Understanding the Difference Between Estate and Non-Estate Assets

When someone passes away, their financial and legal affairs must be settled through a process called probate. This is a court-supervised procedure to ensure debts are paid, last wills and testaments are validated, beneficiaries and interested parties are notified, and assets are distributed to heirs or beneficiaries. But not all assets go through probate, and that distinction can have a big impact on how smoothly (or not) things unfold.

What Are Estate Assets?

Estate assets are items solely owned by the deceased that do not have a beneficiary designation or survivorship feature. These assets must go through probate in order to be transferred to the heirs.

Common estate assets include:

Bank accounts held in the decedent’s name only
Real estate titled solely in their name
Personal property (e.g., vehicles, jewelry, collectibles)
Stocks or bonds not held in a trust or without a designated beneficiary
Business interests

These assets become part of the “probate estate” and are subject to the probate court’s oversight. These assets are also subject to probate fees.

What Are Non-Estate Assets?

Non-estate assets are those that transfer automatically to another person upon death, typically outside of probate, depending on how they are structured.

Examples include:

Life insurance policies with named beneficiaries
Retirement accounts (e.g. RRSPs or TFSAs with named beneficiaries
Joint bank accounts with rights of survivorship
Real estate owned as joint tenants with right of survivorship
Assets held in a trust

These assets pass directly to the named individual(s), or in the case of trusts, remain in the trust. This does not mean that there are no tax implications arising from a person’s death, but they do not ordinarily need to pass through probate (if structured correctly).

Why the Difference Matters: Common Pitfalls

Here are some common pitfalls:

1. Mismatched Expectations

Family members often assume everything the deceased owned will be split according to their will — but wills only control estate assets. If someone named only one of their children as the beneficiary of their life insurance, that child gets it — regardless of what the will says about dividing assets equally.

2. Disinheriting Unintentionally

Failing to update beneficiary designations (e.g., after a divorce or the birth of a child) can result in outdated wishes being honored. A former spouse might receive a retirement account that was never changed, even if the will says otherwise.

3. Delays and Extra Costs

Assets that must go through probate can take months (or even years) to distribute. Probate also comes with court fees, attorney fees, and administrative costs — all of which reduce the estate’s value. If a person can pass property outside the estate without triggering any other tax obligations, it can be in their inheritors best interest to do so.

4. No Liquidity for Expenses

If all of a person’s assets pass outside of probate, the estate may have no liquid funds to pay debts, taxes, or funeral costs — leaving the executor scrambling to pay professional fees, funeral expenses, or a probate fee.

How to Avoid These Pitfalls

Review beneficiary designations regularly, especially after circumstances change, such as a separation or introduction of new member to the family.
Coordinate your estate plan — make sure your will, beneficiary forms, and ownership structures all align with your intentions.
Consider a trust if you want to keep assets out of probate but still maintain some control over how and when they’re distributed.
Talk to an estate planning attorney to make sure your plan works the way you think it does.

Final Thoughts

Probate can be a useful process, but it can also be time-consuming, costly, and emotionally difficult. Knowing which assets pass through probate is crucial for proper planning. Avoiding surprises and misunderstandings now can save your loved ones a lot of stress later.

This blog post provides legal information but is not a substitute for legal advice. If you have a question about this topic or another legal matter, contact Naz Khodarahmi for a complimentary consultation. You can book a consult through www.macushlaw.ca through our booking system or contact Naz at [email protected] or (236) 476-3188.