Which Investments Go Through Probate?
Which Investments Go Through Probate?

How do you know if your investments go through probate? When a person dies, what is left behind is an estate. Contrary to popular belief, this includes everyone, not just the rich. Whether a deceased person had significant wealth or was of more modest means, they are likely to leave behind assets and liabilities that need to be accounted for.

What is the probate process?

Probate is the process of the civil court system determining how an estate is settled. Stated another way, the courts decide who gets what. This will result in added time and expense for beneficiaries of the deceased owner.

Because this process is done through the court system, it is intended to be public. That means anyone can learn details about your finances and allows others to make claims against your assets.

In California, if your assets excluding vehicles is less than $166,251, there is a simplified process of transferring ownership and avoiding much of the cost and hassle of probate.

How to avoid probate:

There are several estate planning strategies to help avoid probate. However, you don’t need a complex estate plan. We’ll focus on the basics here.

1. Transfer on death or TOD

If you own a brokerage account and it’s titled in your name only, you may want to consider adding a beneficiary. Many financial institutions will allow you to add this feature where a new account holder can take over at the owner’s death.

The account owner maintains full control over the investment account during his or her life. However, when the owner dies, the account is transferred directly to the named beneficiary.

2. Joint tenancy or JTWROS

In this scenario, two people have an undivided interest in the investment account. They are both owners and have equal control over the decisions related to the account. It is common for a married individual to establish this type of account ownership. JTWROS stands for Joint Tenants with Rights of Survivorship. When one owner dies, the spouse or other account holder continues as the sole owner.

Avoiding Probate
Joint Account – Sample Registration

3. Living trusts

An excellent way to avoid probate is to set up a trust. There is a misconception that trusts are only for the wealthy. This couldn’t be further from the truth. Setting up a living trust, also known as a revocable trust, will help keep your investments out of probate court.

However, it’s not enough to create the trust. You must take the necessary step to title the investment accounts in the name of the trust and specify who the trustees (owners) are.

Avoiding Probate
Trust Account – Sample Registration

4. Misconceptions about wills:

Contrary to popular belief, setting up a will does not avoid the probate process. That doesn’t mean you shouldn’t have one. You should. However, if you pass away without the steps above, it is likely your investment accounts will become part of the probate estate. This will lead to your accounts being sorted out in probate court.

Can IRAs and Roth IRAs be held jointly by spouses?

IRAs and Roth IRAs (IRAs) cannot be held jointly by spouses. There can be only one owner of the account. If an IRA owner becomes incapacitated or unable to manage the account on their own, steps can be taken to add a power of attorney where someone else manages it on their behalf.

The most common way to structure an IRA is to name your spouse as 100% primary beneficiary. That means if you were to pass away, the spouse would now become the owner of the IRA and control the funds accordingly.

Can an IRA be owned by a trust?

It is also possible that the owner of an IRA is not a person at all but rather a trust. However, this is usually the result of a trust being listed as a beneficiary. The trust will have a trustee that is designated to administer the terms of the trust and manage the IRA accordingly. The tax rules that apply when a trust is the owner of IRA can be complex so proceed with caution.

Retirement account beneficiary designations

A properly structure beneficiary designation can go a long way to helping avoid probate. However, there are some pitfalls to look out for. While these issues may not lead directly probate court, they may result in other estate or court actions.

Naming a minor as a beneficiary

Minor beneficiaries can be problematic. The main issue is that minors cannot legally make their own investment and financial decisions. If one of your named beneficiaries is a minor, the courts will step in and designate a custodian or trustee to make decisions on behalf of the minor. If you haven’t named a custodian in your will, you may not like who the courts select to manage the money.

Naming a trust as beneficiary

Proceed with caution designating a trust as beneficiary for a retirement account. In certain cases, it may be the only option if the retirement account owner doesn’t have a spouse or the desire to leave money to an individual.

A key issue is that trusts are subject to different rules than individual when inheriting retirement account assets. This could lead to unfavorable tax consequences.

Naming someone other than your spouse

Rules vary significantly from state to state so all scenarios won’t be covered here. In California, a spouse’s written consent is required when the retirement account owner designates a primary beneficiary other than the spouse.

Another complication arises from separate rules for spouse and non-spouse beneficiaries. In general, when a spouse is a designated beneficiary, they can treat the retirement account assets as their own.

However, a non-spouse beneficiary must adhere to special internal revenue service rules on when they must distribute the account assets. Namely, this will result in a completely different tax situation which may not be ideal.

For a more complete review of beneficiary designations, please review IRA BENEFICIARY DESIGNATIONS – WHAT YOU NEED TO KNOW


Without proper planning, an account owner’s death can lead to assets being settled via probate. You don’t need a complicated financial or estate plan to bypass probate. Paying attention to beneficiary designations and account registration will go a long way toward keeping your financial affairs out of the public domain. Most importantly, it will keep your loved ones from spending time and money dealing with the court system.

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