After a person passes away, their assets are typically divided into probate assets, which are assets which pass through the Estate, and non-probate assets, which are assets which pass outside of the Estate.
Probate assets are those to which a beneficiary is not specified, and thus, the assets become part of the Decedent’s Estate.
Non-probate assets those in which a direct beneficiary is specified by the instrument itself, and therefore, these assets pass outside of the Estate.
Traditionally, an IRA, a joint bank account, and other investment vehicles are considered non-probate assets provided the beneficiary designation or survivorship designation is properly executed.
In a recent Appellate Division Decision, the Court reviewed what would take place if an account which required a post-death designation within the instrument had not been properly executed. In this matter, the Executrix of the Estate sought to have the subject account pass outside of the Estate due to the fact that it was the type of account which would typically pass outside of the Estate if properly executed. In reversing the position of the Executrix, the Court noted that although a designation was required under the account, since no such designation existed the asset must therefore pass through the Estate. As a result, the account passed through the Estate and was subject to any additional taxes, as well as distribution pursuant to the Will.
The practical result of this decision is to highlight that when designating beneficiaries for IRA accounts, the appropriate designations must be executed clearly and be updated as necessary. Otherwise, such accounts may unknowingly pass through the Estate rather than being treated as a non-probate asset.
Should an individual have any questions concerning whether an asset is either probate or non-probate, it is suggested that they consult with an experience estate planning attorney.