General Estate Planning Terminology
Community
Property.
The term “community property” often comes up in discussions
about estate planning (and divorce). It is a form of property
ownership derived from Spanish law - solely between a husband
and wife. This form of property ownership is recognized
in Arizona, California, Idaho, Louisiana, Nevada, New Mexico,
Texas, Washington and Wisconsin. When referencing marital
property ownership, the other states referred to as “common
law” states. American common law originated in England and
was brought to America by our founding fathers. Community
property defines the ownership of property and/or assets
that are acquired during marriage. Likewise, community property
also determines who is responsible for the debts that are
incurred during marriage. Generally, in states that follow
community property principles, all earnings during marriage,
and all property acquired with those earnings, are considered
community property. Additionally, all debts incurred during
marriage are community property debts. Upon divorce, community
property and community debts are generally divided equally
between the spouses. At the death of one spouse, his half
of the community property will go to the surviving spouse
unless he leaves a will that directs otherwise.
Example
of Community Property Application
Probate.
The word "probate" has several different meanings, which
has been at the heart of much confusion. The narrowest
definition of the word "probate" is, the process by which
there is a legal determination that a certain document
requesting that your assets be disbursed is in fact your
last will and testament. Once a last will and testament
has been "probated" it means that there has been a signed
legally binding determination that this document is the
last will and testament of the decedent, which will be
used to administer the estate and distribute the assets.
In many states, this is usually the least difficult part
of the estate administration process. However, in certain
other states, such as New York, Florida, California and
Texas, this procedure can be burdensome, expensive, or
both. The second meaning of the word "probate" is sometimes
used to describe the assets which passed according to
a will or by intestacy.
Guardianships.
Guardianships are court proceedings, that would be held on
your behalf, in the event you were incompetent, or could no
longer manage your own affairs. In this instance, your family
members would need to go to court, and request that one of
them be appointed the guardian of your person and/or estate.
The same person need not be appointed both the guardian of
the person and of the estate. In some instances two different
people undertake this responsibility. This "court appointed"
person then manages your financial affairs and/or medical
affairs. The guardian of your estate manages your finances,
and the guardian of your person manages your personal and
medical issues.
You
can avoid guardianships through the execution of two simple
documents, the Power of Attorney, and the Durable Power
of Attorney for Health Care. Click on their titles for
more information about them.
Estate
Tax. For married individuals with significant assets,
an estate tax (estate tax is comprised of the tax due
on the "transfer" of assets because of the death of an
individual) avoidance mechanism is built into the trust.
Currently our ability to pass assets to our children is
tax free only to a certain level. The current value of
assets a married couple can pass to their children upon
death is $675,000.
A
married couple, with an estate that is one million dollars
or greater can significantly reduce estate taxes. Under
federal law, an estate tax return form must be filed within
9 months from someone's date of death. Depending upon
how large your estate is, you may, or may not, have to
pay estate taxes. Creating a revocable trust does not,
during your life time, save you any tax, or avoid you
having to pay tax on highly appreciated trust assets -
even if these assets were worth zero dollars when placed
in the trust.
Intestate
Estate or Intestate Succession. An intestate estate
describes an estate who's assets are distributed by state
statute. It is the statute that distributes the deceased
person's estate because the person who died had no will
or other estate planning document. In other words, if you
do not have a will or similar estate planning document,
your state or local government will decide where your assets
are to be distributed.
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