The starting point in navigation is figuring out where you are, or getting a “fix” on your position. The same is true for any decision in life – determining where you are, then deciding where you want to be, and only then can you decide how best to get there.
When our attorneys sit down to discuss an estate plan, one of their initial jobs is to determine what the client has, or what is in their estate. We then move on to discuss what the client’s financial goals are. For example, do they have a business or property they intend to sell? Or do they want to pass on the business or property to their son or daughter? Once we understand what a client has, and what they want to have happen with what they have, then we can describe the best options on how to achieve the client’s goals.
How do you determine what is in your estate? It is a deceptively simple question, and one that is complicated by the fact that it depends on who is asking. Uncle Sam has one definition when calculating whether you owe estate taxes, and the probate court has another, similar definition. For our purposes we’re going to focus on the probate court’s definition of what is in your estate. Your estate is everything you own – your house (even if you have a mortgage, the title is still in your name), your bank accounts, cars, boats, trailers, your time share, the furniture in your house, and more. What is not in your estate are your retirement accounts (401k’s, IRAs, etc), and life insurance policies that have a person as the designated beneficiary.
The next step is to determine whether your estate is subject to probate. When you add all your assets together to determine the size of your estate, it is important that you take the gross value of your estate, not the net. In other words, if you have a house with a present fair market value of $400,000 and a mortgage of $320,000 , your estate has a value of $400,000, not $80,000.
Estates less than $150,000 are exempt from the full formal probate process, and can pass to the heirs under a simplified process. Estates larger than the Federal Estate Tax exclusion amount are subject to estate tax. As of 2014 the individual exclusion amount is $5.34 million, and will continue to adjust for inflation on an annual basis.
Calculating the size of your estate is an important first step. Once you know how big your estate is, you can see whether your estate will have to go through probate, and whether you may be subject to estate taxes. Now you know where you are, and can start forming goals of where you want to be, and how to get there.
A word of caution: the information above is not a substitute for the years of training and experience of an estate planning attorney. As with anything in the legal world, exceptions abound as traps for the unwary.
“Sextant” by Calsidyrose