Do All Assets Have to Pass Through Probate?

August 24th, 2021 by Bunch & Brock

Going through probate can be a lengthy, expensive and stressful process, but the attorneys at Bunch & Brock make that process easy and straight-forward for their clients. If you’re wondering whether all assets have to pass though probate, the general answer is no. The things that are typically required to pass through probate are assets that have a paper title in the deceased name. Some of these things might include a house, land, vehicle, bank accounts and investment accounts. But with effective and knowledgeable estate planning, most people can avoid the headaches of a long, drawn-out probate process, saving time, money and a lot of stress for their loved ones.

Another reason people want to avoid lengthy probate is to preserve their privacy.  Going through probate can be a very public endeavor because it makes a person’s finances part of the public record.  Without good planning, this means the public can see your debts, the value of your assets, your named heirs and beneficiaries and various other personal information.  To find out more about how our  probate attorneys at Bunch & Brock can help with your estate planning concerns, call us at 859-254-5522.

What Is Probate?

Probate is a legal process where a court will manage the distribution of a deceased person’s assets to beneficiaries according to probate law. Probate courts are state courts, so probate law will vary depending on the state you live in. In Kentucky, the court will first make sure that all debts are paid, assuming the assets are more than a threshold amount of $15,000, and then the remainder of assets and property will be distributed to the appropriate entities or beneficiaries. When someone dies without a will, then probate law will govern the transfer of the assts to family members or next of kin. And, more importantly, the laws of intestate succession may or may not reflect the wishes of the deceased person. That’s why creating a will and estate plan is so important. It allows you to be in control and dictate who gets your assets and how much, and when your assets will be distributed according to your desires. In some specific circumstances – such as when the deceased person owes creditors or is embroiled in a collection lawsuit – going through probate can be advantageous for the survivors.

How Do You Pass Assets Without Probate?

Do assets with beneficiaries have to go through probate?

Generally, the assets excluded from probate fall into one of three categories. These include:

  1. Assets that have a named beneficiary;
  2. Jointly owned assets that pass to a surviving spouse or owner; and
  3. Assets that are held in a valid trust.

There are several ways that you can pass assets without probate. Here are a few:

  • Create a will
  • Create a living trust
  • Establish joint ownership of real estate and other property
  • Make your securities “transfer on death”
  • Make your financial accounts “payable on death.”

Let’s take a closer look at each of these.

Last Will and Testament
A will is a written document representing the instructions of the decedent for the distribution of his or her estate. The requirements of what makes a will valid vary from state to state, but in Kentucky, a will must be in writing (typed or printed), signed and dated by the testator, and must have been witnessed by two adults. Most attorneys utilize a notary public in addition to witnesses. There are many nuances to these requirements and special rules that apply to wills written entirely in the testator’s own handwriting (known as a holographic will). A will is nothing more than a piece of paper, which is why seeking a lawyer’s advice is critical.

Living Trust
A trust is a legal arrangement by which a person transfers property into a trust, which then holds the property.  The trust is managed by a trustee, which could be the trust maker or a third party. If the trust maker keeps that power, the trust is considered revocable (otherwise known as a “living trust”), which means it can be changed at any time.  If the maker of the trust gives up the power to change or terminate the trust, then the trust is called irrevocable. Some revocable/living trusts become irrevocable upon the trust-maker’s death unless there is a co-trustee that is still living. There are tax and inheritance advantages and disadvantages to both revocable and irrevocable trusts.

Joint Ownership of Real Estate and Property
If you and your spouse, business partner, or other person jointly own a piece of real estate or other property, then these assets will transfer directly to the co-owner without going through probate when you die. This is called joint ownership/joint tenancy with “right of survivorship.” If you die first, the person you co-own the property with will immediately take over full and exclusive ownership of your portion, even if your will states that you want your portion to go to your heirs. This is important to remember.

Transfer-on-Death Securities
When you own stocks and other securities, these can transfer to your named-beneficiaries when you die without going through probate in most cases.

Pay-on-Death Financial Accounts
Assets such as IRAs, insurance policies, bank accounts and pensions can transfer directly to named beneficiaries when you die without going through probate in most cases. You want to make sure your beneficiary information is always up to date. This is especially true as you age, because a beneficiary may die before you do, in which case you would need to name a new or successor beneficiary. If your beneficiary is deceased, is incapacitated or is a minor when you die, then these assets will likely have to go through probate to establish guardianship/conservatorship or otherwise dispense of the assets when the person reaches the age of majority.

How Distributions Are Made During Probate

The assets that make up an estate have to be distributed in a specific order if you go through probate. For example, the cost of administration is paid first, such as funeral expenses, then family allowances, then any debts or taxes owed by the decedent, then to beneficiaries. Creditors are required to file or assert a claim timely or else their lose the right to a distribution. When all of the creditors are satisfied, the remaining funds are then distributed to the beneficiaries named in the will or if not will then to family members or next of kin.

If the decedent didn’t have a will or it is determined that only part of the estate is covered by a valid will, probate applies Kentucky law to establish who gets what and legally transfers title to those people. Probate can be quite helpful even where a decedent did not leave behind any property to transfer, had creditor problems or was the subject of a potential lawsuit. Probate allows for all of the decedent’s debts to be finally settled. That can be very beneficial to a decedent’s survivors.  You can read more at Kentucky Revised Statute section 391.010, 391.030 & 392.020.

Small Estate Limits

If a Kentucky resident dies with relatively few assets, then they may fall under the “small estates” limit in Kentucky. This provides a simplified probate process, often called a “summary probate,” which makes it easier for survivors to transfer the decedent’s property. A petition to dispense with the administration of the estate is available in the following circumstances:

  • The will leaves no personal property.
  • There is a surviving spouse and the value of property subject to probate is $15,000 or less.
  • There is no surviving spouse and someone else has paid at least $15,000 in preferred claims.

To determine whether an estate qualifies for this shortcut or whether it must be subject to regular lengthy probate, it’s in your best interests to consult with a Kentucky estate planning attorney.

Contact the Probate Attorneys at Bunch & Brock Today

If you have concerns about probate or would like to explore the benefits of creating an estate plan, then the skilled and experienced attorneys at Bunch & Brock can help.  We have decades of experience serving satisfied clients with large as well as modest estates, and we can create a customized plan uniquely suited to your needs.  To find out more about how we can help, contact us at 859-254-5522.