An estate is the total net worth of a party including all their assets, both liquid and illiquid. Total assets include cash, real property, gold, art, antiques, and others subtracted from the total liabilities. A party’s estate is a good indicator of an individual’s overall net worth.
A party’s estate value and net worth is important for two main reasons. The first one is to know how much a party is worth so that assets can be distributed properly upon the deceased party’s death. Without knowing the net worth of the deceased party it would be impossible to distribute the accurate amount of assets. The second reason is for bankruptcy purposes. Asset distribution is based on the estate value.
The term estate is typically referenced when referring to a party’s death. Estate’s are divided through a process known as estate planning. In estate planning, assets are divided based on the wishes of the owning party. In many instances it is the most significant form of financial planning that a party will be involved in because of its important and effect to the deceased party’s life. A party’s estate will typically be planned and documented in a will. A will states how a party desires their assets to be distributed upon their death. The heir entitled to the will is known as a beneficiary.
Estate Management
When an estate holds a significant value, typically higher than $3 million, the estate will be subject to an “inheritance tax” or “death tax” as it is otherwise known. A death tax is a tax imposed after the owner of the estate dies. This is done by the government to avoid large swaths of money from simply sitting idly. This is the subject of much debate as opponents argue that taxing an estate after the owning party has already paid much in taxes for that income in the first place is unfair government confiscation. Proponents on the other hand claim that the income passed between family members contributes to income inequality becomes the money remains in the same hands.
It is highly recommended that the owner of an estate higher a tax attorney and estate planner to divide their assets properly to avoid over paying on estate taxes and others.
Probate
Some assets are required to go through probate to reach the proper party. An asset that is in a probate estate cannot be determined whom it goes to until the court intervenes and decides where it should be distributed. Property ownership cannot be transferred to an heir until a deed is transferred from one party to another. This means the heir cannot use the equity in the property to get a mortgage unless the deed is transferred to them. To get full ownership rights the property would have to go through probate until the property is fully the ownership of the heir.
Estates that Do Not Require Probate
There are certain assets that do not require property to go through probate. This occurs when the deceased party has named beneficiaries. Retirement benefits and life insurance policies are examples of assets that do not need to go through probate.
Gross Estate and Taxes
Regardless of how the asset was passed, either through probate or directly to the beneficiary, the IRS will tax all transactions. The asset being transferred will be taxed based on the price the deceased party purchase the asset for.
