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Understanding the Difference Between Probate and Non-Probate Assets: The Two Bucket Approach10/27/2024
 When creating your own estate plan or administering the estate of a loved one after they have passed, one of the most crucial distinctions to understand is the difference between probate and non-probate assets. This distinction can significantly impact how assets are distributed after death and whether beneficiaries need to go through the court-supervised probate process.
We have found that understanding how assets transfer after death is simpler when you think of it as two distinct "buckets." Bucket #1: Assets with Beneficiary Designations The first bucket contains assets that pass directly to beneficiaries without court intervention. These assets have built-in mechanisms for transferring ownership upon death through beneficiary designations or joint ownership. The transfer process is typically quick and straightforward, requiring only a death certificate and the beneficiary's identification. Examples of Bucket #1 Assets include:
The second bucket contains everything else, assets that must either go through probate or transfer according to a trust agreement. These assets typically don't have built-in transfer mechanisms and require additional legal steps to pass to beneficiaries. Examples of Bucket #2 Assets include:
A will or trust agreement primarily controls assets in Bucket #2. However, it's crucial to understand that beneficiary designations (Bucket #1) override what a will or trust agreement says. This is one of the most common misunderstandings we encounter and it can lead to disastrous results. For example, we recently assisted with the administration of an estate in which the deceased mother had named her eldest child as a joint account holder on an investment account that held the bulk of her assets. The only reason she did so was because she wanted that child’s assistance in managing the investments. She did not intend to gift the account to that child alone. In her will, she stated that at her death she wanted all four of her children to share the funds in the investment account equally. Unfortunately, no one had advised her that the joint account designation would override her will. At her death, the account custodian immediately transferred all of the assets in the joint investment account to the eldest child as the joint account holder. Although in this situation, the eldest child ended up making gifts to her siblings to fulfill their mother’s wishes, not everyone is going to be that magnanimous nor will it always be feasible to make such gifts. Good Planning Can Clarify Which Assets Are in Which Buckets An experienced estate planning attorney can help ensure your estate plan effectively addresses both types of assets and achieves your specific goals for asset distribution. And if you are the one administering an estate that contains assets in both buckets, an experienced estate planning attorney can help you and the beneficiaries navigate the transfers.  We recently had a client who lost her mother after a long illness. As she sorted through her mother’s papers, she discovered that her father’s name was still on the deed to the family home and several bank accounts. Her father had passed away more than ten years before, and our client’s mother had never formally settled his estate. Panic set in as our client remembered something about a three-year limit for probating estates in Idaho. Her first question when she met with us was: Is it too late to handle her parents’ affairs properly?
Fortunately, it was not too late. Idaho law provides a solution for this situation, and it’s called joint probate. Understanding Joint Probate Joint probate is a legal process in Idaho that allows for settling a married couple’s estate after both spouses have died, even if the second spouse took no action to retitle property after the first spouse’s death. For our client, this meant she could still properly settle both her parents’ estates, despite the long gap between their deaths. When Joint Probate Becomes Necessary Our client’s situation is not uncommon. Several scenarios might lead to the need for joint probate:
Idaho Code 15-3-111 provides the legal foundation for joint probate. For our client, this law meant she could join both her parents’ estates in a single probate proceeding, even though her father died over 10 years ago. The key requirements for joint probate are:
Luckily, because our client acted promptly after her mother’s death, her initial worry about the three-year limit for probate wasn’t a problem. In joint probate, the three-year limit only applies to the death of the spouse who died last; in this case, our client’s mother. This meant our client could still use joint probate even though it had been more than a decade since her father passed away. Conclusion While our client initially felt overwhelmed by discovering her mother hadn’t settled her father’s estate, joint probate in Idaho provided a solution to her problem. If you or someone you know encounters this challenge, we recommend consulting with an Idaho probate attorney to help navigate the joint probate process.  Dealing with the loss of a loved one can be overwhelming. It's easy to overlook certain important estate administration tasks during this difficult time. While concerns over safeguarding bank accounts, managing real estate, and settling debts often take precedence, there are several less obvious responsibilities that require attention in the months following a death.
Each of these tasks, while seemingly small, plays a part in properly settling your loved one's affairs. But it's important to remember that while these tasks are necessary, they don't all need to be addressed immediately. Take things one step at a time and keep in mind that it's okay to take breaks when needed. The grieving process is different for everyone, and it's crucial to take care of yourself during this challenging time. Don't hesitate to ask for help from friends, family, or professionals if you feel overwhelmed. With patience and perseverance, you'll be able to navigate this difficult process. Our office is here to help you through this difficult time.  A Living Trust involves three key roles. Often, the same person takes on more than one of the roles. We like to think of each role as a separate hat.
In the case of married couples, spouses usually, but not always, set up a joint Living Trust. In that case, both spouses wear all three hats during their joint lifetimes. Depending on the terms of the Living Trust, after the first spouse dies, the surviving spouse may continue wearing all three hats and have the power to change the terms of the Trust. In other cases, the surviving spouse may not have the right to change the terms of the Living Trust with respect to a portion of the assets in that Trust. |
AuthorShaila Buckley Archives
October 2024
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