Here are steps you can take to establish your independence after financial abuse and help ensure long-term financial health.
What is an estate?
An estate is a person’s net worth in the eyes of the law. Anything the individual owns is part of his or her estate, including a home, car, bank accounts, stocks and bonds — even a coin collection. The estate also includes everything an individual owes, whether it is a mortgage or credit cards. When a person dies, those in charge of the estate may get the benefit of the assets, but they also will be responsible for paying off the debts.
Your estate is broken down into three parts:
- Gross estate: Big-ticket items are part of the gross estate. Any property owned, including commercial, investment and a personal home are included. So is life insurance, retirement accounts, bank accounts, financial investments and pensions. The value of the gross estate is established before debt and taxes are deducted. One of the primary reasons a value is put on the gross estate is for federal income-tax purposes.
- Residue estate: The residue estate consists of personal property, such as a car, clothes, jewelry, tools, collectibles, garden equipment, furniture and anything else found in the home. It also includes any investments or outstanding payments not specifically included in the will.
For example, if someone owns a lawn care business and mails out quarterly invoices shortly before he dies, the money that comes in from those invoices becomes part of the residue estate. Anything not specifically given away to one party may go to another through the residue estate. It is not unusual to see a will that says something along the lines of, “I leave my vehicles to the Edgemont Children’s Home, and the residue of my estate to my children, in equal shares.”
- Estate debt: This category covers all debts and obligations. Credit cards, mortgages, car payments, taxes, student loans, medical bills and business invoices are all included in estate debt. Essentially, any debt an individual was asked to repay in life will be passed along to the estate. Estate executors can block debt collectors from harassing them, thanks to the Fair Debt Collection Practices Act. However, debts still need to be paid.
Unless everything a person owns is in a trust, which can be a good idea, some of the estate will be required to pass through probate, and some will not.
A home and car are portions of an estate that would need to go through probate before an heir can actually own them. A will spells out a person’s wishes, but the legal process of probate is necessary before ownership is transferred to a beneficiary.
The same is true of any property someone owned as a “tenant in common.” For example, if a person went in with a friend to buy a commercial building, that property would have to pass through probate after either of them dies.
Some assets considered part of the gross estate that do not have to go through probate before beneficiaries can take ownership include:
- Assets held in a living trust.
- Life insurance proceeds, unless the estate is named as the beneficiary.
- Retirement accounts, as long as a beneficiary was named.
- Bank accounts that have been named payable-on-death (POD).
- Securities that have been named transfer-on-death (TOD).
- U.S. savings bonds that are co-owned.
- U.S. savings bonds registered as POD.
- Pension plans.
- Wages and/or commissions that were due, up to a certain amount.
- Property owned in joint tenancy.
In addition, depending on the state of residency, the following may bypass probate:
- Vehicles passed to immediate family.
- Household goods passed to immediate family.
- Automobiles or boats registered as TOD.
- Community property, provided there was a right of survivorship.
- Real estate deeded as TOD.
Use Bankrate’s calculator to figure out how long it will take you to pay off your credit cards.