Despite all of the benefits of passing certain property to heirs as non-probate assets, there are certain risks associated with titling assets as non-probate property. Your Estate Planning Attorney may be able to help you to limit or eliminate many of these risks. Risks that may be associated with non-probate assets include:
Unintended Consequences
Creating non-probate assets can sometimes lead to unintended results. As an example, you may wish to equally divide your assets (including non-probate assets) among all or several of your heirs. If you withdraw funds from a jointly held bank account or P.O.D. (Payable on Death) bank account, you will reduce the joint owner’s share of that particular asset, which may affect the equality of asset distribution among the intended heirs. Heirs who receive other assets that have not been reduced in value are not obligated to share any portion of these assets with heirs whose inheritances have been reduced.
Taxes
People often create joint accounts with another person, to whom they intend and expect the account to pass when they die. If the unexpected happens and the joint owner (the intended beneficiary) dies first, you may be required to pay inheritance tax on a portion of the account value when the account passes back to you.
In addition, the transfer of certain non-probate assets, such as IRAs and joint accounts (including those with “rights of survivorship”), may or may not be taxable to the estate or to the person to whom the account is transferred. If beneficiaries of IRAs and other types of assets fail to comply with all IRS regulations and to make certain “elections” in a timely fashion, an increase in tax liability may occur.
Access to your Assets
You may have created a joint account with the sole intention of passing the account (as a non-probate asset) to the other joint owner when you die. This may have the unwanted effect of allowing the joint owner to gain access to the account during your life. Your attorney can advise you on the specific titling of joint accounts that will avoid this result.
Loss of Control
If you share joint ownership of real estate or other assets, you will be unable to sell these assets without the other owner’s permission.
Inability to Limit Circumstances of Property Transfer
You may wish to place certain restrictions on the transfer of assets to an heir. The transfer of property through a Will allows you to designate the time and circumstances under which money or other assets will be transferred to a designated beneficiary. The ability to make such restrictions is generally not available when assets are passed as non-probate property.