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Like many words in the English language, ‘estate‘ has more than one meaning. If you are one of the many people who ask “What is an estate?” in the context of estate planning, this blog post is for you.
‘Estate’ has a specific meaning under Trust and Estate law. Trust and Estate law is an area of the law that governs asset protection while you are living and asset distribution following your death. Since you can’t take property with you when you pass away, the law provides three primary mechanisms for the transfer of assets to heirs and beneficiaries upon your death: (i) a probate estate; (ii) a Trust; and (iii) by operation of law. Understanding what constitutes an estate is important for effective estate planning. Estate planning, among other things, ensures that a designated party will carry out your wishes for asset transfer when your final night comes.
In this blog post, we will introduce the concept of an ‘estate’ from an estate planning perspective, including a brief overview of the differences between real property and personal property (with examples to illustrate these distinctions).
To understand “What is an estate?”, you’ll first need to understand how the term ‘estate’ fits into the broader picture of Trust and Estate law. In Trust and Estate Law, ‘estate’ refers to all of the property (both real and personal) that an individual owns, or has a controlling interest in, at any given point of time in their life and at the time of their death. It also includes any legal rights or debts attached to such property. So, estate planning involves preparation for what you want to happen to such property after your final night comes.
When preparing an estate plan to specify your wishes for your property after you pass away, it’s helpful to understand the distinction between a gross estate and a probate estate. While a gross estate includes all assets owned at the time of death for the person who passed away (the ‘decedent’), only certain assets are part of the decedent’s probate estate. Estate assets that are subject to probate are called probate assets, and assets in an estate that are not subject to probate are called non-probate assets. Non-probate assets either transfer by operation of law or through a Trust. Some examples of non-probate assets that transfer by operation of law are a life insurance policy with a designated beneficiary or a parcel of real property titled jointly with a right of survivorship. Similarly, if the decedent created a Living Trust and transferred ownership of assets that may been subject to probate to the Trust, then those assets are also part of the gross estate, but not part of the probate estate.
Since an estate includes real and personal property, you should next understand the meaning of real and personal property under the law.
When discussing an estate, it’s important to differentiate between real property and personal property owned. These two categories of assets are treated differently under the law and require distinct approaches in estate planning and administration.
Real property refers to immovable assets, such as land and anything permanently attached to it. A controlling interest in real property allows an individual to make decisions and exert influence over these assets. This category includes residential homes, commercial buildings, and undeveloped land. Real property is often one of the most valuable components of an estate.
In estate planning, one must carefully plan for the smooth transfer of real property to beneficiaries, whether through a Will, a Trust, or other legal mechanisms. Due to factors such as mortgages and property taxes, the transfer of ownership of real property can be more complex than that of personal property. This complexity highlights the value of working with a trusted estate lawyer who can advise on a comprehensive approach to estate planning that addresses such complexity.
Personal property refers to movable items an individual owns. This category includes both tangible and intangible assets. Tangible personal property consists of physical objects that can be touched and moved. In contrast, intangible personal property includes assets that do not have a physical presence but still hold value.
When planning an estate, you should account for all types of personal property and designate beneficiaries for these assets. Proper documentation and clear instructions in a will or trust can help ensure that a designated agent distributes personal property according to your wishes. Additionally, a good estate plan addresses potential tax implications for beneficiaries. Working with an experienced estate attorney and setting up a trust can help minimize the tax beneficiaries must pay.
When a person passes away, the law requires their estate to be managed and distributed according to a set of instructions. If the decedent had a valid Will, a Trust, or non-probate assets that transfer by operation of law, such legal mechanisms would provide the instructions for what to do with the assets in the estate. If no such mechanisms exist, state law on intestate succession (the legal process of distributing the estate of a person who has died without a will) would supply the instructions.
Whether or not a decedent left a valid Will, the distribution of any probate assets in a decedent’s estate is subject to applicable probate law. This encompasses both tangible and intangible assets, as well as liabilities. The probate process consists of steps such as a court filing to initiate probate, appointing a personal representative (a person responsible for managing the decedent’s estate during the probate process) if there was no valid Will with a named executor, inventorying the estate’s contents, notifying creditors, paying the debts and taxes of the estate, receiving some type of letter of authority from the probate court, distributing property to beneficiaries, and closing the probate estate.
In the context of estate planning, it’s important to note that financial obligations (such as existing debts, legal fees, and court costs) can diminish the net worth of the estate, ultimately limiting its value and distribution to beneficiaries. Remember, though, that there are strategies that can help you avoid probate and maximize the value of the assets you intend to transfer to your beneficiaries. An experienced estate planning attorney can help you understand and implement those strategies in your estate plan.
To make informed decisions about your estate plan, you’ll need to understand the basics of estate planning law, including being able to answer the question, “What is an estate?”. By clearly defining and documenting your wishes for real and personal property, you can ensure that your assets are managed and distributed according to your desires. Proper estate planning provides peace of mind, knowing that your loved ones will be taken care of and that your legacy will be preserved.
Some estate planning firms focus on drafting documents. That’s different from our approach at Rhodium Law. We focus on building long-term relationships, and our mission is to provide you with the knowledge and tools you need to STRATEGIZE, SECURE, and SHINE. If you are an Ohio resident with questions about estate planning or need assistance in creating a comprehensive estate plan, Rhodium Law is here to help. Contact us today to schedule a free consultation. Our experienced team is here to guide you through the process and help you achieve your estate planning goals.
