An estate plan provides structure for an individual’s final legacy. They can name a guardian who cares for their children. They can leave money for their loved ones or for charitable causes. Most testators creating estate plans want to leave the biggest impact possible by passing on as much of their property as they reasonably can.
Technically, the property that belongs to someone when they die becomes their estate. Unfortunately, certain issues that arise during probate, including the following, can drastically reduce the overall value of someone’s estate.
Personal debts
Financial obligations owed by an individual pass to their estate much in the same way that their property does when they die. Credit card debt, student loans and other financial obligations require repayment using estate resources. The personal representative of an estate has an obligation to cover any creditor claims made in probate court before they distribute resources to beneficiaries. In some cases, creditor claims can completely consume the property in someone’s estate.
Tax obligations
Both the decedent and the estate itself could be responsible for income taxes. Those with sizable estates could also be at risk of estate taxes. The federal government could impose a tax of between 18 and 40% if someone does millions of dollars of property in their name when they die. In some cases, the beneficiaries of the estate may have to pay inheritance taxes. Much like debts, taxes require payment before the distribution of assets to someone’s beneficiaries.
Probate court costs
Basic probate court proceedings don’t necessarily need to be expensive. However, when probate litigation arises, the cost of probate proceedings may increase significantly. If family members challenge the validity of a will or attempt to remove a personal representative from their role, the conflict that results could burn through a substantial portion of the estate’s resources. In some cases, probate litigation can substantially reduce the inheritance that beneficiaries receive from the estate.
Testators creating estate plans are in a position to address their debts, minimize taxes and prevent most conflicts related to their final wishes if they add the right terms to the appropriate documents. Creating a robust estate plan with a focus on maximizing a personal legacy can help someone have a positive impact on other people after they die.
