Individuals planning their estates often want to ensure that their heirs and beneficiaries receive as much as possible. They can achieve this goal by creating highly specific testamentary documents, implementing plans to protect key assets and limiting the expenses that accumulate after their passing.
Various expenses that arise during probate proceedings can significantly reduce the value of the estate and therefore the legacy of the testator. There are a few common costs that people often need to plan to address ahead of time to optimize the legacy they leave.
1. Probate court costs
Some people are able to establish estate plans that keep almost all of their property out of probate court. Creating a trust, for example, can help certain high-value resources completely bypass the probate process. Typically, the estate must cover probate costs before anything transfers to beneficiaries.
Testators may need to plan to minimize probate oversight. They may also want to address the possibility of probate conflict, including will challenges. Litigation among their beneficiaries could significantly reduce the overall value of the estate.
2. Personal debts
Any financial obligations owed by an individual become the responsibility of their estate after they die. The personal representative administering the estate has to notify creditors about an individual’s passing.
Parties ranging from student loan providers and medical creditors to credit card companies can file claims in probate court. Their demands for payment take priority over the inheritance rights of family members and named beneficiaries. Testators may need to make arrangements to pay their debts, possibly by purchasing sufficient life insurance coverage.
3. Tax obligations
There are typically two kinds of taxes that can affect the value of an estate. The decedent and the estate may have income taxes to cover. The personal representative handles the process of filing income tax returns and must use estate resources to pay any outstanding income tax obligations.
If the estate is worth millions of dollars, then estate taxes might also apply. Testators can plan in advance to reduce what assets actually become part of their estate. Doing so can limit or eliminate estate tax responsibilities.
Careful estate planning can help ensure that as much property as possible passes to an individual’s beneficiaries. Identifying potential sources of financial liability can help people maximize their final legacy.