Categorize probate vs. non-probate assets
After all assets have been located and cataloged, they must be correctly categorized as either a probate asset or a non-probate asset.
This is because some assets are required to go through the legal probate process before they can be given to heirs and beneficiaries of the deceased.
Important
Non-probate assets, on the other hand, do not have to go through the legal probate process before they can be given to the deceased’s heirs and beneficiaries.
In order to identify what are probate assets and what are non-probate assets, review the criteria below.
Helpful Tips
How do I know if an account is Payable on Death or Transfer on Death?
If the deceased had a bank account, savings account, or investment account that was Payable or Transfer on Death, the account will be labeled “POD,” “TOD”, or “ITF” which is short for “in trust for.”
Normally, the ITF account will be named according to the beneficiary (e.g., “ITF Jane Doe”). In such a case, Jane Doe would be the beneficiary of the account and would automatically own the assets in the account without having to go go through the legal probate process.
For example, if a deceased person had an investment account worth $50,000 titled “ITF Jane Doe,” then Jane automatically became the owner of the $50,000 account when the deceased died.
Jane Doe should go to the financial institution where the account is located with personal ID and a certified copy of the deceased’s death certificate in order to gain access to the account.
How does a beneficiary claim money from a Payable on Death or Transfer on Death Account?
After the deceased passes, the beneficiary will need to show the financial institution where the account is located a Certified Copy of the deceased’s Death Certificate (Unofficial Copies are usually not accepted).
They will also need to prove their own identity with a valid ID to show they are the rightful owner of the account.
The financial institution may provide other paperwork which needs to be completed before the account can be accessed, but this varies by institution.
Once ownership of the account is proven, the account belongs to the beneficiary and they can keep the account as is, or opt to transfer the funds from the POD or TOD account to another personal .
Do Payable on Death and Transfer on Death Accounts affect the beneficiary’s taxes?
When a beneficiary receives a payable on death (POD) or transfer on death (TOD) asset, it is considered their asset for tax purposes. This means the beneficiary will have to report the asset on their taxes once they take control of the asset (as soon as the asset becomes theirs). If the asset earns any income (including accrued interest) after the date of the deceased’s passing, the beneficiary will have to report that income, as it is taxable.
However, each state, and the federal government, has their own rules and rates for inheritance taxes and those rules can be rather complex. If you are the beneficiary of a POD or TOD asset, it may be helpful to speak with an accountant so you can fully understand any tax implications.
Read More
To learn more about tax implications for beneficiaries and heirs, read the “Determine Tax Implications” Task of the Guide.
What are probate assets?
Probate assets are cash, property, and other items of value that were held only in the deceased’s name. They must go through the legal Probate process before they can be transferred to the deceased’s Beneficiaries and Heirs.
Typically, items that fall into this category include:
- Real estate held solely in the deceased’s name
- Vehicle(s) owned solely in the deceased's name
- Personal property, such as jewelry, furniture, collectibles, and artwork
- Bank accounts held solely in the deceased’s name
- The deceased’s interest in an LLC, corporation, or partnership
- Property owned as “tenants in common” with another person. When property is owned as “tenants in common” all parties who own the property own an equal share. For instance, if Jane and John own a house as “tenants in common” they both have a 50% share in the house. This can be determined by looking at the deed to real estate, as it will specify how the property was owned
Once these assets are inventoried and the inventory is filed with the probate court in the county and state where the deceased lived and all bills and debts of the deceased have been paid, they can be given to the deceased’s heirs.
Assets are given to the deceased’s heirs and beneficiaries named in the deceased’s will, or absent a will, according to state law.
These distributions are overseen by the probate court in the county and state where the deceased lived.
How to identify non-probate assets
Non-probate assets are cash, property, and other items of value that automatically transfer to someone after the deceased passes.
These assets are not part of the legal probate process and their distribution is not overseen by the probate court.
Typically, items that fall into this category include:
- Financial accounts titled “Payable on Death” (POD) or “Transfer on Death” TOD with a named, living beneficiary
- Cash, property, and items of value held in a Trust
- Assets the deceased owned jointly with another living person, such as a bank account or real estate
- Life insurance policies with a named, living beneficiary
- Retirement accounts with a named, living beneficiary
- Real estate owned as “Transfer on Death” or as “Joint Tenants with Rights of Survivorship.” For instance, if Jane and John own a house as Joint Tenants with Rights of Survivorship and Jane passes away, John is now the sole owner of the house, without the need for the house to go through the legal Probate process. This can be determine by looking at the deed to real estate, as it will specify how the property was owned
- Assets with a joint accountholder. For instance, if Jane and John share a joint ban account and Jane passes away, John is now the sole owner of the bank account, without the need for the account to go through the legal Probate process.
