Category: Estate Planning

Understanding the basics of estates, estate plans, and probate is the first step to working with your attorney to prepare an estate plan and ensure your assets are distributed according to your wishes.

Every living person who owns something or has debts has an estate. An estate is the sum of all of a person’s assets and debts, including, for example, cash, bank accounts, retirement plans and investments, physical property, intellectual property, businesses and business interests, and debts.

Most people at or over the age of eighteen should have an estate plan. An estate plan is a set of documents that directs the distribution and administration of your estate upon your death. Although not required, estate plans are powerful tools that vary in complexity. A basic estate plan often consists of a last will and testament, powers of attorney for health care and finances, and a Health Insurance Portability and Accountability Act (“HIPAA”) release so that those you trust the most can access your medical records in the event you die or become incapacitated.

How are estates administered?
Estates are administered through probate or nonprobate processes. Probate is a court-supervised legal process where an executor or administrator pays creditors, clears taxes, and distributes remaining property to heirs according to a will or state law. An executor is someone you formally appoint to administer your estate prior to your death. An administrator is someone appointed by a court to administer your estate after your death.

A probate estate is one where all of the decedent’s (person who died) assets were held personally in their name, instead of title being transferred out of their name prior to death or passing via a survivorship mechanism. Probate estates are administered in probate court, typically in the state and county of the decedent’s primary residence at death.

A nonprobate estate is one where all of the decedent’s assets were held in title other than the decedent’s name personally during their lifetime or are subject to a survivorship mechanism, which can include trusts, payable-on-death (“POD”) and transferable-on-death (“TOD”) accounts, jointly held property with rights of survivorship, and assets with beneficiary designations (life insurance policies, retirement accounts, etc.).

Nonprobate assets pass to their rightful heirs/beneficiaries wholly outside of the probate court process by means of their title and/or survivorship mechanisms.

Who benefits from my estate?
Who benefits from your estate is entirely dependent on whether whether you die “testate” or “intestate.”

A testate estate is one where the decedent had a valid will prior to their death which directs how assets should be distributed and state law fills any gaps in administration. The testator has greater control over who takes under their estate in this case because probate courts, administrators, and executors are generally obligated to distribute the probate estate according to the will, provided it is valid, meaning it was properly executed under state law.

An intestate estate is one where the decedent did not have a valid will prior to their death and state law controls administration of the estate, which prioritizes distributing assets to the decedent’s “natural heirs,” also referred to as “heirs at law” – the blood descendants of the intestate decedent, instead of those the decedent personally selected.

Why would I want to avoid probate, and how can I avoid it?
Avoiding probate is often a primary goal when drafting a comprehensive estate plan, though it is not required for simpler plans. Because probate inherently involves filing copies of the will, a certified death certificate, and “petition” to open a probate estate, there are costs and lengthy processes that can significantly delay the administration of a decedent’s probate estate.

You can avoid probate by ensuring that your comprehensive estate plan either transfers title of your assets out of your name personally during life or provides a survivorship mechanism.

For example, a common estate planning tool to avoid probate is a “revocable living trust.” A revocable living trust is a legal arrangement that holds property you contribute to it as grantor and directs where that property goes when you die. The trust is revocable because you can amend, dissolve, or otherwise alter the trust at any time during your life. The trust is living because it is held during your lifetime, as opposed to a testamentary trust, which only takes effect after you die.

Often paired with a revocable living trust is a pour-over will, which is a special type of will that distributes your residuary estate, which consists of any leftover assets that were not specifically gifted to beneficiaries, to your revocable living trust, acting as a safety net to ensure none of your assets are subject to intestacy laws and probate.

In closing, estates, estate plans, and probate are important concepts that should be discussed and explored – not ignored.

By: Justin Headlee
Email: justin@headleelawgroup.com