What is an Estate?
An estate refers to all of an individual’s assets, including:
- Real estate
- Financial securities
- Art collections
- Other assets that they owned
It is essentially a way to refer to an individual’s entire net worth; hence, total assets subtracted by total liabilities.
- An estate comprises all of an individual’s assets, including investments, land, cash, and possessions.
- Estate planning is the process and management of how assets will be handled and managed when the testator passes away. Distribution of assets to direct family members are indicated and described in a will.
- The estate appears when an individual is either bankrupt or is dead.
The term estate usually comes into light during two circumstances:
- When an individual declares bankruptcy
- When an individual passes away
When the debtor is bankrupt, their estate is evaluated by the bank to determine which assets will be used as collateral to pay off the investors. For individuals who pass away, their estate undergoes the same assessment process as bankruptcy; however, the primary difference is that the wealth is distributed to relatives and direct family members.
The distribution and decision of who receives what is dependent on the individual’s will, which they will draw up explaining their intentions upon their death. The funds are called inheritance.
Understanding Estate Planning
Estate planning is the preparation and process required to manage an individual’s assets in the scenario that they pass away. Particularly, estate planning involves determining how an individual’s assets will be managed, distributed, and preserved after their passing, while also taking into consideration their current financial obligations if they become incapacitated.
In addition to writing a will, other planning tasks include the following:
- Establishing a guardian (if they have children)
- Deciding on a trustee who will oversee the terms of the will
- Preparing for funeral arrangements
- Setting up trust accounts to reduce estate taxes for beneficiaries
- Establishing annual gifting for charitable purposes and non-profit organizations
Understanding How Estates Are Managed
Estates are split among the deceased’s family members. This wealth is eventually taxed by the government and is referred to as inheritance tax. At times, this tax can indeed be fairly large, to a degree where the beneficiaries would need to sell some of the assets to pay off the bill.
From a legal perspective, it is recommended that the individual drafting the will and the beneficiary have their own respective estate attorneys. Inheritance is known to be complex; therefore, a lawyer will surely be able to assist with paying off the appropriate amount of inheritance taxes. To reduce inheritance tax, individuals can set up trusts.
Composing a Will
A will refers to a legal document that provides instructions on how the deceased individual would like their assets and children to be distributed and handled after their passing away. In the document, they will name a trustee who will invigilate the entire process and ensure that the wishes are fulfilled as recorded within the will.
The authenticity of a will is based on a legal process called probate. Probate is the first step in distributing the assets to the beneficiaries, as titled within the will. By the time the individual dies, the trustee must take the will to the probate court within 30 days of the testator’s death.
The entire probate process is court-supervised, as it is meant to determine whether the will left behind is proven valid and accepted as the final testament of the deceased. If passed, the court will allow the trustee named within the will to have the legal power to act on behalf of the deceased’s wishes.
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