When you eventually pass away your assets will have to undergo the probate process in the court of law. During this process your assets will be accounted for and then your unpaid taxes and leftover debts will be paid. Next, the court will decide how to distribute the remaining assets of your estate. Whether or not you have a comprehensive estate plan in place can make a significant difference in the outcome for your preferred beneficiaries.
Demonstrating the will or trust is legitimate
One of the first things a probate court will look to accomplish is to determine if the will or trust of your estate plan is legally enforceable. If there are any individuals or entities who wish to claim that your will or trust is not legitimate, they will have a chance to do so in the probate court proceedings. Also, anybody who was not included as a beneficiary in your estate plan that believes he or she has a claim to assets in the estate will be able to bring this up during probate. Generally, the probate process will take place in a court location in the state and county where you resided at the time of your death.
No estate plan in place
If you pass away without having a legitimate will or trust in place your estate will be placed into a legal status known as “intestacy.” This means because there is no will or trust to provide instructions on how you wish the assets of your estate to be distributed, the court will have to apply default state laws currently in effect. The court will use these laws to decide how to divide assets among beneficiaries after paying debts to your creditors.
Having your estate in intestacy is generally not great since you basically have no influence as to what happens to your assets after you have passed away. Intestacy can produce unpredictable results in probate court which could have your assets distributed in a way you would not have wanted. Your preferred heirs may have to deal with an expensive legal battle as a result.
Creditors are legally entitled to the opportunity to present claims in probate court against your estate for any unpaid debts that still linger after you have passed away. This can include funeral expenses, credit card debt, outstanding utilities bills and more.
During the probate process any taxes owed to federal, state, or local governments will be paid from your estate’s assets before distribution to your beneficiaries. The filing of your final income tax return for the prior may be required if you had not done so before your death. Also, your estate may be charged income tax if it earns income while going through probate court. There may also be inheritance and estate taxes which must be paid.
Help your beneficiaries avoid expenses and hassle
You should not delay in putting an effective estate plan in place. Failure to do so can result in your heirs having to navigate through a costly legal battle in probate court. Also, you should plan to update your estate plan on a regular basis in order to adapt to any changes in your personal situation.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.