What Is an Estate?

An individual's estate consists of all of his or her land and real estate, possessions, cash, financial securities, and other assets in which he or she owns or has a controlling interest.

• An estate is the economic valuation of a person's investments, assets, and interests.

• The estate includes a person's belongings, land and real estate, physical and intangible assets, investments, collectibles, and furnishings.

• Estate planning is the management of how assets will be transferred to beneficiaries when a person dies.

Understanding About Estates

Estate is a slang term for the land and improvements on a large property, typically a farm or homestead, or the historic residence of a prominent family. However, in the financial and legal sense, an estate refers to everything of value that a person owns, including real estate, art collections, antiques, investments, insurance, and any other assets and entitlements, and is also used to refer to a person's net worth. Legally, an individual's estate refers to their total assets minus their liabilities.

The value of a person's personal estate is significant in two situations: when the individual declares bankruptcy and when the individual dies. When a debtor declares bankruptcy, their estate is evaluated to determine which of their debts they can be expected to pay. In bankruptcy proceedings, an estate is evaluated with the same rigor as it is upon an individual's demise.

Estates are most significant upon a person's demise. Estate planning is the process of managing the division and inheritance of one's personal estate and is arguably the most crucial form of financial planning in a person's lifetime. Typically, an individual creates a will that specifies their wishes for the distribution of their estate upon death. Beneficiary is the term used to describe the recipient of an inheritance.   

How Estates Are Managed

In almost all cases, the deceased's estate is divided among family members. This transfer of wealth from one generation of a family to the next tends to perpetuate income inequality within certain social classes or families. Inheritance accounts for a significant portion of total wealth in the United States and throughout the world, and is partly to blame for persistent income disparity (though there are, of course, many other factors).

Most governments require those in line for an inheritance to pay an inheritance tax (estate tax) on the estate, partially as a response to the stagnation of wealth movement caused by inheritance. This tax can be substantial, requiring the beneficiary to sell a portion of the inherited assets in order to pay the bill.

If the majority of an estate is left to a spouse or a charity in the United States, the estate tax is generally waived.

Both the individual drafting the will and the beneficiaries of an estate should typically retain the services of estate attorneys. Inheritance taxes are notorious for their complexity and exorbitance, and hiring an attorney ensures that they are paid accurately. Several measures, such as establishing trusts, can be taken to minimize the amount of tax one's beneficiaries will be required to pay.

Writing a Will

A will is a legal document that provides instructions for the disposition of an individual's property and, if applicable, custody of minor children after death. The individual expresses their desires in the document and names a trustee or executor in whom they have complete faith to carry out those desires. Additionally, the will specifies whether a trust should be established after death.

Depending on the intentions of the estate owner, a trust can take effect during the individual's lifetime (living trust) or after their death (testamentary trust).

The legal procedure known as probate is used to determine the validity of a will. Probate is the initial step in administering a deceased person's estate and distributing the assets to the beneficiaries. In most states, the custodian of the will must deliver the will to the probate court or to the executor named in the will within 30 days of the testator's passing. However, it may vary by state; for instance, Florida requires a will to be filed within 10 days of receiving notice of the decedent's passing.

The probate process is a court-supervised procedure in which the validity of the deceased's will is established and accepted as the deceased's last testament. The court formally appoints the executor named in the will, thereby granting the executor legal authority to act on behalf of the deceased.