States that allow Transfer on Death deeds for real estate
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Hawaii
- Illinois
- Indiana
- Kansas
- Maine
- Minnesota
- Missouri
- Montana
- Nebraska
- Nevada
- New Mexico
- North Dakota
- Ohio
- Texas
- Utah
- Virginia
- Washington
- Washington, D.C.
- West Virginia
- Wisconsin
- Wyoming
Personal Considerations
Did the deceased have any assets that are Payable on Death (POD) or Transfer on Death (TOD)?
If the beneficiary is still living, they now automatically own the assets in any account that was designated Payable on Death or Transfer on Death.
These assets do not need to be included on the official Probate Inventory, nor do they need to go through the legal Probate process before they can be given to the beneficiary.
**Common Payable on Death and Transfer on Death accounts include: **
- Bank accounts
- Certificates of deposit
- Credit union account
- securities/stock
- Investment accounts
- Real estate with a Transfer on Death deed (only allowed in some states)
If the beneficiary has already passed, however, the asset does not have a named beneficiary - meaning it will be considered a Probate asset.
Assets that were not designated Payable on Death or Transfer on Death with a named beneficiary may have to go through the legal Probate process before they can be given to the heirs and beneficiaries of the deceased.
Review the other questions in this section to identify other non-probate assets.
If the beneficiary is still living, they now automatically own the assets in any account that was designated Payable on Death or Transfer on Death.
These assets do not need to be included on the official Probate Inventory, nor do they need to go through the legal Probate process before they can be given to the beneficiary.
**Common Payable on Death and Transfer on Death accounts include: **
- Bank accounts
- Certificates of deposit
- Credit union account
- securities/stock
- Investment accounts
- Real estate with a Transfer on Death deed (only allowed in some states)
If the beneficiary has already passed, however, the asset does not have a named beneficiary - meaning it will be considered a Probate asset.
Assets that were not designated Payable on Death or Transfer on Death with a named beneficiary may have to go through the legal Probate process before they can be given to the heirs and beneficiaries of the deceased.
Review the other questions in this section to identify other non-probate assets.
Are there assets without beneficiaries?
These are considered probate assets and must go through the legal probate process before they can be given to the heirs and beneficiaries of the deceased.
If the Estate is required to submit an official Inventory, these assets will need to be listed on the Inventory, along with their value.
To determine whether the deceased’s Estate will need to submit an official Estate Inventory, review the Task “Inventory Estate Assets and Debts”
The asset may still need to go through the legal Probate process if it is considered a Probate asset.
Typically, Probate assets must be inventoried, and all bills and debts of the Estate must be paid before the asset can be given to the deceased’s Heirs and Beneficiaries.
For instance, if Jane Doe’s Will states that her couch is to be given to her son, John, the asset has a named beneficiary. However, Jane Doe’s couch is still considered a Probate asset even though Jane named a beneficiary. John will only be able to receive the couch at the end of the legal Probate process after all bills and debts of the Estate have been paid.
On the other hand, if Jane Doe had a Payable on Death (POD) bank account, with John listed as beneficiary, the bank account will be considered a non-probate asset. This means John can access the POD account and transfer any funds into his own personal account even before the legal Probate process begins. Also, the Executor will not have to include the POD account on any official Estate inventory.
These are considered probate assets and must go through the legal probate process before they can be given to the heirs and beneficiaries of the deceased.
If the Estate is required to submit an official Inventory, these assets will need to be listed on the Inventory, along with their value.
To determine whether the deceased’s Estate will need to submit an official Estate Inventory, review the Task “Inventory Estate Assets and Debts”
The asset may still need to go through the legal Probate process if it is considered a Probate asset.
Typically, Probate assets must be inventoried, and all bills and debts of the Estate must be paid before the asset can be given to the deceased’s Heirs and Beneficiaries.
For instance, if Jane Doe’s Will states that her couch is to be given to her son, John, the asset has a named beneficiary. However, Jane Doe’s couch is still considered a Probate asset even though Jane named a beneficiary. John will only be able to receive the couch at the end of the legal Probate process after all bills and debts of the Estate have been paid.
On the other hand, if Jane Doe had a Payable on Death (POD) bank account, with John listed as beneficiary, the bank account will be considered a non-probate asset. This means John can access the POD account and transfer any funds into his own personal account even before the legal Probate process begins. Also, the Executor will not have to include the POD account on any official Estate inventory.
Providers to Contact
Probate Attorneys Near You
Probate attorneys help settle a deceased person’s estate. They can also help you categorize probate and non-probate assets according to state law.
