There are three types of potential estate taxes that need to be considered when planning one’s estate:
Federal Estate Tax: The IRS imposes significant taxes on a descendant’s estate. Property subject to federal estate tax (called the “gross taxable estate”), includes most or all of a decedent’s assets, including assets held in trust or otherwise avoiding probate. There are key exemptions and credits that can eliminate this tax completely for many individuals.
Generation-Skipping Transfer (GST) Tax: gifts made to relatives more than one generation away (i.e. grandchildren, etc.) are subject to GST taxes.
Missouri Estate Tax: Missouri currently does not impose any state-level estate tax.
Property that you own when you die is typically controlled by the terms of your Will, if you have one. There are numerous exceptions to this rule (such as the use of trusts, beneficiary designations and other planning) that can effectively help someone avoid probate.
A Will, when prepared and signed properly, will direct where your assets go—whether to family members, friends, a charity or somewhere else. However, many people mistakenly believe that having a Will effectively keeps their property and assets out of probate—believing that probate is only for people that had no Will. This is simply untrue. While a Will is effective at authoritatively directing the distribution of assets, such distribution is accomplished directly by the probate process and is subject to the cost and time required. Will or no Will, property would typically go through probate (or a similar court process) unless some additional planning has taken place prior to death. However, there are many estate planning options and tools to effectively avoid probate while accomplishing additional goals, as well. A Will can be an important component of planning—but a Will alone will not keep your assets out of probate.
Probate is the court-supervised process for transferring property following the death of the owner. The goal of probate is to transfer a decedent’s (someone who has died) property to his or her heirs or other directed recipients. This would occur after paying debts owed to creditors. The probate process typically involves the following general steps:
- Hiring of an attorney
- Opening of the estate with the probate court (filing various documents)
- Submission of the will (if there is one) to the court
- Appointment, by the court, of a personal representative of the estate
- Taking and reporting of the inventory of assets of the estate
- Payment of debts of the estate and settlement of similar matters
- Providing legally required notices to the public and to certain individuals
- Distribution of the assets of the estate to intended or legally entitled recipients
- Order of discharge from the court; closing of the estate
Very modest estates are often subject to a minimized probate process. For example, if a decedent’s total assets do not exceed $40,000 of value, an “affidavit of small estate” may be able to be filed with the probate court. With this process, much of probate’s formality is dispensed and the process is typically shorter and less costly than full probate. It is important to note that the $40,000 maximum applies only to assets that are part of the probate estate (whereas trust assets, life insurance proceeds and some other accounts are often not part of the probate estate). In some situations, additional options may also be available that could be even simpler—such as seeking a “creditor’s refusal of letters” or “spousal refusal of letters.” There are also situations where filing a petition for “determination of heirship” is appropriate and may allow for an expedited process through the probate court. When undertaking estate planning, our goal is almost always to avoid probate completely. However, when confronted with situations where probate is needed, we are committed to handling it as quickly and smoothly as possible.