You have been diligent in planning your estate. You have a Will and other documents necessary to provide for your family’s future and minimize taxes. Yet, not all of your assets are covered by your Will. Certain assets, so-called “non-probate” assets, are not distributed by a Will. Non-probate assets not only require additional attention but also strategy as these assets present both planning opportunities and pitfalls.
What are non-probate assets? The most common non-probate assets include jointly owned property, retirement assets and life insurance.
JOINT PROPERTY: Under state law, jointly owned real estate and bank or brokerage accounts pass to the surviving joint owner or owners upon the death of one joint owner. If your house is owned jointly with rights of survivorship, ownership of the whole house passes to wife at the time of the husband’s death. And if you add your daughter’s name to your bank account to help you with your banking, the account could belong to your daughter at your death.
RETIREMENT ASSETS: Individual Retirement Accounts and 401K plans pass per a beneficiary designation form filed with the provider. The retirement plan is a contract between you and the plan provider that you will deposit funds with the provider and at some future date, you will withdraw the funds. Part of that contract includes a provision for someone else to receive the remaining funds at your death. You may name your estate as the beneficiary of your retirement assets however, in doing so you may sacrifice certain tax deferral opportunities.
LIFE INSURANCE: Life insurance is also a contract between you and the insurance company. You agree to pay premiums and at your death, the company agrees to pay out a lump sum to your named beneficiary. If you retain control over the policy or its proceeds, the proceeds will be included in your gross estate. They may be subject to tax without being available to your executor.
Non-probate assets are generally includible in your estate for state and federal estate tax purposes and are part of the calculation of the Connecticut probate fee. In many cases, non-probate assets may comprise a major part of your estate. Accordingly, care should be taken to ensure that the passing of non-probate assets is consistent with your overall plan. For more information, please contact Heather J. Lange (hlange@brodywilk.com).