The word estate refers to everything of value that a person owns. This includes real estate, personal items, art collections, antique items, investments, insurance and any other assets and entitlements. Legally, a person’s estate refers to a person’s total assets, minus any liabilities.

The value of a personal estate is only particularly relevant when the individual declares bankruptcy and when the individual dies. When a person debtor declares bankruptcy, their estate is assessed to determine which of their debts they can be reasonably expected to pay. Bankruptcy proceedings involve the same rigorous legal assessment of an estate that also occurs upon a person’s death.

Estate planning is the act of managing the division and inheritance of your personal estate, and arguably represents the most important financial planning of a person’s life. In the best of circumstances, a person draws up a will which explains the testator’s intentions for the distribution of their estate upon their death. A person who receives assets through inheritance is called a beneficiary.


Types of Estates

  • Probate Estate

A Probate Estate is the assets that pass under a Will, or assets that pass by Intestate Succession when there is no will. These assets have to go through the Probate process, which is essentially a Court process for transferring assets to your heirs.

  • Non-Probate Trust Estates

Some assets included in the overall estate do not require probate. These non-probate estate items can include life insurance policies, where the death benefit goes to a beneficiary selected by your relative, and retirement benefits. Some states allow bank accounts and motor vehicles to be titled this way as well; they include “payable on death” clauses. Other assets that bypass probate might include any assets your relative transferred to a living trust during his lifetime. The trust assumes ownership of these assets, and they do not require probate. They can transfer directly to the beneficiaries your relative named in his trust documents.

  • Gross Estates

The decedent’s gross estate includes all the decedent’s probate and nonprobate property; hence, the gross estate is more inclusive than the probate estate defined by state law. However, property for which the decedent had an interest that terminated on or before his death, but where he has no control over the subsequent conveyance of the property, is generally excluded, such as a life estate for the decedent that was created by someone else. A life estate can even allow the decedent to invade principal or grant the decedent a special power of appointment. However, if the decedent had a general power of appointment then the life estate is included in the estate for tax purposes.

  • Community Property Law

Community property laws further complicate the definition of an estate. California, Arizona, Nevada, New Mexico, Washington, Idaho, Wisconsin, Texas and Louisiana all observe community property laws. In these jurisdictions, married couples own property equally. Therefore, if the deceased lived in any of these states and was married, his estate only included half of the assets he owned with his spouse. By law, they can only leave 50 percent of the estate, which is their community property share. In these states, the deceased has no legal right to bequeath their spouse’s half.


When Life Insurance Is Part of an Estate

A life insurance policy has one or more designated beneficiaries if the decedent completed a beneficiary designation form for the policy before their death. If at least one of the designated beneficiaries survives the decedent, the life insurance proceeds pass directly to the beneficiary outside of probate.

This is a critical distinction because the probate process deals with the decedent’s creditors and pays their debts with available estate funds. When the insurance proceeds go directly to a beneficiary, bypassing the estate, the money belongs to the beneficiary. Insurance beneficiaries are not responsible for paying any debts the decedent left behind, so the money is out of the reach of their creditors. The life insurance proceeds do not have to be used to pay the decedent’s final bills.

The only exception to this is if the deceased named their estate as beneficiaries of their insurance policies, possibly intending that the policy should pay off their final bills. In this case, the money is sent directly into the estate’s coffers and would be used to pay their bills.


What Happens to Your Debts After You Die

Your estate is responsible for any debts you leave behind when you die. The executor of your estate, the person responsible for dealing with your will and estate after your death will use your assets to pay off your debts. Depending on the amount of your outstanding debt, this could eat up a good portion of the assets that you had hoped to leave to heirs. Many people buy life insurance not only to leave something behind for their loved ones but also to help deal with any debt and final expenses. The process of paying your bills and distributing your assets is called probate.


Writing a Will

A will is a legal document created to provide instructions on how a person’s property and custody of minor children, if any, should be handled after death. The individual expresses their wishes through the document and names a trustee or executor that they trust to fulfill the stated intentions. The Will also indicates whether a trust should be created after death. Depending on the estate owner’s intentions, a trust can go into effect during their lifetime (Living Trust) or after the death of the individual (Testamentary Trust).

The authenticity of a will is determined through a legal process known as probate. Probate is the first step taken in administering the estate of a deceased person and distributing assets to the beneficiaries. When a person dies, the custodian of the will must take the will to the probate court or to the executor named in the will within 30 days of the death of the testator.

The probate process is a court-supervised procedure in which the authenticity of the Will left behind is proven to be valid and accepted as the true last testament of the deceased. The court officially appoints the executor named in the Will and gives the executor the legal power to act on behalf of the deceased.


Do You Need an Attorney for Help with Probate Issues?

A skilled and knowledgeable probate attorney will make the probate process easier and run much more smoothly. Timing is incredibly important, and state laws vary widely. A probate attorney can help you understand your state’s laws, and will ensure all deadlines are met. Intestate estates and contested wills could especially benefit from the assistance of an experienced probate attorney.

If you would like some guidance as you go through the process, a probate lawyer can help. To schedule a meeting with an attorney from Olson Probate, please call 714-847-2500.