What is my estate?

Defining your “estate.”

Your estate is essentially everything you own. You might refer to this as your “net worth” and it includes legal rights, interests and entitlements to all property. The total value of your estate is the sum of all assets less all liabilities at any given time. At death, the law distinguishes the estate by separating it into separate categories based on the type of property and the manner in which the property was held.

Making a list of your assets and understanding how they are passed to beneficiaries helps to avoid unwanted outcomes and tailor the estate plan to meet your wishes. Include all financial accounts, real estate, business interests, and any other valuable possessions you own. Remember to first consider what you will need to live on yourself and incorporate your needs into a plan that achieves the best strategy for each type of asset.

The Probate Estate

The probate estate describes the total value of assets that cannot transfer without the intervention and oversight of the courts. In other words, there is a legal process that transfers assets in the probate estate. It is best to familiarize yourself with the following assets:

Assets Subject to Probate

  • Real Property (depending on title)

  • Investment Accounts

  • Bank Accounts

  • Tangible Personal Items

  • Partnerships, Sole Proprietorship Interests,

Assets Not Subject to Probate

  • Retirement Assets, such as IRAs, 401(k)s, and similar accounts

  • Life Insurance and Annuity Policies

  • Joint Tenancy Property and Community Property with Right of Survivorship

  • Payable/Transfer-On-Death Accounts

  • Transfer-On-Death Deeds

  • Assets in a Living Trust

The probate estate should be the primary concern of clients as probate assets of ~$162,000 or more will need to go through the probate court and will need proper planning.

The Gross Estate

The Federal government does not categorize assets by whether or not they will pass through probate when considering the federal estate tax due. The IRS makes it simple and uses the “gross estate” which is the total sum value of everything owned at the time of death. Due to recent tax law changes, the estate and gift tax exemption is now $5.6 million per individual and thus the estate tax should not be a primary concern unless your gross estate exceeds this value.

The Community Property Law

Assets acquired during marriage are considered community property assets, unless specifically titled or otherwise formally agreed upon. Assets acquired prior to marriage or by inheritance are considered separate property. At death, a spouse is entitled to give away all of their separate property and one half of community property assets, with a few additional rules. Thus, a major part of estate planning is ensuring proper planning for those assets and how they fit into the probate and gross estate.

Continue: Forms of Property Ownership