Colin Wong
When a person dies, everything they owned becomes known as their estate. Here's what you need to know.
When a person dies, everything they owned becomes known as their estate. Here’s what you need to know.
When someone dies, all of their belongings, from property and vehicles to furniture and even their clothes, become part of their estate. Whoever has been named as executor is responsible for managing those assets and distributing them in line with the deceased’s will.
If you’ve found yourself in that position, or simply want to be prepared, this guide covers:
What is an estate?
What is excluded from an estate?
Beneficiaries of an estate
The executor of a will
Estate administration
FAQs
What is an estate?
An estate refers to all of the assets a person owned at the time of their death. This can include:
Cash and savings
Stocks and investments
Real estate
Vehicles
Household contents
Jewelry
Family heirlooms
Pets
An estate also includes any outstanding debts, such as mortgages, credit card balances, and personal loans. These must be paid from estate assets before anything is distributed to beneficiaries.
What is excluded from an estate?
Certain assets fall outside the estate and cannot be distributed through a will:
Jointly owned property and assets. Assets co-owned with another person, such as real estate held in joint tenancy, joint bank accounts, or jointly titled vehicles, will typically pass automatically to the surviving co-owner.
Assets held by a business entity. If the deceased owned a business, they cannot distribute individual business assets through their will unless they are under a sole proprietor structure. They can, however, distribute ownership interests or shares in the company.
Assets held in a trust. Assets transferred into a trust are no longer owned by the individual, so they cannot be passed through a will. They are governed by the terms of the trust and managed by the trustee
Life insurance policies. Proceeds from a life insurance policy go directly to the named beneficiary. If no beneficiary was designated, the proceeds may be paid into the estate.
Retirement accounts. Assets in accounts such as 401(k)s and IRAs are generally paid directly to the named beneficiary. If no beneficiary is designated, the funds may be paid into the estate.
Beneficiaries of an estate
Beneficiaries are the people or organizations who receive something from the estate. A beneficiary can be any individual, related or not, as well as charities, nonprofits, or trusts.
If the deceased left a will, it will typically name the beneficiaries and provide instructions for dividing the estate. If there was no will, the court will distribute the estate according to state intestacy laws, and the closest relatives are usually the beneficiaries.
The executor of a will
When a person writes a will, they nominate an executor to manage their estate and carry out their wishes after they die. The executor sees to it that the estate is properly distributed to beneficiaries once all debts have been settled.
If someone dies without a valid will, known as dying intestate, the probate court will appoint an administrator, typically a family member, to fulfill this role. The court may also appoint a new executor if the one named in the will is unable or unwilling to serve.
Estate administration
When administering an estate, the executor is responsible for the following:
Locating and valuing assets. The executor should identify all assets by reviewing personal papers, searching financial records, and contacting banks, investment firms, government agencies, and other relevant institutions.
Preparing an inventory. Once all assets are identified, the executor should obtain valuations. Liabilities should also be assessed to determine the estate’s net value.
Safeguarding the assets. The executor must keep assets safe until they can be distributed to beneficiaries. This may involve maintaining a home or vehicle, storing valuables, managing bank accounts, and arranging appropriate insurance. If assets are damaged due to the executor’s failure to protect them, the executor may be held personally liable.
Getting appointed by the court. In most cases, the executor must file the will with the probate court and ask to be appointed before they can deal with the estate. You’ll typically need a death certificate, an inventory of assets, and the original will. The court will confirm that the will is valid and issue the executor a document, usually called letters testamentary, that proves their authority.
Paying debts and expenses. Once appointed, the executor must use estate funds to pay any outstanding debts, taxes, and expenses, including funeral costs in some cases.
Distributing the estate. After debts are settled, the executor distributes assets to beneficiaries as directed by the will. The executor must take care to correctly interpret the will’s instructions, as errors can result in personal liability.
The executor may also be responsible for notifying government agencies such as the Social Security Administration and the IRS, as well as financial institutions and other relevant organizations.
FAQs
What is the role of an executor? An executor’s role is to administer the deceased’s estate in accordance with the law and carry out the wishes expressed in the will.
How long can an estate remain open? It varies a lot, by state and by how complicated the estate is. A straightforward estate can be wrapped up in well under a year. Bigger estates, and any that are contested, can run to two years or more. Every state also sets a window for creditors to come forward, commonly three to six months, and that puts a floor under the whole process.
What is probate? Probate is the court-supervised process of validating a will and authorizing the executor to distribute the estate. It confirms that the will is legitimate and that the executor has the legal authority to act.
Do you pay tax on an inheritance? The US does not have a federal inheritance tax, though a handful of states do. Estate taxes may apply to very large estates at the federal level. If you sell an inherited asset, capital gains tax may apply. Any income generated by inherited assets, such as rental income or dividends, is subject to regular income tax. It’s worth consulting a tax professional for advice specific to your situation.
What is an estate sale? An estate sale is when the personal property of someone who has died is sold, often through an auction or organized sale. Estate sales are typically managed by the executor or, in some cases, by the beneficiaries.
Taking the next step
You can write or update your will online with EveryWill, and it costs you nothing. Charities cover the cost, and you can choose to leave a gift to one if it feels right.
The information provided in this article is for general informational purposes only and does not constitute legal advice. Laws vary by state. For advice specific to your situation, please consult a licensed attorney in your state.