The use of a last will and testament is a common practice. These documents allow people to determine how the property they owned in their lifetime gets handed down once they die. Inheritances distributed in accordance with the terms of any last will and testament must comply with various laws and procedural requirements.
Each state has laws governing how wills can be used to bequeath property after a person dies. These laws, generally referred to as probate laws or the probate codes, establish the procedures and requirements through which all inheritances are passed down. These laws are on mostly state laws, though federal estate taxes can also apply.
Wills can be drafted by anyone who meets the legal requirements of the states in which they live. Typically, a person must be at least 18 years of age and of sound mind to be able to draft a will. Wills can be revoked, modified or changed in any way as long as the testator (the person making the will) continues to be of sound mind. Once the testator dies, the will is admitted to the state probate court to determine if it is valid.
Inheritances get distributed after the testator dies and the will has been admitted to probate. Once the court approves the will, it will name an executor to oversee the distribution of the estate assets. The executor is a person who inventories all estate property, uses estate assets to pay for any outstanding debts and then distributes any remaining property in accordance with the terms of the will.
Inheritances distributed in accordance with the will usually involve numerous people. The person who leaves behind the property is generally called the testator. The person charged with distributing the property is referred to as the executor, the personal representative or the personal administrator. Overseeing the process is the court, though the role the court plays in the distribution of estate property varies depending on the state and the kind of probate procedure that applies to the case.
Inheritances are generally considered taxable income subject to both state and federal laws. Depending on the state, either inheritance taxes or estate taxes can apply. An inheritance tax is one where the recipient of the property is responsible for paying a tax based on the value of the inheritance. Estate taxes, on the other hand, are levied against the estate itself. In estate tax situations it is up to the executor to ensure all relevant taxes are paid before property is distributed.