What is Probate?
To understand the difference between probate and non-probate property, it is necessary to first understand the basics of the probate process itself. Generally, in South Carolina, probate is the process by which a person’s estate is administered after the death of the person (the “Decedent”). Essentially, this involves the Probate Court determining who the proper recipients of the Decedent’s assets are and overseeing the distribution of those assets.
The probate process begins with the death of the Decedent. When a person dies leaving a Will they are referred to as being “testate.” The Will is admitted to the Probate Court in the county of the Decedent’s residence at the time of his or her death. The specifics of the probate process are beyond the scope of this blog post, but in summary, interested parties are given notice of the Decedent’s death and the existence of the Will and (i) if such parties do not object, and (ii) the probate court finds the Decedent’s Will to be validly executed in accordance with state law formalities, then the Will is admitted, and the probate court appoints a Personal Representative. The Personal Representative is tasked with the collection, management, protection, and distribution of the Decedent’s “probate” property to the Decedent’s beneficiaries under the Will.1
At its most basic, probate property is simply anything that passes pursuant to the provisions of a person’s Will (or pursuant to the intestacy laws of a jurisdiction, if there is no Will, or to the extent the Will does not provide for the distribution of such property), and thus is subject to administration by a Probate Court. Probate property may include tangible personal property (i.e., clothing, pets, furniture, collectibles, vehicles, boats, airplanes, etc.), real property (i.e., land, houses, or buildings), bank accounts in the name of one person, or closely held business interests (i.e., interests in a partnership, limited liability company, or corporation).
A critical question to consider when determining if property may be probate property is how such property is titled. For example, George and Martha are a married couple who own a home in Greenville, South Carolina. The deed provides that George and Martha own the home together as “tenants in common.” George dies later that year and is survived by Martha. It is likely that George’s one-half ( ½) interest in the home is a probate asset and would pass either pursuant to the terms of George’s Will or via the intestacy laws of South Carolina. Now assume that instead George and Martha owned their home as “joint tenants with rights of survivorship, and not as tenants in common.” It is likely that in this scenario, rather than passing pursuant to either George’s Will or via intestacy laws, George’s one-half (½) interest in the home would pass directly to Martha as the surviving joint owner, and thus not be subject to the probate process. This tenants in common vs. joint tenants with rights of survivorship distinction can apply to bank accounts, real property, and other titled property (e.g., cars or boats).
Non-probate property is anything that is not probate property. Non-probate property can take various forms. Often an estate plan aims to convert probate property into non-probate property so that the administration of a Decedent’s estate is more simple, minimizes probate fees, and allows property to pass partially or completely without the Probate Court’s involvement.
Assets which pass by beneficiary designation (e.g., retirement accounts (i.e., 401ks and IRAs), life insurance policies, annuities, and bank accounts which have been designated as “Pay-on-Death” or “Transfer-on-Death”) are a common form of non-probate property. Generally, such assets pass directly to the beneficiary listed with the applicable institution holding the account or policy. It is often important to list contingent beneficiaries, in addition to the primary beneficiary, on a beneficiary designation in case the primary beneficiary does not survive the account owner or policy holder. Generally, a beneficiary will contact the institution or custodian responsible for the account or policy independently of the probate process to collect the account or proceeds. While it is beyond the scope of this blog post, it is also possible to name a trust as the beneficiary of certain accounts or policies. Structuring trusts to receive retirement accounts (i.e., 401ks and IRAs) or other beneficiary designation assets may pose various income tax and estate tax considerations, but you should consult with a competent legal professional before naming a trust as a beneficiary of any accounts or policies.2
As discussed above, for property with joint owners (most commonly in the context of a married couple), titling real property, bank or brokerage accounts, or other titled property (i.e., cars or boats) as “joint tenants with rights of survivorship” provides that upon the death of one of the joint tenants the surviving joint tenant (or tenants) receives the property directly rather than through the probate process. For accounts that are titled as joint tenants with rights of survivorship or for beneficiary designation assets, provisions made in a Will disposing of such asset are generally not effective if upon the Decedent’s death either (i) a joint tenant survives the Decedent or (ii) a beneficiary named in an effective beneficiary designation is surviving. In other words, a Decedent’s Will generally does not control the disposition of property which is titled as “joint tenants with rights of survivorship” or for accounts with a valid, completed beneficiary designation.
Using a Revocable Trust to Avoid Probate
Another common probate avoidance tool is a “Revocable Trust” (sometimes referred to as a “Living Trust”). The person who creates a Revocable Trust is called the “Grantor” or “Settlor” and the person who holds title to trust property is the “Trustee.” Generally, a Revocable Trust is a written agreement by which a Trustee agrees to hold title to the Grantor’s property for the Grantor’s benefit initially and then for the benefit of other beneficiaries named in the agreement after the Grantor’s death. In the case of a Revocable Trust, the Grantor and Trustee are commonly the same person during the Grantor’s lifetime. Future blog posts will expand on the purposes and uses of Revocable Trusts in estate planning.
For example, let’s assume George is single (Martha having predeceased him) and has three (3) living children. George owns a primary residence which is titled in his sole name. If George were to die, the residence would likely be a probate asset. However, if George created a Revocable Trust and deeded his primary residence to his Revocable Trust, the primary residence would likely not be a probate asset and would pass pursuant to the provisions of George’s Revocable Trust rather than pursuant to the terms of George’s Will. The process of transferring assets to a trust is often referred to as “funding” the trust. For business owners, Revocable Trusts are often the most effective way to avoid probate with respect to the owner’s business interest (i.e., partnership interest, limited liability company interest, or corporation stock). Professional legal advice should be sought before creating or funding any trust (revocable or otherwise). The income tax, gift tax, and estate tax effects of funding a trust should also be considered prior to doing so.
If you have any questions about probate and non-probate property, how to avoid probate, or any other aspects of estate planning, we invite you to contact an attorney at Thomas, Fisher & Edwards, P.A. at (864) 232-0041.
Disclaimer: This blog post is for informational purposes only and is not meant to be taken as legal advice. By using this website and reading this blog post, you understand and agree that no information is being provided within the scope of an attorney-client relationship. The topics covered in this blog post are not comprehensive and should not be substituted for competent legal advice from a licensed attorney. Thomas, Fisher & Edwards, P.A. makes no representations or warranties as to the timeliness, availability, accuracy, or completeness of any information contained in this post.
1 The process is similar for those who die without a Will. Only a person who dies without a Will is considered “intestate.” For more information about what a Will is, why having a Will is important, and what intestacy is, please see the Who Needs a Will? blog post available on our website.
2 For additional information on retirement benefits and how they are paid to various beneficiaries upon an account owner’s death, please see The Secure Act, Retirement Benefit Changes, & 2020 Estate Tax Exemption Amount memorandum available on our website.
This blog post is for informational purposes only and is not meant to be taken as legal advice. By using this website and reading this blog post, you understand and agree that no information is being provided within the scope of an attorney-client relationship. The topics covered in this blog post are not comprehensive and should not be substituted for competent legal advice from a licensed attorney. Thomas, Fisher & Edwards, P.A. makes no representations or warranties as to the timeliness, availability, accuracy, or completeness of any information contained in this post.