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Three Cornerstone Concepts of Estate Planning

Probate assets, non-probate assets, gross estate – these are all important terms that you need to understand when doing estate planning.  However, for most of us, it’s all very confusing.  This brief summary will hopefully help clear up some of that confusion!

1. Probate and Non-Probate Assets

When doing estate planning, among other things, you identify all your assets.  This includes things like cash accounts, stocks and bonds, life insurance policies, real estate, cars, jewelry, etc.  Additionally, you identify your beneficiaries and specify which assets will go to each of them.  A key distinction between probate assets and non-probate assets is the method  by which these assets are transferred upon your death.

A.  Assets that pass under your Will are called probate assets.  That’s because your Will must go through a probate process whereby a court determines whether your Last Will and Testament is valid.  Once deemed valid, the court designates an Executor (usually someone you’ve specified as Executor in your Will).  The Executor is responsible for overseeing and carrying out the terms of the Will including distributions to beneficiaries.  Examples of probate assets are bank accounts, stocks and bonds, shares in a business, and other personal property.

B.  Non-probate assets are assets that do not go through the probate process.  They are not included in your Will.  Rather, non-probate assets are left to specific individuals or institutions via

– beneficiary designation forms.  For example, if you have an IRA or a life insurance policy, you can complete a beneficiary designation form specifying who will inherit the funds.  (These forms can be updated over time as needed.)  As long as you specify individuals or institutions, and NOT your estate, these assets will be distributed outside of the probate process.

– a survivorship feature.  For example, a father and son own a house in joint tenancy with right of survivorship.  They acquired the house in the same way (e.g., they bought it from the prior owner), at the same time, and each of them owns 50% of the property. Under these circumstances, when one of them dies, the surviving owner will automatically inherit the house.

In some cases, distribution of assets outside of the probate process may result in certain tax advantages for the beneficiaries.  It is, therefore, important to identify non-probate assets and take the necessary steps/complete the necessary documentation to insure that they are properly handled.

2. Gross Estate

Your gross estate is a tax term.  It is the total value of your assets at the time of your death.  It is used to determine the Federal and State estate taxes to be paid.  In calculating your Federal and State estate taxes, the gross estate is the starting point from which allowable deductions (such as funeral expenses, estate administration expenses, and outstanding debts) are subtracted to derive the taxable estate amount.

Getting Legal Help

Estate planning can be complicated and confusing.  It can seem like a foreign language.  Experienced Estate Planning Attorney, Elga A. Goodman, can help you understand the issues, the language, and your options.  Contact us today at 973-841-5111.





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