Assets That Can Skip Probate and Pass Outside of The Will
In Pennsylvania, assets owned by a deceased person will pass under that persons' will unless they
are non-probate assets.
The most common kinds of nonprobate property are:
- Small amounts of cash held in bank accounts can also go to the surviving spouse (or, if there is no surviving spouse, to the children or more distant relatives) Financial institutions may release up to $3,500 to the surviving spouse without probate court authorization. All the surviving spouse must do is show the bank a certified copy of the death certificate and proof that funeral expenses have been paid. (20 Pa. Cons. Stat. Ann. § 3101.)
- Assets the deceased person held in a revocable or irrevocable trust (this is less common in Pennsylvania than in certain other states as Pa has high taxes which apply to trusts but low probate fees)
- Money held in joint bank accounts or accounts with a beneficiary or in trust designation
- Assets held in a brokerage account or IRA or 401(k) or 403(b) with a beneficiary designation
- Wages - Employers may pay up to $3,500 in wages, salary, or other compensation to the employee's surviving spouse. Probate court approval is not necessary. (20 Pa. Cons. Stat. Ann. § 3101.)
- Life insurance payable directly to a beneficiary
- Life insurance payable to an estate (in small amounts) If an insurance company owes the deceased person's estate up to $11,000 in life insurance benefits, and the personal representative of the estate doesn’t claim it within 60 days after the death, the company may pay the money to the surviving spouse without probate court approval. (20 Pa. Cons. Stat. Ann. § 3101.)
This raises a couple of points:
1) If you have assets that will pass through your will then it might be important to make sur that all of the other assets do not pass by the methods above. This could leave the executor without the cash to pay for taxes and expenses of the estate.
2) It is vital to review beneficiary designations to make sure that they are coordinated with your estate plan. For example, if you gave each child the proceeds of a life insurance policy, and later cancelled one you might be disinheriting that child.
3) Care must be taken in designating the beneficiaries of IRAs and 401(k)s. If donme incorrectly, taxes might have to be paid all at once rather than over an extended period of time.
Good estate planning may cost a bit more, but it covers all of these issues and does not just produce a set of wills and trusts that fail to carry out your real goals.
David M. Frees III, JD