What are Non-Estate Assets (and Why Does it Matter?)

In New Jersey, as in most states, the traditional way to pass property after death is through a will. If the deceased did not have a will or make other arrangements, then most property passes through intestate succession. Though a will reflects the deceased’s plans for his or her assets and intestate succession is determined by state law, both operate in the same manner. The deceased’s property becomes property of the estate, which pays debts, files taxes, and makes distributions to heirs or beneficiaries.

Posted on February 17, 2018

However, not all property passes through the estate. For example, property that has been placed in a living trust belongs to the trust, not the beneficiary. Therefore, those assets don’t become part of the estate. When a living trust is constructed properly and the grantor-trustee is scrupulous about titling property to the trust, there may be no property to pass through an estate. But, property in trust is just one type of property that passes outside the estate.

Other Common Non-Estate Assets

Some assets are non-estate assets by their nature, and others may be passed outside the estate by design. One advantage associated with non-estate assets is that they typically pass more quickly. This is especially important when the beneficiary is a surviving spouse who may have been wholly or partly dependent on the deceased’s income, or dependent children of the deceased. Settlement of an estate typically takes several months to two years or more.

Life Insurance Policies

One of the most common non-estate assets is a life insurance policy. Even if a life insurance policy was owned by the deceased, the proceeds pass according to the terms of the policy. Generally, that means directly to the listed beneficiary. The policyholder can pass proceeds into a living trust or even ensure that they pass through the estate, but that requires a conscious decision and specific action. In most cases, life insurance proceeds will be payable directly to the intended beneficiary or beneficiaries.

Retirement Accounts

Retirement accounts belong to the account holder and may be passed through the estate. However, standard practice when setting up a retirement account is to list a beneficiary on the account. If a beneficiary is properly listed, then ownership of the account will also pass outside the estate, directly to the listed beneficiary.

While the process itself is simple, it’s a good idea to discuss retirement accounts with your estate planning lawyer or financial planner, as there may be restrictions and tax consequences associated with transfer to another person.

Jointly-Held Property with Rights of Survivorship

Certain types of property may be held jointly with rights of survivorship. Two of the most common in New Jersey are homes and bank accounts. Unlike life insurance policies and retirement accounts, real property and bank accounts aren’t structured to pass automatically to another person by default. Whether rights of survivorship apply depends entirely on how the property is titled.

Determining Whether to Pass Property Through Your Estate

Through the use of trusts, direct beneficiaries, and rights of survivorship, a New Jersey resident may opt to pass most or even all property outside the estate. Whether that is the best approach given the nature of the property involved, the beneficiaries, the tax consequences, and other considerations must be determined on a case-by-case basis. An experienced estate planning attorney can be your best resource as you educate yourself and make decisions about how to title and pass your property.