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Death. It’s not a topic most people want to talk about. While it can be uncomfortable and even upsetting, knowing what happens to property, money, and personal items after someone dies can make the process of handling the aftermath a little less stressful.
If you have or are set to inherit property from a friend or family member, you’ll want to have some idea of what the probate process is and how it could affect you.
When you’re dealing with inheritance or probate, there are a few standard terms you’ll hear. Understanding the words used during this process is essential, so you know what’s going on.
Beneficiary, heir, inheritor: These three terms are used interchangeably about the person or group of people who legally inherit an estate. These individuals or groups are typically named in a will.
Debts: When a person dies, the estate pays out any debts before inheritance goes to the family. You are not responsible for the debt incurred by your deceased family member. Still, the estate will pay debts before distributing the rest.
Estate: An estate simply refers to any assets the deceased left behind. This could include property, vehicles, investment funds, cash, animals, businesses, etc.
Estate Taxes: There are typically federal and state taxes to be paid after someone dies. Not all states charge an estate tax. For example, Utah does not collect any tax unless the beneficiary inherits more than $11.18 million. The inheritors are sometimes required to pay the tax. The Federal Inheritance Tax ranges from 18% to 40%.
Executor: The executor is the person legally allowed to manage estate assets.
Trust: A trust is a legal document dictating how assets will be distributed to beneficiaries. Trusts provide more protection than a will and can avoid the probate process entirely. Trusts can’t dictate the custody of minor children. Irrevocable trusts have tax benefits and are protected against creditors.
A Will: A will is like a trust in that it dictates the distribution of property. It can also specify who should take custody of minor children. However, a will is more easily contested, doesn’t have protection against creditors, and offers no tax benefits. Additionally, wills are subject to the probate process.
The probate process involves appointing someone to represent the deceased’s estate. This representative’s job is to determine if there is a valid will. The process of probate is usually required if an estate includes land and houses or has a net worth more than $100,000.
Probate can be formal or informal. In an informal case, the court appoints a representative without a hearing. In formal cases, a hearing is required. This usually happens if there’s disagreement among the family about who should represent the estate.
Sometimes the estate’s executor will be required to pay a bond, or an insurance policy, to protect the estate from an error by the executor. During probate, the following occurs:
If there is no will, the assets typically pass directly onto any living relative.
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Congratulations on your next big adventure!
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