The process of properly handling inherited property can be confusing if you’re not familiar with the relevant laws and legal procedures. For instance, how do you know whether or not you’ll need to go through probate?
While there are unique elements to each case, there are some basic guidelines that are universally applicable.
The role of probate in CT and when it applies
Probate is the process for settling an estate under court supervision. It’s designed to serve as a protection against fraud by freezing the estate’s assets until a judge can confirm that everything is in order with the Will, beneficiaries, and creditors.
Not all estates need to go through full probate. For instance, in Connecticut, if the decedent’s solely-owned assets include no real property and are valued at less than $40,000 – which is the state’s “small estates limit” – then the estate can be settled without full probate, under a much shorter and easier process.
In addition to the small estates exclusion, there are certain types of assets that pass to heirs without having to go through probate:
- Joint Tenancy: When one of two joint tenants dies, the property passes automatically to the surviving tenant under “right of survivorship.”
- Assets with Designated Beneficiaries: Some personal property items or accounts pass directly to named beneficiaries without having to go through probate. This category of assets includes life insurance policies, retirement accounts, and certain bank or brokerage accounts that are either payable or transferable upon death.
- Assets Held in a Living Trust: Placing assets in a living trust ensures that they are not counted as part of the probate estate and therefore do not have to go through probate, but can be distributed upon the Grantor’s death as directed by the trust.This does NOT mean that they are not part of the gross taxable estate, subject to state or federal estate tax.
Let’s look at a couple hypothetical examples.
Say that Mr. Watson passed away, leaving the following assets:
- Two bank accounts worth a total of $11,457
- A vehicle which he owned outright and which had a blue book value of $5,400
- An IRA worth $45,000, naming his two children as beneficiaries
- A brokerage account worth $12,576 that was set up as payable upon death, with his two children named as beneficiaries
In this example, Mr. Watson’s total assets are valued at $74,433, an amount well in excess of Connecticut’s small estates limit of $40,000. However, since both the IRA and the brokerage account are assets with designated beneficiaries, only the other bank accounts and car are counted toward Mr. Watson’s probate estate. Based on this, the total probate estate is only $16,857, which establishes it as a small estate that doesn’t require full probate.
As another example, consider Emily, who inherited a house from her aunt. Emily was named in the Will as the beneficiary of the aunt’s real property, including her home, which is valued at $347,000. Because the home was not put into a living trust or otherwise protected, it is simply considered part of the aunt’s probate estate and therefore – being valued at an amount well over Connecticut’s small estate limit – subject to full probate.
These are, of course, simplified examples. A person with a more complex array of assets may have other considerations. To ensure the peace and ease of your heirs, it’s prudent to explore all estate planning options – Wills, trusts, etc. – well in advance of needing them. Give us a call today, we can guide you in the right direction.
Avoid Probate With A Trust