What’s your estate

19 September 2020

An estate isn’t just expensive property surrounded by a fence.

Your estate is everything you own in your own name, and your share of anything you own with other people. Your property can be real — meaning land and buildings — or personal, such as jewelry, a stamp collection, or a favorite table or chair. Money is property, too, as are stocks and bonds, a mutual fund account, or a life insurance policy. The actual value of your estate is computed only after you die — when you’re not around to figure it out. But it isn’t a mystery. The idea behind estate planning is that you know what you own, what it’s worth, and what you want to happen to it — both during your lifetime and after your death. If your estate is large enough, you may have to do some tax planning as well.

Leaving your estate

Since you own the property in your estate, it’s your right to say what will happen to it. You might tell your spouse, your children, or your lawyer what you want to happen, but unless it’s written down, there’s no assurance your wishes will be respected.

There are several ways to make clear what you want to happen to your estate.

  • You can write a will to specify who gets what after you die
  • You can create one or more trusts to pass property, or income from that property, to others
  • You can name beneficiaries on pension funds, insurance policies, and other investments so they will receive the payouts directly
  • You can own property jointly with other people, so that it becomes theirs when you die

Since wills and trusts are legal documents, you should consult your lawyer about them. Naming beneficiaries is simpler, usually requiring only your signature. And owning property such as homes and bank accounts jointly — especially with your spouse — is fairly standard.

An estate inventory

If you own your home, investments, an IRA or 401(k), and an insurance policy, the value of your estate may be greater than you think. Here’s a checklist of what might be included:

  • Real estate
  • Securities (stocks, bonds, and mutual funds)
  • Interest and dividends you’re owed that haven’t been paid
  • Bank accounts
  • All tangible personal property
  • Life insurance policies you own
  • No-fault insurance payments due to you
  • Annuities paid by contract or agreement
  • Value of any retirement savings plan, including IRAs
  • Claims paid for pain and suffering, even after your death (but not claims for wrongful death)
  • Income tax refunds
  • Forgiven debts
  • Dower and curtesy interests
  • UGMA and UTMA custodial accounts for which you are the custodian, if you created the accounts
  • Closely held businesses

What’s your estate worth?

Finding the value of an estate is a two step process — adding up what it’s worth and then subtracting the expenses of settling it. Usually, the valuation is figured as of the date of your death. The alternative is to value the estate six months after you die, if waiting will decrease its value and therefore reduce the potential tax.

An estate’s worth is figured by finding the fair market value of its real, personal, and investment property. That’s not easy to determine ahead of time, in part because market values change over time, and in part because evaluators may appraise the same property differently. Just as everything you own is part of your estate, what you owe reduces its value. Your income taxes, mortgages or other debts, funeral expenses, and the costs of settling your estate — which can be substantial — are all deducted from your estate’s assets. So is the value of any property you transfer to a charity or to your surviving spouse if he or she is a US citizen.

Not in your estate

If you no longer own property, it’s out of your estate. Something you give away belongs to the new owner. The same is true of something you sell. You might owe gift or capital gains taxes on the transfer, but its value isn’t included in your estate. The larger your estate, the more important it is to plan ahead as carefully as possible to reduce potential estate taxes.

Setting a value

One workable definition of fair market value is the amount someone would be willing to pay for your property, and that you’d be willing to accept—assuming that neither one of you is under any pressure to buy or sell, nor guilty of any misrepresentations.

This information is provided with the understanding that the authors and publishers are not engaged in rendering financial, accounting or legal advice, and they assume no legal responsibility for the completeness or accuracy of the contents. Some charts and graphs have been edited for illustrative purposes. The text is based on information available at time of publication. Readers should consult a financial professional about their own situation before acting on any information.

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