What Assets Must Go Through Probate?

Introduction

Probate is the legal process through which a decedent’s will is validated, liabilities are settled, assets are distributed to beneficiaries, and the estate is formally closed. While probate is undeniably important, it can be time consuming and costly. Fortunately, only a handful of assets are subject to probate. With proper estate planning, most (if not all) assets can be positioned to transfer to beneficiaries outside of probate.

Probate Assets

Generally speaking, assets that are titled individually in the decedent’s name and don’t have a designated beneficiary will need to be probated. Common probate assets include:

• Individual bank and brokerage accounts
• Individually-owned real estate
• Individually-owned vehicles (cars, trucks, motorcycles, recreational vehicles, boats, etc.)
• Personal property (jewelry, art, collectibles, guns, etc.)

In addition to individually-owned assets, real estate that’s titled as tenants-in-common (TIC) with the decedent will need to go through probate. Unlike real estate that’s owned as joint tenants, the decedent’s ownership share of TIC property will to pass to his or her beneficiaries, not to the surviving joint property owners.

Non-Probate Assets

Non-probate assets are able to bypass probate because they’re either jointly-owned (with the exception of TIC property) or they have a designated beneficiary listed on the account, title, or deed. Some of the most common non-probate assets include:

• Bank accounts with a payable-on-death (POD) beneficiary
• Brokerage accounts with a transfer-on-death (TOD) beneficiary
• Life insurance death benefits
• Living trusts
• Pension plan distributions
• Real estate held as tenants by the entirety (exclusively for spouses)
• Real estate held in joint tenancy with right of survivorship
• Retirement accounts (IRA, 401k, etc.)
• Salary, wages, and commissions due to the decedent
• Savings bonds with a co-owner or POD beneficiary

Most non-probate assets are designed to automatically transfer to the joint owner or designated beneficiary upon the decedent’s passing. To initiate the transfer, the beneficiary or the estate’s executor will usually need to submit a copy of the decedent’s death certificate to the financial institution that’s holding the assets or title.

Note that non-probate assets also aren’t liable to creditors’ claims against the decedent’s estate. The surviving spouse may inherit some of the decedent’s debts and liabilities, but third-party beneficiaries who receive gifted assets won’t inherit any liability. Even if the estate is considered insolvent and there aren’t enough probate assets to cover the liabilities, third-party beneficiaries should still receive all of the non-probate assets for which they’re listed as a designated beneficiary.

The Probate Process

When an estate includes assets that are subject to probate, those assets won’t be able to transfer title of ownership without a court order. Before that can happen, there are a few important steps that need to take place. If you’re an interested party to the estate, here’s what to expect in the probate process:

1. Petition for probate – assuming that the decedent left a will, the individual nominated in the will to serve as the estate’s executor is usually the one to petition for probate. If there isn’t a will, or if the executor has failed to open probate in a reasonable amount of time, any interested party to the estate can petition to open probate.
2. Validate the will – the court will check the will to ensure the document is properly drafted and signed. If there are any issues, the court may invalidate part or all of the will, in which case probate would proceed as if the decedent didn’t leave a will.
3. Appoint the executor – barring any objections from interested parties, the court should automatically appoint the nominated executor and provide him or her with the necessary Letters Testamentary (aka Letters). The executor will need these Letters to deal with the estate’s creditors and financial institutions, as they convey the court authority for the executor to legally act on behalf of the estate. If there isn’t a will, an interested party can petition the court to be appointed the estate’s personal representative. In rare cases where there isn’t a qualified candidate to be personal representative, or if there is too much discord amongst the surviving family members to agree on who should be the personal representative, then the court can appoint a neutral third-party special administrator.
4. Notify all interested parties – the state of Arizona requires the executor or personal representative to provide notice to all of the estate’s interested parties (creditors, beneficiaries, and legal heirs), and to publish an ad in the local newspaper to notify any unknown interested parties of the probate proceedings. Once the ad is placed in the local newspaper, the estate’s creditors will have 120 days to file a claim against the estate.
5. Gather the assets – while the executor waits for all of the creditor claims to come in, he or she will usually open an estate checking account and begin to liquidate and consolidate the probate assets. Illiquid assets like real estate, vehicles, art, jewelry, and collectibles will likely need to be professionally appraised to determine the fair market value.
6. Initiate non-probate transfers – since non-probate assets aren’t subject to creditor claims, the executor is free to initiate non-probate transfers at any time.
7. Settle the estate’s liabilities – when the estate’s creditors have been allowed enough time to submit their claims, the executor will begin by paying the decedent’s funeral expenses and the estate’s legal fees (court costs, lawyer fees, etc.). Next, the executor will pay the estate’s creditors. When the debts are settled, the executor will then file a final tax return and pay any required income taxes or estate taxes. Finally, the executor will settle any outstanding bills.
8. Distribute the residual assets – once all of the estate’s liabilities are settled, the executor can receive permission from the court to distribute the remaining probate assets to the beneficiaries. If there aren’t any remaining assets (i.e. the estate is insolvent), then the beneficiaries won’t receive any probate assets.
9. Close the estate – after all of the residual assets are distributed, the court will officially close the estate. It’s important not to forget this crucial step, as closing the estate shuts the door on future creditor claims. If an estate isn’t closed, creditors may have up to two years to file a valid claim against the estate.

The Small Estate Exemption

The state of Arizona has a provision that allows small estates to transfer probate assets without going through the probate process. To qualify, the estate will need to have less than $75,000 in personal property, and less than $100,000 in real estate. The court may require you to wait at least six months to file a small estate affidavit, but the process is still significantly easier than going through the full probate process.

Do You Need Help with Probate Matters?

As you can see, AZ probate laws can be complex. It requires a number of steps and without the right approach, it’s easy to get lost in the details.

At JacksonWhite, we can make probate a clear, easy-to-understand process. If you’d like help with probate matters, call the talented team at JacksonWhite Law today.

We can help explain your legal options and direct you to the probate solution that works for you and your loved ones.

Call our Probate team at (480)467-4365 to discuss your case today.