I frequently teach classes on the basics of estate planning. (I do it for free, because I enjoy it, so if you want me to speak to a group of yours, please contact me!) As part of that, I often hear misconceptions about estate planning. One big one that keeps coming up is a perceived link between filing probate and paying estate taxes. Probate and taxes are two unrelated things (well, mostly unrelated anyway).
Probate is the legal process for wrapping up a deceased person’s financial affairs. It involves determining whether the person left a valid will, appointing someone to attend to those affairs, paying creditors, and distributing property to the people who are entitled to it.
Apparently there is a rumor circulating that proceeding with probate will cause some sort of estate taxation. This is simply not true. When a person dies, either his estate will owe estate tax or not — this is a factor of how valuable the estate is. If the estate owes tax, that tax will probably be paid as part of the probate process. But skipping probate does not avoid the tax — it just passes that tax liability (along with penalties, interest, and possible jail time) on to the people who benefited from the estate.
The bottom line — do not skip the probate process to try to avoid taxes. Do not assume you will pay taxes if you file probate. In fact, most estates do not pay estate taxes, but every deceased person’s estate should pass through probate (or at least the thought should be contemplated).
If you have a question about wrapping up a loved ones affairs, the probate process, estate tax, or any other estate planning issue, please contact Learned Lawyer today.