Probate is the usual process of settling a person's affairs after they have died.
This includes paying debts and final expenses, collecting the assets, and distributing to the heirs. However, probate is not always required. Probate is just one way by which assets can pass to a person's heirs.
There are essentially four ways in which assets pass to heirs:
1. Beneficiary Designations: at some point when purchasing a life insurance policy or setting up a bank account, most people name beneficiaries for these accounts. The named beneficiary will receive the account outright at the person's death.
2. Joint Ownership: if an asset is owned joint with right of survivorship with another person, the survivor of the joint owners will inherit the asset outright. The asset will then be subject to the surviving owner's estate when that person dies.
3. Testate/Intestate Succession: assets that do not have a beneficiary or joint owner will be subject to probate and pass according to the person's will or according to the Minnesota laws of intestacy if the person died without a will. If the person died with a will, it will also say who should be in charge of the handling the estate affairs.
4. Trusts: a trust can be used to hold assets for a beneficiary until he or she reaches an age of maturity, avoid probate, manage estate taxes, deal with second marriages, and can be used to satisfy many other estate planning goals. Assets pass through a trust by either moving them directly into the trust while still living or by naming the trust as a beneficiary of an account.
In most cases, every asset a person owns at death will fall into one of the four categories. Assets that are not titled in a trust and do not have a joint owner or named beneficiary are by default probate assets. If the total value of the assets that fall into the probate category is more than $75,000, probate is required. If the value of the probate assets is less than $75,000, the heirs could use a Affidavit of Collection to collect and distribute those assets. Real estate without a joint owner or named beneficiary must always pass through probate upon the owner's death.
Here is an example:
John died with a 401k, life insurance, and a town home. His children were named as beneficiaries of his 401k and his life insurance. He did not own his town home jointly with anyone and he did not use a transfer on death deed for his real estate. John’s children will be able to collect the 401k and life insurance directly from the financial companies. They will need to use the probate process to gain title to his town home.
In the example above, John's town home will be distributed according to his will. If John did not have a will, his town home will be distributed according to the Minnesota laws of intestacy. The laws of intestacy are the default rules that say how a person's estate should be distributed. If John died without a surviving spouse his children would inherit his town home in equal shares, which would be distributed to them outright and free of trust unless they are under the age of 18.
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