UNDERSTANDING THE DIFFERENT TYPES OF "ESTATES"

DETERMINING YOUR TAXABLE ESTATE

When you divorce or separate, it’s time that you begin to understand what will face you in the future. Estate planning is one such area.

Generally speaking, the word "estate" is thought to mean what is left when you die; however, "estate" can mean different things to different people. For example, here are several examples of the different types of estates: marital estate, bankruptcy estate, probate estate, and taxable estates.

Marital Estate is the property that was acquired during a marriage that is divided at the time of divorce based on the law of the state in which the divorcing couple resides.

Bankruptcy Estate is the assets an individual or married couple may keep after going through bankruptcy – generally, a home, an automobile, etc.

Probate Estate is the assets listed with the probate court after the death of an individual and pass by will or intestate succession if there is no will. It is important to remember that pensions and insurance pass outside the probate estate. The court retains control of the assets until the debts are paid and then distributes to the heirs and beneficiaries.

Taxable Estate is not necessarily the same as Probate Estate because it includes other assets that are subject to state or federal estate taxes – sometimes called "death taxes" or "inheritance taxes."

Through the planning process with professionals, you can remove assets from your taxable and probate estates and save estate taxes. So, when you plan your estate, you should look at both 1) the amount in your taxable estate at present and 2) the potential tax on your estate in the future.

In determining the potential size of your estate in the future, you can use the number "72" as the base to establish your "growth pattern." If, for example, your assets are projected to grow at the compounded rate of eight percent per year, by dividing eight into 72, you will learn that your estate will double in nine years. If your assets are growing at the rate of six percent, it will take 12 years for your estate to double.

Example: If you have a stock fund now worth $50,000 that grows at 7.2% per year, this asset will have the following values in the future:

10 years ..... $100,000

20 years .... $200,000

30 years .... $300,000

As you can see, by allowing an asset to appreciate, you will created a taxable estate. And based on your increased life expectancy – which will allow you to grow the asset longer, it is likely that you will have a much larger tax bill in the future. That’s why, when you plan for your estate, you should keep the probability of growth in mind.

© 1997, Flying Solo. This information is general in nature and is not intended to be construed as legal advice. Because all situations are different, do not make any decisions until you have consulted with the legal professional of your choice.