What Assets are Not Considered Part of an Estate?
In many families, more assets pass outside the Last Will than through the Last Will. Think about non-probate assets: they include life insurance proceeds, IRAs and 401Ks (for which beneficiary designations and spousal rollovers are available). These often add up to considerable sums, often more than the probate estate. (Note: Keep in mind that the list of non-probate assets in Louisiana does not generally include real estate (even if jointly owned) nor does it include investment accounts).
This is why a recent article from The Mercury titled “Planning Ahead: Pay attention to your non-probate assets” strongly urges readers to pay close attention to accounts transferred by beneficiary.
Most retirement accounts like IRAs, 401(k)s, 403(b)s and others pass by beneficiary designation and not through the Last Will. Any property owned by a trust does not go through probate, one of the reasons it is placed in the trust. So if you have real estate that you don’t want to pass through probate, you should establish a living trust.
In Louisiana banks and investment accounts designated as Payable on Death (POD), you may be told, also do not pass through probate. But this is not technically correct. These assets are allowed to be paid by the bank to the payee, but they are still part of your probate estate. That is why, if you have designated a Payee on Death for an account, that payee should be listed as the heir or legatee of that account in your will. To learn more about the dangers of bank account payable on death designations, read my other blog post here: What Is a POD Account? A litigation time bomb.
A parent can also accidently disinherit an heir, if all of their non-probate assets are in one child’s name and no provision for the non-probate assets has been made for any other children. An estate planning attorney can work with the parents to find a way to make inheritances equal, if the intention is for all of the children to receive an equal share. One way to accomplish this would be to give the other children a larger share of probated assets.
Any division of inheritance should bear in mind the tax liability of assets. Non-probate does not always mean non-taxed. Depending upon the state of residence for the decedent and the heirs, there may be estate or inheritance tax on the assets. Luckily, Louisiana has abolished its state inheritance tax, and the federal estate tax exemption for 2022 stands at just over $12 million per person. That is $24 million for a husband and a wife. Not many estates are that size, so estate and inheritance taxes are not likley to be a worry. But every person should be concerned about obtaining a “step up” in basis of assets at death, which is a classic INCOME TAX issue. In other words, failure to properly plan your estate can give an income tax bill to heirs.
Placing assets in an irrevocable trust is a commonly used estate planning method to ensure inheritances are received by the intended parties. The trust allows you to give very specific instructions about who gets what. Assets in the trust are outside of the probate estate, since the trust is not owned by the grantor.
Your estate planning attorney will be able to review probate and non-probate assets to determine the best way to achieve your wishes for your distribution of assets.
BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.
If you liked this article, “What Assets are Not Considered Part of an Estate?” read also these additional articles: Will Your Business Die When You Die? and Medicare’s Coverage of New Controversial and Expensive Alzheimer’s Drug Is Limited and What Estate Planning Documents are Used to Plan for Incapacity? and Special Needs Planning
Reference: The Mercury (April 12, 2022) “Planning Ahead: Pay attention to your non-probate assets”