The purpose of probate proceedings is to ensure that the process of passing property to the next generation complies with state law. The courts also help ensure that the personal representative or executor of the estate fulfills all of an individual’s unfinished obligations.
Filing tax returns, paying off debts and closing accounts are among the many steps in the probate process aimed at resolving someone’s obligations when they die. Unfortunately, people often fail to think about those obligations when engaging in estate planning.
Unless you address the issues that could diminish the value of your estate, you may not be able to leave the robust legacy that you hope to pass on to others when you die. What issues during probate could reduce how much the beneficiaries of your estate eventually receive?
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Outstanding personal debts
Any financial responsibilities that you still have when you die, whether it is the remaining balance on your credit cards or the hospital bills from your care prior to death, become the responsibility of your estate when you die.
Unless you already have plans in place to prevent creditors from making claims against certain assets, a significant portion of your property could go to third parties rather than your intended beneficiaries.
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Taxes
You may have income taxes owed at the time of your death. Your estate could also need to pay income taxes if you leave instructions for the sale of some of your personal property. There could also be federal estate taxes for those with millions of dollars of property in their name when they die. Colorado does not have a state estate tax. Taxes can easily reduce what you have to leave to loved ones unless you plan to minimize your taxes and set resources aside to cover them.
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Probate challenges
Even if you plan for your debts and tax responsibilities, there’s also the possibility of your estate ending up in probate because someone challenges your will. During probate litigation, the people fighting over what they want to inherit will waste resources from your estate and decrease how much everyone receives.
Careful planning and regular reviews of your existing estate planning documents can help you minimize the financial setbacks that could undermine the legacy you hope to leave when you die.