Estate Assets inside versus outside of an Estate

When an individual passes away, an executor, or personal representative is responsible for distributing estate assets. Distributing estate assets must be done according to the Will. If there is no Will, distributing estate assets is done according to the intestacy provisions of the Wills and Succession Act. Of the assets which a person owns at the time of her or his death, certain ones of them will pass inside the estate. All of the other assets will pass outside the estate. All of the assets will end up at with the beneficiaries the testator intended. That being said, the route they take to get there varies greatly. The Calgary, Alberta estate law lawyers at Kahane Law office can help you understand this process better. Call today: 403-225-8810 .

Distributing Estate Assets Inside the Estate

Generally speaking, assets which pass inside of the estate include those assets which cannot be distributed without a Grant of Probate. Distributing estate assets this way requires extra care, attention and procedure. Often these are assets which are held in the name of the testator alone. Some examples include a bank account held only by the testator, a piece of real estate which has only the testator’s name on title, real estate where the testator owns a portion of the property as a tenant in common with someone else, personal property such as a vehicle owned only by the testator, or other personal property.

Assets owned only by the testator are held in trust by the Executor from the time the Testator passes away to the time a Grant of Probate is obtained This is giving the Executor the green light to distribute the estate assets.

Distributing Estate Assets Outside the Estate

Assets which pass outside of the estate include those assets which do not require a Grant of Probate in order to be distributed. There are many different examples of such assets including life insurance policies with a named beneficiary, RRSPs, joint bank accounts, certain pensions with a survivor’s benefit component, real property owned by the testator and someone else as joint tenants, and others. In fact there is no distributing estate assets like this as these items do not form part of the estate.

The key component in determining whether an asset passes outside of the estate is

whether or not the Testator named a beneficiary at the time the asset was established. If a beneficiary was named, and the asset has an internal mechanism for distribution to that beneficiary, then the asset will pass outside of the estate.

Consider a life insurance policy. At the time an individual sets up such a policy, she or he will have (or should have) named the beneficiary or beneficiaries to the policy. And although it is possible to name your estate as the beneficiary to your life insurance policy, generally individuals will name a spouse or a child as the beneficiary. At the time the policy holder passes away, the insurance company will simply pay out the value of the policy to the named beneficiary. No waiting for a Grant of Probate or other court formalities to be able to pay out the asset. The insurance company simply cuts a cheque to the beneficiary.

Advantages and Disadvantages of Assets Inside versus Outside of an Estate

There are pros and cons to having assets passing inside versus outside of an individual’s estate. When planning your estate, you must think of how distributing estate assets will occur. When assets pass outside of an estate they pass very quickly. This is especially true relative to the time it takes to obtain a Grant of Probate and administer an estate. The estate’s value, which is used to calculate court probate fees and often legal fees, will not include these assets either. In addition, having a particular asset pass outside of one’s estate can be a good way to ensure certain beneficiaries receive an inheritance without having to include them in your actual Will. This is particularly useful in blended family situations where a testator wants two things. To take care of a new spouse, but also to ensure the Will shows the testator’s children as the estates beneficiaries.

Having assets pass outside of your estate also has some drawbacks, which are often unforeseen by testators. First, there are frequently negative tax implications by setting up assets to pass outside of an estate. Before distributing estate assets, your executor will have to pay any taxes that are due on the final tax return. Consider a testator adding an adult child to her or his title to the home the testator lives in. This may seem like a good idea as the asset will now pass outside of the estate. However, the adult child may not be aware of Capital Gains tax implications when she or he sells the house. Also, having an asset pass outside of an estate often means that the asset goes to one beneficiary in particular and cannot be shared. Had the asset passed within the estate the testator would have been able to distribute the asset any number of ways to various beneficiaries. For more information on these risks, we set out more risks of joint ownership and adding joint tenants.

The Tip Of The Iceberg: Getting Legal Estate Law Help

There are other advantages and disadvantages to passing assets outside of an estate versus inside of an estate. When planning and distributing estate assets, you must know the difference. Be sure to talk to a qualified Wills & Estates lawyer in determining which option is best for your particular circumstances. It is important to properly plan your estate. Our Calgary estate law lawyers will help you understand how assets can pass to a beneficiary. We will thoroughly explain the pros and cons of the different choices. After that we then help you set up the legal means of making it happen. Call Kahane Law Office today. You can reach us at 403-225-8810 locally or toll-free at 1-877-225-8817, or email us directly here today to contact us!