THE ABA PRACTICAL GUIDE TO ESTATE PLANNING, Jay A. Soled, ed., pp. 61-70, American Bar Association, 2011
12 Pages Posted: 31 Aug 2011
Date Written: August 30, 2011
In order to do any “estate planning,” one must first understand the distinction between probate and nonprobate property. Probate property passes under a will. Nonprobate property passes outside a will, transferring automatically to a person (or people) that the owner has designated during lifetime. Americans hold a surprising percentage of their property in nonprobate form. In addition to joint bank accounts and other jointly held assets, common forms of nonprobate ownership are bank accounts or other contracts with payable on death (POD) provisions (including pensions, retirement accounts such as IRAs, and 401(k) accounts), bank accounts held in Totten trust form (such as “Jane for the benefit of Jody”), life insurance policies, revocable trusts, and interests in many other types of trusts. Over the last half century, an increasing percentage of assets have been held in nonprobate form. This is because financial institutions have made it easy to do so. Also, friendly legislation has been enacted, and many people want to avoid probate.
This chapter, co-authored with Rachel A. Schwartzman, from THE ABA PRACTICAL GUIDE TO ESTATE PLANNING (2011) describes the most common forms of nonprobate property ownership and explains in detail some of the advantages (and disadvantages) of holding property in nonprobate form. There are both benefits and burdens associated with titling assets in a way that they will pass outside the will. This chapter compares the postdeath distribution of nonprobate assets with the postdeath distribution of property under a will. There are indeed many valid reasons to avoid probate, but this chapter also does a bit of debunking. Probate is not necessarily the time-consuming and money-consuming process that some commentators would have the public believe.
Keywords: estate planning, wills, trusts, probate, nonprobate, joint tenancy, POD, IRA, Totten trusts, life insurance, revocable trusts
JEL Classification: K39, K34
Suggested Citation: Suggested Citation