Some consumers mistakenly believe that avoiding probate also avoids the federal estate tax. Both probate and the federal estate tax deal with your estate, but avoiding one doesn’t avoid the other.
What is Probate? What’s the Federal Estate Tax?
- Probate is the legal proceeding of validating a will, if there is one, and settling an estate. Probate assets are all those assets that the decedent owned in his or her individual name, but didn’t have a beneficiary designation, a joint owner or titled in a living trust. In California, most such estates that exceed $150,000 in value will likely need to be probated.
Examples would be a bank account in an individual’s name or a house in an individual’s name.
Examples of NON-probate assets include assets owned as joint tenants with right of survivorship (with a spouse or another individual), life insurance, retirement accounts, and annuities in which beneficiaries other than the decedent’s estate are named.
- The federal estate tax is a tax on everything an individual owns at death, regardless of whether the asset goes through probate, or not. In 2022, the federal estate tax generally is imposed upon estates that exceed about $12 million.
Examples of assets that are subject to the federal estate tax include all assets you own such as bank accounts, investment accounts, retirement accounts, a house, and annuities, no matter how you own them. If you have a right to them or control them in some way, those assets are subject to the federal estate tax.
Although avoiding one, doesn’t necessarily mean that you avoid the other, both probate and the federal estate tax can be avoided or minimized, when you work with a qualified and experienced estate planning attorney.
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