What is the difference between probate and estate taxation?

Often times estate planning attorneys assume that everyone understands our lingo. I think it is actually a problem that lawyers have in general. Today's post is dedicated to explaining the difference between having a taxable estate, and having to go through probate. Hopefully, this will helpful when it comes to deciphering lawyer lingo on estate planning.

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First, let's briefly explain Probate. When someone dies, their personal property and their real property (e.g. their house, vacations home, etc.) generally becomes the property of their "estate." If you have property when you die, then you have an estate.

In order for estate property to be lawfully distributed to the dead person's loved ones, the general rule is that it must go through the court-supervised estate administration process (unless it is property that passes "outside of probate" which we will discuss next week). That estate administration process is generally referred to as probate, and it is supervised by the Probate Court.

In Connecticut, the first step in the probate process is an application for probate that is submitted to the Court along with supporting documentation. It is usually about a 12 months process assuming their are no complications.

Remember when distinguishing probate from estate taxation - probate is a process that you go through regardless of the size of your taxable estate (although a simpler probate process may be available for smaller estates).

Estate Taxation

Second, let's briefly discuss estate taxation. The Federal estate tax exemption is currently $5,120,000 per person, but is set to go back to $1,000,000 on January 1, 2013 if no action is taken by Congress to keep this from happening. The Connecticut estate tax exemption is currently $2,000,000 per person. (Note: these are general rules and don't take into account deductions or aggregate lifetime taxable gifts which can greatly affect whether or not estate taxes will be owed). What does this mean? Well, if you give assets to anyone other than your spouse in excess of $2,000,000 at your death, your estate will most likely owe Connecticut estate taxes. Again, depending on your gifting practices during your lifetime, you may owe Connecticut estate taxes on gifts at death that are less than $2,000,000 in the aggregate.

Remember when distinguishing estate taxation from probate - your estate may owe taxes, regardless of how much of it goes through the probate process.

Hopefully, this general information is helpful, but remember that you should always have the advice of a qualified tax professional or estate tax attorney when calculating what you owe for estate taxes. You should also have the advice of a qualified probate attorney when planning to ensure property passes appropriately to your family, or if you are going through that process for the estate of a loved one.

If you have questions about any of this, and would like to set up a consultation with me, feel free to contact my office. Click here for the contact info.

Categories: Estate Planning, Probate, Taxes