Who needs probate? Part 3: Exceptions
As discussed, probate is usually necessary if a loved one passed away owning real property. There are, though, some exceptions to that general guideline, especially when it comes to Trusts and certain non-real property assets.
The Trusts Exception
As we discussed in another article, a Trust is an estate planning tool into which a living individual can transfer property, which the Trust will “hold.”
As far Trusts relate to probate, generally, probate may be unnecessary when a legally-valid Trust holds all of your loved one’s property. This occurs if, while living, your now-deceased loved one created a Trust and, while living, transferred all of his or her property into that Trust. Because the Trust holds all the property, and because the Trust also governs the use and distribution thereof, probate is almost always unnecessary.
The Exception to the Trusts Exception
It is important to note that probate may still be necessary even when a loved one passed away with a Trust.
Specifically, if a Trust is invalid, probate will almost always be necessary. Why? If a Trust is invalid, then any property supposedly transferred into the Trust is not actually held by the Trust. If a Trust does not hold that supposedly-transferred property, then that property must transfer to your family by probate.
Additionally, even when a Trust is valid, if a loved one neglected to transfer some of his or her property into the Trust while living, any remaining property must transfer by probate anyway.
Beneficiary Designations on Certain Accounts
Some assets simply do not need probate. For example, certain financial accounts contain “beneficiary designations.” Upon forming those accounts, the owner thereof must designate a beneficiary who will receive the account’s assets after the owner passes away. Because those assets transfer directly from the account to the designated beneficiary, probate is unnecessary. Note, however, that without a beneficiary designation, those financial accounts will likely require probate.
Unlike financial accounts and other non-real property assets, however, postmortem real property transfers according to different laws that often do require probate.