Among the arrangements that must occur following someone's death, the question of what to do with the deceased person's estate is one that may take the longest to resolve. An estate consists of all assets -- including investments, bank accounts, real estate and personal property -- that someone who dies leaves behind.
A will is a legal document that serves as a map for dealing with an estate upon death. Wills require witnesses to act as signatories as a means of ensuring the wills are valid and accurate. A will must also be dated, since it may replace and invalidate earlier wills. Wills can name heirs and specify what should happen to specific pieces of property. Wills may also include wishes for funeral arrangements.
Before anything else can happen to an estate, it must pass through probate. The probate process is a legal process through which a court certifies a will and makes arrangements for transferring ownership of an estate. At this point heirs and relatives may appoint attorneys to argue their claim to a share of the estate or handle any outstanding debt obligations. The probate process includes using the estate's assets to pay off debt before verifying the validity of a will and distributing assets to heirs as prescribed in the will or by state law.
In most cases, an estate's assets go to close family members. If there is a surviving spouse, that person stands to receive the bulk of the estate unless otherwise specified in the will. In other cases, the next of kin stands to inherit the estate's assets following the probate process. Some states have community property laws, which mean that spouses automatically receive half of any property that both spouses owned together, though the will may still distribute the remainder of the estate to other individuals or organizations.
Estates are subject to federal and state taxes. Federal taxes only apply when an estate is worth several million dollars, a figure that rises each year. As of 2011, only estates valued at over $5 million are subject to federal taxes. State taxes apply to estates with lower values and vary based on who receives the estate, with lower rates for closer relatives and higher tax rates for more distant recipients. Some states have no inheritance taxes, while others reduce or eliminate the tax they charge when an estate is subject to federal taxation.
What Happens if an IRA or 401k is Payable to the Estate Trust?
Individual retirement accounts (IRAs) and 401Ks should almost never be paid to an estate or trust because of how the IRS will...