Do You Know Where Your Heirs Are Tonight?

October 6, 2015

Wikipedia says “The estate tax in the United States is a tax imposed on the transfer of the taxable estate of a deceased person, whether such property is transferred via a will, according to the state laws of intestacy or otherwise made as an incident of the death of the owner…”

This definition illustrates a key concept that is often misunderstood and has the potential to impact everyone, not just the sector of the population that would be subject to the estate tax.

Local laws vary, but almost every estate must be administered (probated) through the court system.  Probate estate refers to the assets of the deceased that will pass to heirs under the terms of a will.  In the absence of a will, state law kicks in to govern where the assets would go.

But for many, the most significant assets will not pass under a will, so probate assets are only a portion of the total estate.

Life insurance, IRAs, 401(k)s and annuity products are examples of assets that normally pass to designated beneficiaries. Real estate may transfer based on how the deed is legally titled.  Also, many estate plans include the use of a revocable trust that will become irrevocable at death. Assets transferred to this trust will bypass the probate process and will be transferred to beneficiaries under the terms of the trust, not the terms of the will.

As a result, use caution when making changes to your estate plan.  Remember that the will cannot trump the directions that you have already established through beneficiary designations and the terms of an underlying document related to a specific asset.

If you need to revisit your estate plan, contact JPS for estate and tax guidance.

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About Johnson Price Sprinkle PA: 

Johnson Price Sprinkle PA is a leading certified public accounting firm in Western North Carolina, providing innovative solutions created specifically for small to mid-sized businesses.  With a sixty year history, JPS has built its practice on providing superior accounting and exceptional service in taxation, business advisory and assurance to move clients forward by giving them the power of a national firm with the attention of a community-based one.