For the people left behind, probate can be a stressful and financially difficult period. Fortunately, not all of your assets are subject to probate.
When a person dies, all of their assets and debts must be verified, organized and ultimately settled. During the probate or the administration of a person’s estate, the Clerk of Court will examine all of your property and determine whether your ownership rights in your property continue after you have passed.
The Clerk of Court will view property owned in the decedent’s name alone as a probate asset. Probate assets are used to pay the costs of estate administration and valid debts. The remaining probate assets are distributed among the beneficiaries and/or heirs of the decedent, according to your Will.
Non-probate assets will generally pass to beneficiaries directly and will not be subject to the costs of administration and or debts of the decedent. Non-probate assets typically consist of property benefiting from a ‘right of survivorship’.
Right of Survivorship
If the property is owned jointly with someone else, and that ownership includes the “right of survivorship,” then the surviving owner automatically owns the property when the other owner dies. No probate will be necessary to transfer the property.
Real & Personal Property
Real property can be any property that is land, a house, an apartment, a building, a cabin or vacation home, farmland or a bare lot of land. Under North Carolina law, if you are married and you purchase real property, the right of survivorship is implied in the purchase. If you are unmarried and you purchase real property, the right of survivorship must be expressly stated in the deed of purchase.
Personal property, such as bank and brokerage accounts, stock and bonds, can also benefit from survivorship rights. It is important, however, to examine the signature cards of bank and brokerage accounts, stock certificates and other evidence of title to determine whether survivorship rights exist.
Life insurance policies, retirement plans, Individual Retirement Accounts and certain annuity contracts allow you to designate who receives the policy, plan or contract benefits after you are gone. Unless you make your estate your policy, plan or contract beneficiary, the benefits payable will, typically, fall outside of probate and out of reach of your creditors.
However, as there are exceptions to every rule, it is important that your attorney reviews your life insurance policies, retirement plans, Individual Retirement Accounts and your annuity contracts to ensure that they are non-probate assets.
Other Considerations: Avoid Beneficiary Designations to Minors
Designating minor children as the beneficiaries of your life insurance policies, retirement plans, Individual Retirement Accounts and your annuity contracts is not a good idea. Since children under the age of eighteen years old cannot own property in North Carolina, financial institutions will not release the monetary proceeds of your plan, policy or contract to them.
In most cases, the Clerk of Court will require that a guardian is appointed to manage your gift until your child turns eighteen.
While the guardianship procedures imposed by the Clerk of Court are meant to protect your child, they are costly and will ultimately reduce the value of your gift. There are better ways to ensure that your children receive the money you want them to have. Discuss this with your attorney.
Organization is Key
It is important to note that a gift of an asset in a will, does not cancel the survivorship provisions in a real property deed or a personal property signature card in that asset. In other words, if you own a house with your wife, where your wife has a right of survivorship, you cannot, in your will, give your house to your daughter.
Make sure that you provide your attorney with the information he or she may need to draft your will and/or estate plan correctly.