1. Money

What Are Non Probate Assets and Are They Included in Your Estate?

Avoiding Probate But Not Estate Taxes

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Non probate assets are simply assets that won't need to be probated after you die.

Examples:

  1. Assets you own jointly with your spouse or others with rights of survivorship (JTWROS).

  2. Assets you own jointly with your spouse as tenants by the entirety (TBE).

  3. Assets owned by your Revocable Living Trust.

  4. Assets in which you retain a life estate and the remainder passes to a non-charitable beneficiary other than yourself.

  5. Assets owned by you and payable to a designated beneficiary, including:

      • Payable on death (POD) accounts, transfer on death (TOD) accounts, in trust for (ITF) accounts and Totten trusts
      • Life insurance policies
      • Retirement accounts, including IRAs, 401(k)s and annuities
      • Health savings accounts (HSAs)or medical savings accounts (MSAs)

Note that if all of the designated beneficiaries of any of the assets listed in (5) above predecease the account owner, then the account will need to be probated.

Will Non Probate Assets be Included in Your Gross Estate?

Will your non probate assets be included in the value of your gross estate in order to determine your estate tax liability? The answer is a most definite YES. The more important question is: What value of the non probate asset will be included in your gross estate for estate tax purposes?

  • If the asset is titled in your sole name without any other owners or has a POD, TOD or ITF designation, then 100% of the value will be included in your taxable estate.

  • If you own a life estate in the asset and the remainder passes to a non-charitable beneficiary other than yourself, then 100% of the value will be included in your taxable estate.

  • If the asset is titled as JTWROS with your spouse or as TBE, then only 50% of the value will be included in your taxable estate.

  • If the asset is titled as JTWROS with someone other than your spouse, then 100% of the value will be included in your taxable estate unless it can be proven that the other owner(s) actually made contributions to the account or toward the purchase of the property.

  • If the asset is titled in the sole name of your Revocable Living Trust, then 100% of the value will be included in your taxable estate, but if the asset is titled in the name of your Revocable Living Trust as a tenant in common, then only the proportionate share owned by your trust will be included in your taxable estate.

  • The entire death benefit of life insurance policies that you own on your own life at the time of your death will be included in your taxable estate, but only the cash value of life insurance policies that you own on someone else's life will be included.

  • Finally, 100% of the value of your retirement accounts, including IRAs, 401(k)s, and annuities will be included in your taxable estate.

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