Death and taxes: Probate process affects estate, debts, policies

All Things Legal

By Jane M. Winand, Legal Assistance Attorney

Since death is a reality for us all, it is important to understand the probate process to ensure you and your loved ones are prepared.

Probate is the process in which a will is submitted to court, an individual is appointed by the court to administer the estate, the deceased’s debts are paid, and the property is distributed as directed by the Last Will and Testament.

Probate in many states is a relatively simple and inexpensive process. By probating a will, the parties inheriting property are assured that the title will be properly transferred to them. This will assist them in being able to sell this property (especially real estate) in the future.

There are ways to simplify the process of transferring property at death, and many people use these as probate “substitutes.”

First, certain assets are not distributed as part of the will but are distributed to a beneficiary as chosen by the deceased.

These assets include insurance policies, Individual Retirement Accounts, pension plan proceeds and 401(k) plans, to name a few.

Most people designate a beneficiary of these accounts when they are established. If no beneficiary is named, the proceeds from the account are paid into the estate and are distributed through the will.

It is also common to list a “Payable on Death” or POD beneficiary on accounts held at financial institutions such as a bank. During the account holder’s life, the POD beneficiary does not have access to the account. When the account holder dies, the POD beneficiary merely submits a certified copy of the account holder’s death certificate to the financial institution to receive the proceeds from the account.

Second, many people own property as joint tenants with rights of survivorship or as tenants by the entireties. Properties that are held as joint tenancies or tenancy by the entireties avoid probate, since they pass to the survivor automatically upon the death of either party.

Real estate owned in Maryland by a married couple is presumed to be held as tenants by the entireties, meaning that there is a right of survivorship if one party dies.

Non-married persons may hold real estate as joint tenants with rights of survivorship if the deed specifically states “as joint tenants with rights of survivorship” and if, at the time that the real estate was conveyed to the parties, the four unities of interest were present.

These four unities are:

  • Unity of time: The interests of all co-tenants have to vest or come into being at the same time.
  • Unity of title: The interests of all co-tenants have to be acquired from the same deed.
  • Unity of interest: All co-tenants must have equal interests in the property.
  • Unity of possession: All co-tenants must have equal and concurrent rights to possess the property.

One of the biggest concerns people have is whether their estate will be taxed. There is a federal estate tax. Many states, including Maryland, also have a state estate tax.

These estate taxes apply to very large estates. Currently, the federal estate tax applies only to estates worth over $5 million.

The Maryland estate tax applies to those estates worth in excess of $3 million for this year. The amount will increase to $4 million in 2018, and will be stabilized at $5 million for 2019 and thereafter.

If you have a probate question, contact the Fort Meade Legal Assistance Division located at 4217 Morrison St., first floor, Office of the Staff Judge Advocate.

Editor’s note: To schedule an appointment, call the Legal Assistance Division at 301-677-9504 or 301-677-9536.

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