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How to settle an estate

My condolences if you’ve recently lost a loved one. The last thing, I'm sure, is that you'd rather not deal with the financial issues that comes with settling an estate. This can involve enormous complexity and take months or sometimes years to completely settle an estate. This article is to give some clarity on what's involved as well as illustrate the importance of proper planning.

If the decedent has a will, this will help the courts authorize the executor or executrix to go ahead with distributing assets to heirs. It's this person's job to carry out the instructions and wishes of the decedent. If there is no will, the court will assign someone to act as in this capacity. Not having a will creates increased complexity and higher costs, making probate slower and inefficient. “Probate requires unnecessary time (can be over a year and more), court appearances, and money (attorney's fees and court costs). Do your loved ones and personal representative/executor of your estate a favor and avoid probate, which is so easy to do,” says Tracy Woo, estate planning attorney in Palm Springs, CA.

Financial accounts of the decedent will hopefully have a transfer on death (TOD) or a beneficiary assigned to each account. Bank and investment accounts will likely transfer to the co-owner or the TOD beneficiary. Qualified accounts, IRA and 401K accounts, could be transferred tax-free to the spouse by creating a spousal IRA. A non-spouse could receive these amounts as an inherited IRA, taking small, annual distributions starting in the first year and every year going forward, per IRS rules. Without proper planning, a beneficiary might automatically receive these amounts as fully taxable in the first year, netting a much lower amount.

If there’s life insurance, the insurance company will be contacting the beneficiary asking how the proceeds should be distributed. They can be distributed lump-sum or in monthly or yearly payments. This is a tax-free benefit if the premiums were paid with after-tax dollars.

A non-spouse may be eligible for the $255 social security benefit at death to help cover funeral costs. The surviving spouse may continue to claim one-half of the decedent's social security benefit.

Probate costs can be as high as 5% of the gross estate. This includes the market value of the house but doesn't subtract your mortgage, creating a sizable probate bill if there was no preparation. The best way to avoid probate is to set up a trust in advance. This document designates how property should be transferred and to whom. If the house and accounts are in the ownership of the trust they will bypass probate and transfer as instructed.

At Eureka Wealth Management, I help your estate planning attorney design your estate plan so you that leave more to your beneficiaries than to the IRS. I also help manage beneficiary assignments of your accounts and review them periodically or when there’s a change in your situation. For a free consultation call (760) 537-0791 or visit

Tracy Woo is an attorney at law and founder of Law Offices of Tracy T. Woo 777 E. Tahquitz Canyon Way, Ste. 200-138 Palm Springs, CA 92262 (760) 851-0901

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