Ask the Probate Judge—Probate Estate v. Gross Estate
Q: We have questions
about payable on death (POD) implications with respect to 'unified credit' and
'taxable estate.' A Rights-at-Death/Ownership paragraph for a C.D. we own states,
"At the death of a party of a Single Party Account with POD designation,
ownership passes to POD beneficiaries and is not part of the party's estate."
A tax attorney, however, said, "Assets distributed by POD are included
in 'unified credit' and 'estate tax' accounting." Can you help clarify
these issues? H.S., Albuquerque
A: Have you ever looked up the definition of 'estate?' It can mean a grand manor or your social standing. Property you own at death is also called your estate. Your question requires a discussion of the difference between "gross estate" and "probate estate."
The probate estate contains only those assets of decedent that require a court probate proceeding to pass them to the heirs or devisees named in the will. Most often, these are assets titled in the sole name of a decedent or held as tenants in common. Payable on death (POD) assets pass automatically to the named beneficiary and usually do not need a court probate (so they are not part of the probate estate), but ARE counted in the gross estate of the decedent.
The gross estate, for tax computation purposes, is EVERYTHING the decedent owns at death, no matter how titled. Generally, estates with a total value of $1,000,000 or less owe no estate taxes (federal or New Mexico) when the person dies. With proper planning, married couples whose estate totals $2 million ($1,000,000 per spouse) or less can usually avoid paying any estate tax.
When people die, their gross estate includes the fair market value of all the assets they owned at death. This means that the gross estate includes the value of assets that pass through a court probate, as well as the value of joint tenancy property, payable on death accounts, transfer on death accounts, life insurance proceeds, retirement accounts, and all other assets that pass outside of a probate. While the latter assets do not require a court probate proceeding to pass to the heirs or devisees, their value is included to determine if the estate owes any estate tax.
The statement you quoted from your C.D. would be more accurate if it read, "…ownership passes to POD beneficiaries and is not part of the party's probate estate." Your attorney is correct that POD assets are counted for purposes of determining your gross estate for estate tax purposes. As for details about unified credits and taxable estates, we'll save that for another column.
Thanks to attorney Patricia Tucker for reviewing this column. Prior columns can be viewed at www.bernco.gov. Click on "Probate Judge," then "Newspaper Columns."
8 2002, Merri Rudd &
Albuquerque Journal, All Rights Reserved