What is an Estate?
A word with deep legal origins, “estate” has been consistently defined for centuries while adapting to the needs of the times. In essence, one’s estate is everything they own; it’s everything that belongs to a person.
It starts with all homes and properties, then includes all bank accounts, retirement accounts, and securities like stocks, bonds, currencies, etc. From there, we get to cars, art, furniture, collectibles, and all physical possessions. And lastly, any and all income streams, payments out in the future (such as life insurance payouts and company pensions) and business interests an individual has become part of their estate.
The estate can be thought of as the eternal balance sheet of a person—all their assets and liabilities under one umbrella. Notice that last part—all a person’s debts, now and in the future—also belongs in their estate. Debts do not expire with the death of the original borrower; their heirs are responsible for paying them off. So all mortgages, medical bills, credit card bills, and the like are also part of an individual’s overall net worth.
Most of the time when we talk about estates, we’re talking about someone dying. For the living, the first time they may talk or even think about their estate is when they decide to plan for when they die.
Time for Some Legalese
Let’s focus on the real estate component of estates. In legal terms, real estate is considered “real property,” as opposed to all other possessions being coined “personal property.” Real property includes land and any fixed structure on top of it, including natural resources and agriculture.
Deeds and titles are used to convey ownership of real property. There are several other legal terms that we’ll agree to suffer through together in order to convey key information about estates. (No quiz later, we promise.)
The first is called “freehold estate.” A freehold estate describes most homes in America. Anyone who has a mortgage or has paid one off owns a freehold estate; this is property that the owner is said to have “fee simple absolute” possession of the property. It means the owner owns it for as long as they wish, can do whatever they want to it, and can pass it on to their heirs when they die.
Freehold estates contrast with nonfreehold estates, which include most leasor-leasee relationships. Apartments, condos, commercial property, and the like are all nonfreehold estates. They have ownership that can be assigned but generally not inherited. Together, this legalese helps determine what amount and what percentage of ownership an individual has in their estate.
Different states have their own guidelines for how estates are handled when a property owner dies. Also, states—and the federal government—have eminent domain and other land-use rights that include the ability to take ownership of any land they want, but only for specific purposes.
Estates and Probate
Unless real property assets are put into a trust, real estate must pass through the probate process when the property owner dies. Probate administration is the court process of verifying that the will is accurate and that assets can be distributed/passed down as dictated by the will. In addition to property owned by a single person, all joint-tenant property and forms of co-ownership automatically passes through probate upon the death of one of the tenants.
A fiduciary is appointed by the court to collect, verify, and pass along titles to property at the conclusion of a probate process.