There are several terms you might encounter when settling an estate. Try not to panic and understand that each one is used for a particular type of estate. The most common will be “Gross Estate” and “Net Estate”. The distinction between the two is fairly simple in that the gross estate is the fair market value at the date of death of all property that the person owned. This includes everything in which the decedent had any financial interest in including property, personal property, vehicles and bank accounts.

The net estate is the value of what is left after subtracting the total amount owed. This could be mortgages, liens or other debts owed by the decedent at the time of death from the gross estate.

The term “Probate Estate” is all of the property that must go through probate. This is usually less than the total amount of the property owned by the decedent because if there’s a beneficiary named or if the title is held in a way that avoids probate altogether it is not part of the probate estate. In general, the following types of property may not be probated:

• joint tenancy property
• life insurance with a named beneficiary other than the decedent’s estate
• pension plan distributions
• property in living trusts
• money in a bank account that has a named beneficiary to be paid upon death
• individual retirement accounts or IRAs
• in any community property or separate property that passes outright to a surviving spouse or domestic partner.

Probate estate is all property except the property that may fall it’s one of the above categories.

“Taxable Estate” include those over a certain value, which are required to file a federal estate tax return. These are called taxable estates. Property that must go through probate or probate estate is not necessarily the same as a taxable estate. Here’s where it gets kind of tricky. Not all assets are subject to probate but they must all be counted when determining whether estate taxes must be paid. These taxable estates include all assets including joint tenancy property, life insurance proceeds, death benefits, property in a living trust and property that may avoid probate altogether.

Note: if any of the assets are community property, only the decedent’s one half interest is included in his or her taxable estate.

“Insolvent Estates” is in a state that does not have enough assets in order to pay all creditors in full. They are subject to special rules in which you must consult an attorney. Creditors are typically divided into classes according to priority. First priority is always given to debts owed to the United States or the state in which the decedent lived. These debts must be paid before any other debts or claims.

Following that, other expenses must be paid including funeral expenses, medical expenses, judgment claims and then general creditors. If the executor has a debt that cannot be paid in full, payments are prorated. This gets pretty money, which is why it is imperative to discuss these details with a probate attorney and possibly higher an external accounting professional.

For more information or answers to your questions on the different types of estates, what you may be dealing with or how to deal with the property during the probate estate transaction please contact my office today.