What Is an Estate?

In financial law, an "estate" refers to all of the assets and property owned by someone who has died. However, this definition can have a few different applications depending on where in the estate process the decedent's estate is. Estate planning is required to ensure your assets are handled exactly as you want after you're gone. This process can get complicated and, over time, will also need updating and adjusting. That's when working with a financial advisor can be a valuable decision.

What Is a Traditional Estate?

An estate is the sum total of all assets someone owns and all liabilities they owe at the time of their death. This includes absolutely everything you can think of, ranging from cash and real estate to even ephemeral assets like intellectual property.

When someone dies, their estate goes through a process of managing its bills and distributing its assets. This process is known as probate. First, the executor, who's responsible for managing the estate, pays any of the estate's debts using its own money. They then pay any legal or other bills incurred during the probate process. Finally, the executor distributes all remaining assets among the appropriate heirs of the decedent. Once this process is complete, the estate ceases to exist, as all of its liabilities have now been paid and all of its assets now belong to other people.

A traditional estate is one in which the deceased had a will. This estate is distributed according to the terms of the will and managed by an executor named in the will.

Understanding the Differences Between Probate and Trust Estates

While all property owned by someone who has died is known as an "estate," there are two more specific categories within this larger term. More specifically, these individual categories are known as probate estates and trust estates.

Probate Estate

A probate estate is the estate of someone who died without a legally enforceable will. In legal jargon, this is known as dying "intestate." This is the opposite of dying "testate," which applies to all individuals who have a legally admissible will in place at the time of their death.

If you die intestate your assets are distributed according to your state's inheritance laws. This process is overseen by the probate court, which will appoint someone to act as the administrator for the estate. An administrator plays the exact same role as an executor; the difference in titles only indicates that the former was appointed by a court while the latter was named by the deceased in their will. When an estate is overseen by a probate court, it is known as a probate estate.

Trust Estate

When someone dies and leaves their assets in trust, this is known as a trust estate. For obvious reasons, this is due to the entirety of the estate's contents being held in one or more legal trusts.

In most cases, the assets in a trust estate are distinct and separate from the assets in an individual's estate. This is because a trust is a legally independent entity which can own all of its assets outright.

As a result, if someone dies and then leaves some of their assets in trust, this can create two separate estates. The assets which the deceased still owned after their death become the deceased's estate. The assets which the deceased passed to the trust become the trust estate.

How Estate Planning Can Grow and Protect Your Estate

The process of estate planning includes making sure your assets are titled in a way that protects them from creditors and unnecessary taxes, both while you're alive and after you die or become incapacitated. It also includes choosing heirs, what they will inherit and how they will inherit it.

Estate planning entails far more than just creating a will. It may also include the following tasks:

• Assigning a power of attorney and healthcare proxy to make decisions on your behalf if you become incapacitated

• Creating and funding trusts

• Establishing guardians for living dependents

• Appointing or updating beneficiaries on life insurance plans, retirement accounts and bank accounts

• Making funeral arrangements

• Preparing for any applicable estate and inheritance taxes, potentially by scheduling annual gifting

In other words, estate planning done well can create a legacy: It can help grow and protect your assets as well as ensure they are passed along in a way that reflects the values you followed in building your estate.

Bottom Line: What Is an Estate?

An estate is the total of all assets and liabilities held by someone at the time of their death. This can also be further referred to as a "probate estate," which refers to the estate of someone who died without a will, and a "trust estate," which refers to assets passed into a trust after death.

Estate Planning Tips

• Building an estate plan can be difficult, but a financial advisor can help. Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.

• A major step in estate planning is deciding how you want your wishes enforced. The first step is deciding exactly what those wishes should be. With SmartAsset's estate planning guide, you can decide what should happen after you die.

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