Wills, Trusts and Estates

When you hear the phrase “wills, trusts and estates,” your tendency might be to recoil with two thoughts: 1) my estate is not big enough to necessitate administration; and 2) the last thing I want to do is think about  for my own earthly demise. But, whether your estate is relatively large or more on the modest side, it is truly the case that it is never too early to begin your wills, trusts and estate. and the benefits of doing so can be realized long before your death. Your children, grandchildren, friends and other heirs will thank you, and a little bit of foresight now will go a long way in providing comfort and care to your loved ones for many years to come. The attorneys at Rosenbaum & Thompson can guide you through every step of the estate process, and work with you to plan for you and your family’s stable future now. Below are a few topics to think about in beginning your estate process.

What is Probate?

Probate is the process that transfers legal title of property from the estate of the person who has died (the “decedent”) to his or her proper beneficiaries. The term “probate” refers to a “proving” of the existence of a valid will, or determining who the legal heirs are if there is no will. The probate process also provides for the collection of any taxes due by reason of the deceased’s death or on the transfer of his or her property. Additionally, it provides a mechanism for payment of outstanding debts owed by the decedent.

Does All Property Have to Go Through Probate?

Property does not necessarily have to go through probate, but wills, trusts and estate will have to be done while a person is still alive to make sure that the property descends to heirs through a separate process. For example, real and personal property owned as joint tenants passes to the surviving co-owners without going through probate. A living trust may also be set up as a legal entity to hold property, so that it passes to the beneficiaries outside probate.

Wills, trusts and estate also includes using financial instruments and investments to avoid the probate process. Investing in a life insurance policy or annuity payable directly to a named beneficiary will result in that beneficiary taking the property outside probate. Money from IRAs, Keoghs, and 401(k) accounts can also transfer directly to a beneficiary outside of the probate process. Bank accounts that are set up as payable-on-death account (POD for short) or as an “in trust for” account with a named beneficiary also pass to that beneficiary without probate.

How Are Estate Creditors Handled?

As part of the probate process, creditors are notified of a decedent’s death. They must file a claim for the amounts due. If the executor approves the claim, the bill is paid out of the estate. If the claim is rejected, creditors must sue for payment.
If there are insufficient funds to pay debts, a state’s statutory framework will establish the order by which creditors are paid. In many cases, executors most likely will commence selling property to pay off approved creditor claims. If there is insufficient property to pay all creditors, claims may be paid on a prorated basis.

How Are Taxes Handled in Probate?

For federal and state tax purposes, death triggers two events:

  1. It ends the decedent’s last tax year for purposes of filing an income tax return, and
  2. It establishes a new, separate entity for tax purposes: the “estate.”

For Federal tax purposes, it may be necessary to complete and file one or more of the following, depending on the decedent’s income, the size of the estate, and the income of the estate:

  1. Final Form 1040 Federal Income Tax return.
  2. Form 1041 Federal Fiduciary Income Tax returns for the estate.
  3. Form 709 Federal Gift Tax return(s).
  4. Form 706 Federal Estate Tax return.

For state purposes, an executor must file the appropriate state income tax return plus possible estate tax, inheritance tax and gift tax returns. In many states, gift, estate and inheritance taxes have been eliminated for most small and medium-sized estates. The requirements for filing and payment vary widely from state-to-state.

What if There is No Will?

If a person dies without a will, the probate court appoints a personal representative (frequently called an “Administrator” or “Administratix”) to receive all claims against the estate, pay creditors, and then distribute all remaining property in accordance with the intestacy laws of the state.

The primary implication of dying without a valid will is that an intestate estate will result. As such, the deceased’s estate is distributed to beneficiaries in accordance with the states distribution law. This result can be avoided by creating a will as part of your wills, trusts and estate which will distribute the decedent’s estate in accordance with the instructions he or she sets out in the will.

Where is Probate Handled?

Probate usually occurs in the appropriate court in the state and county where the deceased permanently resided at the time of his or her death. Such courts go by different names in various states. In many states the court is simply called the probate court. The probate court usually handles the distribution of all the personal property the deceased owned, as well as all of the real estate that the deceased owned that is located in that same state.

Who is Responsible for Handling the Probate Process?

A personal representative of the estate is appointed as part of the probate proceeding. This person has the responsibility for managing the estate through the proceeding, subject to the direction of the court and the probate rules and procedures. Typically, the probate court has a considerable amount of control over the activities of the personal representative. Often the court will require that she or he obtain prior permission before certain actions may take place (e.g., the sale of property). The court will also typically require an accounting from the personal representative of all transactions.

Work with the Experienced Wills, Trusts and Estate Attorneys at Rosenbaum & Thompson

The attorneys at Rosenbaum & Thompson have decades of experience of helping Kentucky individuals achieve their wills, trusts and estate goals and work through probate-related matters. Call an attorney at Rosenbaum & Thompson today at 859-259-1321 to discuss your wills, trusts and estate or probate matter.

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