Assets That Do Not Pass Under a Will

Every state has limits on what you can bequeath in your Will. Depending on the types of assets you own and how you hold title to them, you may not be able to convey all of your property to beneficiaries using a Will. Assets that “pass under” the will, or those that may be transferred to others through the Will, include both assets that you own in your own name and those assets that you own with someone else as “tenants in common”.

Tenancy in common is a type of property ownership that permits each owner to leave his or her separate interest to specified beneficiaries instead of to the co-owners, as required by a different type of ownership called joint tenancy. In some states, two people are presumed to own property as tenants in common unless they’ve agreed otherwise in writing. Assets that pass under your Will go through the probate process before being transferred to beneficiaries.

Assets that “pass over” or “pass outside” the Will, are those that cannot be conveyed to others through your Will. These assets do not go through probate when you die, but automatically pass to beneficiaries through another legal process depending on the type of asset. If “pass over” assets are included in your Will, the court will simply ignore them.

Examples of such assets are:

• Property you own as joint tenants with right of survivorship with someone else. In this case, the property is automatically transferred to the co-owner upon your death
• Life insurance proceeds. Beneficiaries automatically receive the policy proceeds when you die, unless you name your estate as the beneficiary, in which case the proceeds will pass under the Will and go through probate before being distributed to the designated beneficiaries.
• Proceeds from pension plans, retirement plans and IRAs that are payable to a beneficiary.
• Informal trust accounts, also referred to as Totten Trusts or payable on death (POD) accounts, go to the beneficiary designated when the account was established.
• Banking and investment products, such as savings, checking accounts, CDs, and brokerage accounts where you have a choice to select transfer on death (TOD) to a beneficiary.
• Inter vivos gifts which you make to others during your lifetime.
• Assets you have placed in a Living Trust automatically go to the beneficiaries. Living Trust assets are not to be confused with assets that go to a Testamentary Trust after you die and after passing through probate (See “Testamentary Trust Will” for more information.)
• Business partnership. The ability to transfer your interest in a partnership to a beneficiary via your Will maybe limited by your partnership agreement. You may run into the same situation with other property controlled by a contract.
• Personal Property. You can usually give away small items you own without leaving them in your Will. These would typically be items of little value.
• Your spouse’s share of the community property you own together. If you live in a community property state (at the time of this writing in late 2014, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are the community property states, but check with an attorney to be certain about your state), generally, all property that you and your spouse acquire during the marriage is considered to be owned equally by both of you, regardless of how it is titled. Only your share, fifty percent of any community property, may pass under your Will. Note, that if you live in a community property state, and your Will leaves your half of a community property asset to your spouse, that asset, depending on the law of your state, may not have to go through probate.

People who want to avoid the hassle and expense of probate have several ways to avoid it. You may be able to avoid probate by using some of the vehicles described above, especially if you have an uncomplicated estate.

Case Studies: Assets That Do Not Pass Under a Will

Case Study 1: Tenancy in Common Ownership

Sarah and John own a property as tenants in common. Sarah wants to leave her share of the property to her sister through her Will. However, because of the nature of tenancy in common ownership, Sarah’s share of the property does not pass under her Will. Instead, it will be distributed according to the rules of tenancy in common, potentially leaving Sarah’s sister without the intended inheritance.

Case Study 2: Non-Probate Assets

Emily owns a life insurance policy and a retirement account. She includes these assets in her Will, assuming they will pass to her designated beneficiaries through the probate process. However, life insurance policies and retirement accounts are non-probate assets, meaning they have designated beneficiaries and pass directly to them outside of the probate process. As a result, the court will ignore these assets mentioned in Emily’s Will.

Case Study 3: Avoiding Probate

Michael wants to avoid the probate process to save time and expenses for his beneficiaries. He establishes a living trust and transfers his assets into the trust, including his real estate and investment accounts. Upon his death, these assets pass directly to his chosen beneficiaries according to the terms of the trust, bypassing probate entirely.