Testators establishing estate plans generally want to leave specific resources for their chosen beneficiaries. They may want their spouses, children or grandchildren to inherit resources that could improve their lives or that have emotional value. They may even leave instructions to make charitable contributions in their names after their passing. People who focus too much on making plans for the distribution of their property may end up doing a disservice to their beneficiaries. What their chosen beneficiaries inherit depends in part on how effectively they plan.
Personal representatives administering an estate must follow the law in addition to the estate plan. Typically, they need to resolve all major financial obligations before distributing valuable assets to beneficiaries. Testators who plan for the three financial obligations below may be able to maximize how much their beneficiaries inherit.
1. Taxes
There are several types of taxes that can affect the value of an estate. If a person dies with income tax debt, their personal representative may need to pay their tax bill before distributing resources to beneficiaries or paying lower-priority creditors.
While Ohio doesn’t collect an estate tax, the federal government does. People who anticipate that their estates may be worth $13.99 million or more generally need to plan carefully to limit estate tax obligations.
2. Personal debts
Credit cards, personal loans and even medical expenses can become the responsibility of an estate when a person dies. Personal representatives generally need to communicate with known creditors and publish notice for unknown creditors.
They must use estate resources to pay creditor claims before making the final distributions to beneficiaries. Even the benefits received through Medicaid could lead to estate recovery efforts that substantially reduce the assets that pass to beneficiaries.
3. Probate expenses
There are certain costs associated with probate proceedings. Legal representation and court costs require payment using estate resources. If there is litigation related to the estate, the expenses accrued can substantially reduce the overall value of the estate.
It is typically beneficial for people to plan carefully to address their debts, limit tax liability and prevent probate litigation whenever possible. Making the right estate planning moves can help optimize what beneficiaries eventually inherit. People who are aware of issues that could diminish what their loved ones inherit may be able to plan their legacies more effectively.