directly to a particular person. I mean, you can leave your stuff to your dog if you want to and it’ll give them more. They’ll be able to have more kibble and bits than if you just let it go through the court and just have a laissez-faire attitude and say, Hey, it’s going to get to them.

But if you want your property to go to a particular person quickly and more, have them have access to more of it and have it be a private affair, then you want to go the non-probate route.

Which Assets Are Considered Non-Probate Assets?

You can avoid having the court decide anything about your assets if they’re considered non-probate. And we’ll go over a list of things that are non-probate.

Assets placed in revocable or irrevocable trust are non-probate. Alright? Payable on death or transfer on death accounts are considered non-probate. And examples of these accounts are bank accounts, CDs, for the baby boomers in the other generation, not the CDs you put in your car like Bon Jovi or whatever, but Certificates of Deposit and brokerage accounts that have beneficiaries are not probate. Property jointly owned that automatically transfers to the surviving co-owner upon your death is a non-probate asset. So it’s not just enough to have something, I guess you and a partner own it. You got to have a mechanism in there that says a joint right of survivorship, something of that nature that, upon your death, it automatically goes to the other person that owns it. So there’s no in between, there’s no middle person, right?

Life insurance proceeds and retirement accounts that name an individual or entity as a beneficiary are non-probate assets. And pensions, annuities with name beneficiaries and non-probate assets. So of course, anything that you have, you just leave it to somebody. I think on another episode we talked about a little bit about briefly, when you go to your job, you get your 401k and you name a beneficiary who you are going to give the proceeds of your 401k to if something happens to you. That automatically puts it in the non-probate category because that’s going to take precedent over anything else that’s written after that because you’ve already documented who you want that to go to. And that’s of course with any investment account, your life insurance, which is pretty basic, that you do that when you sit down and take out your life insurance policy.

So those things, I don’t know if the courts, the legislature or whoever designed these rules if they want did it with a specific purpose or with a specific intent. The effect is you want to leave something to somebody, which is a good thing. You don’t just want your stuff hanging out there. I mean you worked for it and a lot of times you’ve got a family or you’ve got someone that you can leave these things to. So go ahead and document it and make sure that before you pass, that you’re giving it to who you want to get it or get it in somebody. Alright?

Or if you’ve got some personal things, give it to them while you’re living. I mean, of course you’re not going to give them something that’s functional you’re using every day probably because you’re going to need that. But I mean if you got some antiques or collectibles or whatever, like a painting or something physical or a vintage car or whatever, give that to whoever you want to have it before you die, if you can. Or the worst case scenario, have it documented written down who it’s going to go to. It saves a lot of problems and it may save a bunch of drama. It’s a disincentive for people to contest anything and argue over simple things. When it boils down to it, it’s the right thing to do and it prevents anybody else of getting in your business. It keeps it private and it’s done and it’s over with and it’s pretty simple.

Conclusion

Those are just a couple things. You got the definitions of probate, intestate, and non-probate. You kind of get a picture of what you need to do before you come in and talk to someone like me to have a plan and flesh it out and a roadmap of what you want to do so you have a little bit of prerequisite knowledge of how to get there.

And that’s what we’re here for in each and every episode, the ones proceeding and the ones that ones that are to come. And we’re glad you’re staying with us. You can go back and watch some previous episodes, get a little bit more insight if it’s something that I haven’t covered on this one and if it’s something that I haven’t covered before, we’re going to try to cover it in the future.

We thank you for watching and being a part of the Protect Your Nest family. I hope you found this particular episode interesting. And like I said, be sure to check out all the previous episodes and future ones on my website, LawyerForTheCity.org. You can check it out on YouTube or wherever you get your podcasts. It’s always readily available.

I’m here for you to provide some information and I’d love to talk to you one-on-one, whether it’s via Zoom or in-person to help you protect your nest. So, if you’re ready to protect your nest, I’m estate planning attorney Brandon Lawrence, the lawyer for the city. Until next time, let’s talk it over.