What is an "Estate"? What is a "Small Estate"?
As "estate," simply put is the property that a person leaves behind at death. When a person dies, their real property, their bank accounts, their brokerage accounts, their retirement accounts, and their tangible personal property, such as their furniture, clothes, jewelry, and automobiles, are in their estate.
It is the Executor's job to collect, preserve, and ultimately distribute the assets that are in someone's estate. If an estate goes through probate, the Executor cannot distribute those assets to anyone without a court order, which is how a probate proceeding ends: the court issues an order that distribute's the estate's assets to the beneficiaries or heirs of the decedent.
But not all estates have to go through probate. If an estate is small enough, no probate is required, and an estate can be settled without court supervision. An estate that's small enough to be distributed without court supervision is called a "small estate."
How can you figure out if an estate has to go through probate? That depends on several things:
1. How big is the estate?
If a person's estate falls below a certain threshold, called a "small estates limit," then that estate does not have to go through probate before the assets can be distributed. Instead, after the executor identifies and collects a decedent's property, pays all the decedent's debts and taxes, the estate can be distributed to the beneficiaries or heirs without a court order.
The small estates limit, and which assets count towards it, vary by state. Click here to find out what the small estate's limit is for New Jersey.
2. Did the person have a Will, a living trust, or nothing at all?
If a person dies and leaves behind a Will that states who will inherit their property, then whether or not their estate must go through probate depends upon their state's small estate limit: if the estate falls below the limit, no probate is required. The Executor can distribute the property without getting a court order first. Each state's procedures for settling a small estate varies. Click here to find out how small estates are distributed in New Jersey.
If a person dies and leaves behind a living trust that states who will inherit their property, then whether or not their estate must go through probate depends upon whether or not they funded that trust properly. Assets held in a living trust do not count towards the small estate limit, only assets that are held in an individual's name.
For example, the estate of a person who lives in California, where the small estates limit is $150,000, will not be subject to probate if that person's house and brokerage account are held in their trust, leaving only a personal checking account with $10,000 in it and car in their own name.
However, if that same person had created a living trust, but hadn't put their house or brokerage account into the trust, then that person's estate would have to go through probate, because the total value of assets held in that person's name at death would exceed California's small estate limit of $150,000.
If a person dies without a Will or a living trust, who inherits the estate depends upon state law. Each state has a set of laws, called intestacy statutes, that state who inherits when there is no Will.
If a person's estate falls below that state's small estates limit, then the estate won't need to go through probate. But if the estate exceeds the threshold, then it will have to go through probate.
3. What kind of assets did a person own?
Not all assets count towards the small estates limit. Assets held in joint tenancy, payable-on-death accounts, or transfer-on-death accounts will pass to the surviving joint tenant or the named beneficiary automatically. These assets don't count towards the small estates limit.
Retirement assets and life insurance proceeds also don't count towards the small estates limit, as long as there is a beneficiary named for these accounts. (If no person is named as a beneficiary, then these assets will be distributed, usually, to the person's estate, which means that they will count towards the limit.)
4. Is there a surviving spouse?
If a person dies and leaves behind a spouse, the estate will not be subject to a formal probate proceeding, even if the estate otherwise exceeds the small estates limit for that state. Assets passing to a surviving spouse can usually be distributed to that spouse by the use of simpler probate procedure.