What Are Non-Probate Assets?

Every estate planning client is unique. There are far too many variables to boil effective estate planning down to a “one-size-fits-all” approach. Families and loved ones are diverse and dynamic, and assets vary immeasurably from one circumstance to the next. However, there are some common elements in most cases. The coordination of what are typically known as “non-probate assets” is one of those elements that comes up in the case of nearly every estate planning client that I counsel.

In a nutshell, “non-probate assets” are those assets that are specifically designed to pass to a designated beneficiary, or group of beneficiaries, at a future point as a result of a beneficiary designation form. They can come in all sorts of shapes and sizes – life insurance, retirement plans, brokerage accounts with designated beneficiaries, etc.  A perfect example:  John Doe purchases a $1 million insurance policy and names his wife, Jane, as the sole beneficiary. At John’s death, his insurer holds up their end of the contract and pays Jane directly once she informs them of John’s death and provides the necessary identification. The payment does not pass through John’s Will.  Seems easy enough.

However, in many past cases, I have seen a Will that attempt to direct who is entitled to certain “non-probate assets,” whether a life insurance policy, retirement account, or other such similar assets. Sometimes they identify the same beneficiary, and sometimes they do not. What if John Doe died leaving a Will that gave his life insurance policy to his girlfriend, and not to Jane, as the policy directed? And so many clients ask the obvious question: When they conflict, do the policy proceeds pass under the Will, or does the insurance policy control where the proceeds go?

The answer, which remains surprising to some, is that the provisions of the Will take a backseat to the provisions of the contract. With very little exception, the Texas Estates Code governs Wills, Trusts and other types of instruments. Insurance policies are not generally governed by the same law. Rather, they are contracts between the insured party and the insurer. When an event (John’s death,) triggers the obligation of the insurer (paying the proceeds to Jane,) the insurer’s obligation is to abide by the contract and pay the proceeds to Jane. Whether or not John left a Will is irrelevant to the insurance company. Similarly, his attempt to direct the proceeds to someone other than his designated beneficiary falls short.

Many clients neglect to properly coordinate their beneficiary designations with their Will when considering their estate planning.  However, you must review the beneficiary designations that you have made on your own “non-probate assets,” and you can be certain that your plan fits together to cover all of your intentions. For help, call Ford + Bergner LLP at 713-352-0937.