Do You Have an Estate?

My business partner Shanna Tingom is a financial planner. She recently told me that one of her most frequently asked questions is, “What is the difference between a trust vs. an estate?”

I actually hadn’t heard that one before.  Shanna then told me the usual follow-up statement is, “I don’t have an estate.”

Let’s clear this up. Everyone has an estate.

Your “estate” for federal tax purposes is everything you own when you die, including life insurance that pays out when you die. (There are some exceptions.) Because our current estate (or death) taxes are generous, most people will not be taxed on their estate when they die.

Some of the assets in your “estate” may have to go through the probate process when you die. These assets make up your “probate estate.” Probate is a court process that oversees distribution of your probate assets.

Assets that do not have to go through the court process are called your “non-probate estate.”

So anyone who owns anything such as a car, life insurance policy, checking account, or even clothes, has an estate.

So what is the difference between an estate and a trust?

A revocable trust is a legal instrument that you can transfer your assets to hold and manage while you are alive and distribute when you die. You still have full-control over your trust assets. Any assets titled in the name of your trust are part of your “non-probate estate.” These assets will avoid the probate process when you die. Your Successor Trustee will distribute these assets by the terms of your trust.

So to recap…

  1. Everyone has an estate.
  2. Most people will not have to pay death taxes on their estate.
  3. Some assets in your estate may have to go through the probate process.
  4. Some assets in your estate will not have to go through the probate estate, such as any asset correctly titled in the name of your trust.

If you want to ensure you structure your estate to avoid the probate process, make an appointment with a qualified estate planning attorney for legal advice.

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