What is an 'Estate'

A person's estate is everything comprising the net worth of an individual, including all land, possessions and other assets.

BREAKING DOWN 'Estate'

The word "estate" is colloquially used to refer to the all of the land and improvements on a very large property, often some sort of farm or homestead, or the historic home of a prominent family. However, in the financial and legal sense it refers to everything of value that an individual owns – real estate, art collections, antique items, investments, insurance and any other assets and entitlements – and is also used as an overarching way to refer to a person's net worth.  Legally, "estate" refers to an individual's total assets minus any liabilities.

The value of a personal estate is of particular relevance in two cases: if the individual declares bankruptcy, and if the individual dies. When an individual debtor declares bankruptcy, their estate is assessed to determine which of their debts they can be reasonably expected to pay. Bankruptcy proceedings involve the same rigorous legal assessment of an estate that also occurs upon an individual's death.

Estates are most relevant upon the death of an individual. Estate planning is the act of managing the division and inheritance of your personal estate, and arguably represents the most important financial planning of an individual's life. Generally, an individual draws up a will which explains the testator's intentions for the distribution of their estate upon their death. A person who receives assets through inheritance is called a beneficiary.  

In almost all cases, estates are divided between members of the deceased's family. This passage of wealth from one generation of a family to the next has a tendency to entrench income in certain social classes or families. Inheritance accounts for a massive proportion of total wealth in the United States and around the world, and is in part responsible for persistent income inequality (though there are, of course, many other factors). Partially as a response to the stagnation of wealth movement as a result of inheritance, most governments require those in line for inheritance to pay an inheritance tax on the estate. This tax can be very large, forcing the beneficiary to sell some of the inherited assets in order to pay the tax bill. In the United States, if the majority of an estate is left to a spouse or to a charity, the estate tax is generally lifted.

It is generally advisable for both the individual drafting the will and the beneficiaries of an estate to employ the services of estate attorneys. Inheritance taxes are notorious for their complexity and exorbitance, and the use of a an attorney helps ensure that your inheritance taxes are paid correctly. On the drafting end, there are number of measures that can be taken to minimize the amount of tax one's beneficiaries will have to pay, like setting up trusts.

RELATED TERMS
  1. Estate Tax

    A tax levied on an heir's inherited portion of an estate if the ...
  2. Inheritance Tax

    In some states in the U.S. (and in the United Kingdom), a tax ...
  3. Estate Planning

    The collection of preparation tasks that serve to manage an individual's ...
  4. Life Estate

    A type of estate that only lasts for the lifetime of the beneficiary. ...
  5. Capital Transfer Tax

    An inheritance tax levied in the United Kingdom on estates exceeding ...
  6. Inheritance

    All or part of a person's estate/assets that is given to an heir ...
Related Articles
  1. Taxes

    Estate Taxes: Who's on the Hook?

    Inheritance taxes can be tricky. Most people have to deal with them at a very inconvenient time. It's better to learn the laws now so you're ready later.
  2. Financial Advisor

    Estate Planning Tips for the Average Client

    Fewer financial assets can lead to bigger issues for families who don't establish an estate plan. Here's how advisors can guide the average client.
  3. Taxes

    An in Depth Look at How Inheritances Are Taxed

    The tax implications of an inheritance can be complex. Here's what beneficiaries need to know.
  4. Financial Advisor

    How Life Insurance Can Help Reduce Estate Taxes

    Inheritance is a double-edged sword, as leaving money can create estate tax burdens. Opting for a life insurance plan can help mitigate those burdens.
  5. Retirement

    How to Tell if You Need an Estate Planning Lawyer

    Estate planning is an important and often neglected part of financial planning, which can be costly when avoided or done improperly.
  6. Retirement

    Top 7 Estate Planning Mistakes

    Many people try to avoid this process altogether, making things difficult for heirs.
  7. Taxes

    8 States With Estate Taxes

    Understand the difference between the federal estate tax and state-specific estate taxes. Learn about some of the worst states with estate taxes.
  8. Taxes

    How Much Will You Owe on Your Inheritance?

    Estate planning can be unpleasant, but in order to get the full benefit of what you've inherited, it’s important to be prepared for the related taxes.
  9. Taxes

    Get Ready For The Estate Tax Phase-Out

    Changes to federal legislation will affect how your assets are treated once you're gone - be prepared.
  10. Retirement

    The Top 6 Books for Estate Planning

    Here are six outstanding books that can help you with your estate planning.
RELATED FAQS
  1. Are estate distributions taxable?

    Discover how estates are taxed, why estate distributions are generally tax-free, and circumstances that may require an heir ... Read Answer >>
Hot Definitions
  1. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  2. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  3. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  4. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  5. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  6. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
Trading Center