F.
Important Terms in Probate
As you read through this material, you will be
introduced to a number of technical words and
phrases used by lawyers and court personnel.
We define these as we go along, with occasional
reminders. If you become momentarily confused,
refer to the glossary, which follows Chapter 16.
The Gross Estate and the Net Estate
You will encounter the terms "gross estate" and
"net estate" while settling any estate. The distinction
between the two is simple as well as important.
The decedent’s gross estate is the fair market value
at date of death of all property that he owned. It
includes everything in which the decedent had
any financial interest—houses, insurance, personal
effects, automobiles, bank accounts, unimproved
land, etc.—regardless of any debts the decedent
owed and regardless of how title to the property
was held (for example, in a living trust, in joint
tenancy, or as community property). The net estate,
on the other hand, is the value of what is left after
subtracting the total amount of any mortgages, liens,
or other debts owed by the decedent at the time of
death from the gross estate.
EXAMPLE: Suppose Harry died, leaving a home,
car, stocks, and some cash in the bank. To arrive
at his gross estate you would add the value of
all his property without looking to see if Harry
owed any money on any of it. Let’s assume
that Harry’s gross estate was $500,000. Now, assume
when we check to see if Harry owed money,
we discover that he had a mortgage of $150,000
against the house. This means his net estate (the
value of all of his property less what he owed
on it) would be worth $350,000.
EXAMPLE: If Bill and Lorie, husband and wife,
together own as community property a house,
car, and savings account having a total gross
value of $800,000, and owe $300,000 in debts,
the net value of their community property would
be $500,000. However, if Lorie died, only one-half
of their property would be included in her
estate because under California community
property rules, discussed in detail in Chapter 4,
the other half is Bill’s. Thus, Lorie’s gross estate
would be $400,000 and her net estate $250,000.
[Checklist for Settling a Simple Estate] omitted for online sample chapter
[Chart for How to Settle an Estate] omitted for online sample chapter
The Probate Estate
The "probate estate," quite simply, is all of the
decedent’s property that must go through probate.
This is very likely to be less than the total amount
of property the decedent owned, because if an asset
already has a named beneficiary, or if title is held
in a way that avoids probate, then it isn’t part of the
probate estate. To return to the bridge analogy we
discussed earlier, this means that property which
is held in one of these ways can be transferred to
the proper beneficiary using one of the alternate
(nonprobate) bridges.
As a general rule, the following types of property
need not be probated:
- joint tenancy property
- life insurance with a named beneficiary other
than the decedent’s estate
- pension plan distributions
- property in living (inter vivos) trusts
- money in a bank account that has a named
beneficiary who is to be paid on death (this is
sometimes called a "Totten trust")
- individual retirement accounts (IRAs) or other
retirement plans that have named beneficiaries,
and
- community property or separate property
that passes outright to a surviving spouse or
domestic partner (this sometimes requires an
abbreviated court procedure).
Put another way, the probate estate (property
that must cross the formal probate bridge) consists
of all property except the property that falls into the
above categories. Where there has been pre-death
planning to avoid probate, little or no property will
have to be transferred over the probate court bridge.
To repeat, whether or not probate is needed is not
in your hands. The decedent either planned to avoid
probate, or didn’t—there is nothing you can do once
death has occurred.
CAUTION: You can simplify the settlement of your own
estate, however. The best resources
covering this subject are Plan Your Estate, by Denis Clifford
(Nolo) and 8 Ways to Avoid Probate, by Mary
Randolph (Nolo). You can also find lots of good
information in the Wills & Estate Planning
part of Nolo’s website, www.nolo.com.
The Taxable Estate
Although this book is primarily about settling an
estate, we include some mention of taxes because
estates over a certain value are required to file a
federal estate tax return. Therefore, you should
know how to compute the value of the decedent’s
estate for tax purposes, which—not surprisingly—is
called the "taxable estate."
Keep in mind that the
property that must go through probate (probate
estate) is not necessarily the same as the taxable
estate. Not all assets are subject to probate, but they
are all counted when determining whether estate
taxes must be paid. In other words, the taxable
estate includes all assets subject to formal probate,
plus joint tenancy property, life insurance proceeds
(if the decedent was the owner of the policy), death
benefits, property in a living trust, and property in
any other probate avoidance device. However, if any
of the assets are community
property (discussed in
Chapter 4), only the decedent’s one-half interest is
included in his or her taxable estate.
If the estate is large enough to require a federal
estate tax return, any tax is computed on the net
value of the decedent’s property (net estate). That
is, the tax is determined by the value of all property,
less any debts owed by the decedent and certain
other allowable deductions.
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