The Probate Estate Explained
The 'probate estate' consists of those assets which will be transferred under the terms of the estate owner's will or which are subject to local intestacy law if there is no will. In general, probate property is property owned solely by the decedent which he has not given away prior to his death. The clearest way to define the probate estate is by discussing the types of property which are not part of it. All property which, on a decedent's death passes 'outside the will' is not part of his probate estate. Examples of such property are: life insurance proceeds paid to a designated beneficiary (other than the estate) who survives the decedent; bank accounts, real estate or securities held in joint name with right of survivorship, where the other joint owner in fact survives; bank accounts held 'in trust for' someone who is living at the date of the decedent's death; retirement plan or annuity contract benefits payable to a designated and surviving beneficiary; any property which decedent gave away, outright or in trust, during his life (even if the value of such property is subject to Federal Estate Tax or is considered for purposes of Federal Estate Tax computation); and trusts created by others in which decedent had an interest which is terminated by his death, unless he had a general power of appointment which he in fact exercised in favor of his estate.
The significance of the 'probate estate' in the estate planning process lies in the fact that only probate property is subject to the terms of the will. No matter how well a will is drafted to carry out a testator's wishes and to save taxes, unless there is an adequate amount of probate property, the will cannot accomplish its purposes. For example, if a will provides a specific cash bequest to a testator's child, but all of the testator's property consists of bank accounts, real estate or securities held in joint name with his spouse and the spouse is also designated as beneficiary of the testator's life insurance, there is no probate estate out of which to pay the specific bequest. Another example involves an attempt to save estate taxes on the estate of a surviving spouse by providing in the will that a portion of the testator's estate be held for his spouse in a trust the value of which will not be included in the spouse's estate for estate tax purposes. If the testator at his death does not own property in his own name and without pre-designated beneficiaries, there will be no probate estate out of which to fund the testamentary trust. It should also be noted that generally property held jointly with or in trust for a spouse will pass outright to the spouse and will be taxed in the spouse's estate. The same is true for life insurance and retirement plan death benefits if the spouse is designated as beneficiary.