When Can Assets Be Transferred to Beneficiaries Outside of Probate?

Probate is the legal process in which the assets a person owned will be distributed to their heirs and beneficiaries after their death. However, not all assets need to go through probate. In certain circumstances, assets can be transferred directly to beneficiaries without the need for court involvement. Understanding when this is possible can help simplify the estate administration process and ensure a smoother transfer of assets. When creating a comprehensive estate plan, it is important to understand how the following types of assets may be passed to beneficiaries:

Joint Ownership

When assets are jointly owned, they automatically pass to the surviving owner after a person’s death. Joint bank accounts, real estate held as joint tenants with rights of survivorship, and certain types of investment accounts can be used to ensure that a spouse or other family member will be able to assume full ownership. In these cases, the assets do not become part of the deceased person’s probate estate, and they can be transferred directly to the surviving owner.

Beneficiary Designations

Many retirement accounts, life insurance policies, and payable-on-death (POD) bank accounts allow the account holder to designate beneficiaries. When the account holder or policyholder passes away, the assets are transferred directly to the designated beneficiaries without the involvement of a probate court. It is important to regularly review and update beneficiary designations to ensure they reflect a person’s current wishes.

Trusts

Assets may be transferred into a living trust or other types of trusts during a person’s lifetime. With a living trust, a person can serve as the trustee and maintain control over their assets, and upon their death, a successor trustee takes over and distributes the assets to the trust beneficiaries according to their instructions. Other types of trusts may also be used to protect assets, make charitable donations, or ensure that money and property will be used for specific purposes. Assets held in a trust do not need to go through probate, and a trust can also help a family maintain privacy.

Transfer-on-Death Deeds

Some states, including Illinois, allow for the use of transfer-on-death (TOD) deeds for real estate. This type of deed will name a beneficiary who will automatically assume ownership of the property after the death of the original property owner. The property does not go through probate, and ownership will be directly transferred to the designated beneficiary. It is important to consult with an attorney to ensure the proper execution and recording of a TOD deed.

Gifts

During their lifetime, individuals can gift assets to their intended beneficiaries. By making a valid gift, the assets are transferred directly to the recipient without the need for probate. However, it is important to be aware of the gift tax implications and understand how certain types of gifts may affect the estate tax exemptions that will apply following a person’s death. By consulting with an estate planning attorney, a person can ensure that they comply with all applicable laws when making significant gifts.

Contact a DuPage County Estate Planning Attorney

If you have questions about transferring assets to your heirs, steps you can take to minimize the complications of the probate process, or other issues related to estate planning and estate administration, the Gierach Law Firm can provide the assistance you need. Our Naperville estate planning lawyer can provide guidance tailored to your specific situation. Contact us at 630-228-9413 to schedule a consultation. 

Sources:

https://www.americanbar.org/content/dam/aba-cms-dotorg/products/inv/book/402582144/chap_1_excerpt_5130245.pdf

https://www.centerforasecureretirement.com/posts/understanding-the-difference-between-probate-and-non-probate-assets