How are probate assets distinguished from non-probate assets, particularly when a business entity and personal guarantees are involved?
1. Detailed Answer
In North Carolina, the estate of a person who dies is divided into probate and non-probate assets. Probate assets go through the probate court process under Chapter 28A of the North Carolina General Statutes. Non-probate assets pass directly to a beneficiary outside of probate. Understanding the difference helps executors and heirs plan for administration, taxes, and creditor claims.
1.1 Probate Assets
Probate assets include property titled solely in the decedent’s name without a beneficiary designation or right of survivorship. Common examples are:
- Real estate held in the decedent’s name alone.
- Bank accounts, investment accounts, and securities registered only in the decedent’s name.
- Personal property such as vehicles, jewelry, and artwork.
- Business interests—such as shares of stock or membership interests in an LLC—unless the interest is held in a revocable trust or otherwise has a beneficiary designation.
The Personal Representative must file a petition with the clerk of court, gather probate assets, pay valid creditor claims under G.S. 28A-18, and distribute what remains according to the will or North Carolina’s intestacy laws (G.S. 28A-2-2).
1.2 Non-Probate Assets
Non-probate assets avoid probate because they pass directly to a surviving owner or designated beneficiary. These commonly include:
- Joint tenancy property with right of survivorship.
- Bank or brokerage accounts payable on death (POD) or transfer on death (TOD).
- Life insurance proceeds and retirement accounts with named beneficiaries (G.S. 28A-2A-2).
- Property held in a revocable trust.
1.3 Business Entities
If a decedent held an ownership interest in a corporation, LLC, or partnership in their name, that interest remains a probate asset unless the interest passed by trust or beneficiary designation. The entity’s operating agreement or bylaws may include buy-sell provisions or rights of first refusal, but those rules govern transfer of ownership—they do not by themselves avoid probate. Executors collect the decedent’s membership certificates or stock certificates and transfer them according to the will or intestacy rules. If the interest was owned by a living trust, it passes outside probate with the trust.
1.4 Personal Guarantees
A personal guarantee occurs when the decedent promised to repay a business debt if the business defaults. That guarantee does not create a separate asset—it creates a liability of the estate. Creditors can file a claim against the estate under G.S. 28A-18-2. The estate may have to pay on the guarantee from probate assets. If the business repays the debt, the estate could have a claim against the business as a creditor. Executors should identify guarantees early to estimate estate liabilities.
2. Key Takeaways
- Probate assets travel through probate court; non-probate assets pass directly to beneficiaries or co-owners.
- Ownership interests in a business held in the decedent’s name generally count as probate assets.
- Trust ownership or beneficiary designations on financial accounts can move assets outside probate.
- Personal guarantees increase estate liabilities rather than create separate assets.
- Executors must inventory probate assets, pay creditors under G.S. 28A-18, then distribute remaining property.
- Non-probate assets usually require minimal court involvement but still affect estate planning outcomes.
- Review entity documents and trust instruments to confirm whether business interests avoid probate.
Contact Pierce Law Group
Navigating the distinction between probate and non-probate assets can feel overwhelming—especially when a business interest or personal guarantee is involved. Our attorneys at Pierce Law Group guide you through every step of administration under North Carolina law. Contact us today for a consultation.
Email us at intake@piercelaw.com or call (919) 341-7055.
