Understanding how assets pass from the deceased to the beneficiary is the first and most important step of the inheritance process. A deceased person's assets can either pass through probate or outside probate.

Probate is the process of estate administration generally with probate court supervision. If a person dies with a will, the probate court directs the executor to distribute the probate assets according to the terms of the will. If a person leaves no will, the court will supervise the distribution of probate assets according to the laws of intestacy. However, certain types of property can pass outside of probate. Most retirement accounts, insurance policies, annuities, certain investments registered as transfer on death, property owned as joint tenants with rights of survivorship, and property owned by a trust may be held in a way that will permit them to pass outside the probate process. Instead, this property may pass directly to the designated beneficiary. Court supervision of the transfer process is generally not necessary for "non-probate" assets.

Assets Passing Through Probate
Probate assets are usually held in the deceased owner's name only and contain no provision for automatic succession of ownership upon the owner's death. Even assets that may normally avoid probate may become a probate asset if it is held as tenants in common or as community property in many states. Real estate, stocks, bonds, and personal property are often probated unless held by a trust created by the grantor before he dies. The will (or the state intestacy law if the deceased died without a will) specifies how and to whom the estate's assets should be distributed in the event of death. A will names the executor, or personal representative in charge of settling and distributing the estate, passes guardianship of any minor children, and states when and how the assets are to be distributed to the beneficiaries.

Settlement of estates vary from state to state, however there are settlement options that vary according to the overall value of the estate. Smaller estates can generally be settled more informally while, the state's probate court usually has to validate the will for large estates.

Assets Passing Outside Probate
Retirement accounts, insurance policies, and accounts registered as transfer on death that have a specified beneficiary other than the estate generally pass outside probate. Non-probate assets also include investment accounts with designations of joint ownership with rights to survivorship and tenants by entirety.

This article is provided by New York Life for informational purposes only. Neither New York Life, AARP nor its affiliates provide tax, legal, financial or accounting advice. Please consult your own professional for advice specific to your circumstances.

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