What Is an Estate?

What Is an Estate?

Let me tell you directly: an estate is everything that makes up your net worth as an individual, including all the land and real estate you own, your possessions, financial securities, cash, and any other assets you have a controlling interest in.

Understanding Estates

You might hear the word estate used casually to mean a big piece of land with a fancy house, like a farm or a historic family home. But in financial and legal terms, I'm talking about everything of value you own—your real estate, art collections, antiques, investments, insurance, and any other assets or entitlements. It's basically your net worth. Legally, your estate is your total assets minus any liabilities you have.

This value matters a lot in two main situations: if you declare bankruptcy, or if you die. When someone files for bankruptcy, we assess their estate to figure out which debts they can realistically pay. The same thorough legal review happens after death. Estates become most critical when someone passes away. Estate planning is about deciding how your assets get divided and inherited, and it's arguably the most vital financial planning you'll do in your life. Remember, every country has its own rules on passing wealth, including limits and approved trusts.

Typically, you draw up a will to spell out how you want your estate distributed after you die. The people who get your assets are called beneficiaries.

How Estates Are Managed

In most cases, estates go to the deceased's family members. This transfer of wealth from one generation to the next often keeps money stuck in certain social classes or families. Inheritance makes up a huge chunk of total wealth in the U.S. and globally, and it's partly why income inequality persists, though there are other factors at play.

To counter this wealth stagnation from inheritance, most governments make inheritors pay an inheritance tax, or estate tax, on the estate. This tax can be hefty, sometimes forcing beneficiaries to sell off assets just to cover it. Importantly, in the U.S., assets left to a spouse or charity usually aren't taxed.

I advise both the person making the will and the beneficiaries to hire estate attorneys. Inheritance taxes are complex and expensive, and a lawyer ensures everything is handled right. When drafting, you can take steps like setting up trusts to reduce the tax burden on your heirs.

Writing a Will

A will is a legal document where you lay out instructions for handling your property and custody of any minor children after you die. You name a trusted executor or trustee to carry out your wishes, and you can specify if a trust should be created after your death.

Based on what you want, a trust might start during your lifetime as a living trust, or after death as a testamentary trust.

The will's authenticity gets checked through probate, which is the first step in managing a deceased person's estate and distributing assets. If you're the custodian of the will, you need to take it to probate court or the executor, usually within 30 days of death, but it varies by state—for instance, Florida requires it within 10 days of notification.

Probate is a court-supervised process that confirms the will is valid and the true last wishes of the deceased. The court appoints the executor from the will, giving them legal authority to act for the deceased.