A common misconception is that probate applies to all of the assets you leave when you die. However, probate handles only your probate assets.
With that said, we must first understand what a probate asset is and what a non-probate asset is. In a general sense, probate assets are those assets owned by you alone at the time of your death. Probate assets include those assets without any beneficiary designations. Non-probate assets are those assets that are owned jointly with others or have a beneficiary designation on them. Non-probate assets are passed automatically upon your death to those named as beneficiaries or those who you jointly own the assets with.
"Non-probate assets are passed automatically upon your death..."
A good example of a non-probate asset is life insurance. Most life insurance policies name a specific beneficiary who is to receive the life insurance proceeds upon your death. However, if the life insurance policy does not contain a named beneficiary, the life insurance policy will be deemed to be a probate asset.
A typical probate asset is a parcel of real estate that is owned by only a single person. In such a case, the real estate must pass through probate in order to be distributed to your heirs.
Why is it important to understand the difference between probate and non-probate assets?
Not recognizing this important distinction could result in an unintended distribution. We have seen many cases where an individual’s Last Will & Testament states that the assets should be distributed to one person, but a beneficiary designation on the asset says something completely different. In this case, the beneficiary designation trumps the individual’s Will. Bottom line, this means that your Will has absolutely no effect on the distribution of non-probate assets.
"Not recognizing this distinction could result in an unintended distribution."