When an individual passes away, there is much talk of their “estate”. Most often, outside of the legal world, this word is used to refer to the assets and belongings that the deceased individual has left behind. Little do they know – there is legal significance to the word and some individuals will not have an estate at all. The final affairs of an individual after death are labeled depending on the level of planning the individual engaged in during their lifetime. The level and type of planning allowed depends on the state in which the individual lived prior to his or her death.
When someone passes away, the initial consideration are what assets did the individual own, where are they supposed to go, and how do they get to the proper place/person. Assets that do not contain an instruction will require involvement of the Probate Court in the county in which the deceased individual lived. A court order is necessary to determine where the asset is supposed to go and to release the asset to a particular person. The probate court case is legally referenced as the individual’s estate. The assets in the individual’s estate will pass according to the terms of his or her Last Will and Testament or by state intestate law if no Last Will and Testament was executed.
However, generally speaking, if a person dies with instructions attached to all of their assets, a Probate Court filing is not required and there will be no estate. There are many examples of instructions that you can attach to an asset that would then make a Probate Court’s order unnecessary to distribute at death. The most common is a beneficiary designation. If an asset has a beneficiary designation, the company will only release the asset pursuant to the designation. For example, it is possible to add a beneficiary to nearly all accounts held with a financial institution. Upon the death of the account owner, the financial institution will transfer the account to the beneficiary or beneficiaries upon presentation of proper documentation. Another type of instruction may be present in the form of a trust. If an asset is owned by a trust upon the death of the trust’s Grantor (or creator), a Probate Court proceeding is not necessary. The assets will be held by the Trustee of the trust and distributed according to the trust’s terms. If all an individual’s assets are owned by a trust, then, generally speaking, no estate will be filed.
A trust differs from an estate because of the purposes in which they serve. There are many different kinds of trusts that operate very differently. However, most of the time, the biggest difference is that an estate is completely overseen by the Probate Court and a trust operates outside of that system with very limited oversight by or reporting to a government agency. It is always a good idea to plan ahead and attempt to keep your assets out of probate while they get to where they need to go after death. While Probate Court proceedings play a vital role in our legal system, it is no secret that the proceedings are expensive, time consuming, and often-times complicated. Estate planning should include planning for probate avoidance, and it is one of Rosenacker Law Office’s main consideration in every estate plan.
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