The term ‘estate’ has always been used to describe a collection of houses, sheds, supporting farmland and woods that surround the gardens and premises of a large property, such as a mansion or a country home.
It is the contemporary word for ‘manor’, but has since been expunged of certain jurisdictional elements. An ‘estate’ was historically the area that provided the proceeds in terms of produce and rental fees to support the main household or ‘manor house’. Therefore, an ‘estate’ still sometimes describes as all the cottages and villages which are under the ownership of a local landlord.
Some notable examples of estates in the UK are Blenheim Palace, Oxfordshire and Woburn Abbey in Bedfordshire. Since the turn of the 20th century, the term has been used in various ways, including to describe a single farm. In boundary terms it is most commonly used to describe several parcels of land, under the same ownership.
The modern definition of an estate refers to a person’s total net worth. That is, their bank accounts, home, car and any smaller assets they may hold in their name. In some cases, it could also mean a person’s right’s and licenses to a written song, movie script or social media accounts.
But for the purposes of this article, the topic will be based mainly around land and property.
In general property speak, an estate may be categorised in three classes:
The value of a person’s personal estate is important for different reasons. But the two most relevant cases are if the person declares bankruptcy, and when the person dies.
When a person declares bankruptcy, their estate is valued to ascertain which debts they can reasonably be made to pay. The proceedings of bankruptcy may involve the same arduous legal assessment of an estate that happens upon a person’s death.
Estates are all the more important when the owner dies. Estate planning is the distribution of assets. That is how a person’s wealth such as, land, property, money and assets are to be shared among their heirs and beneficiaries. Generally, an individual writes a will which describes the testator’s plans for the distribution of their estate in the event of their death. A recipient of any of these assets is referred to as a beneficiary.
Traditionally, estates are shared between the deceased’s family members. This transition of wealth across generations of families have a tendency to retain income in some families or social classes.
Inheritance makes up a significant part of the total wealth in the UK and all over the world, and is partially accountable for continuous income inequality (even though there are other causes).
Partly as a stopgap to the stagnation of wealth caused by inheritance, many governments require inheritors to pay a certain amount on their inheritance. In the UK, this is known as inheritance tax. This is 40% of the amount in excess of the current allowance, which is £325,000.
In some cases, it can be large, forcing the beneficiaries to sell some properties to make up the difference.
An estate tax is an amount charged by the government on an individual’s inherited piece of an estate. As described, it is only effective when the total net worth of the deceased’s estate exceeds a certain threshold. In the UK, this amount is £325,000 and the beneficiaries will be made to pay 40% of the excess. However, it could be reduced to 36% if up to 10% has been bequeathed to a charity.
The estate tax is usually imposed on assets left to heirs, but does not apply to the transfer one another if property made to a surviving spouse of civil partner. The right of an individual to transfer their property to a surviving spouse is known as marital deduction. However, if a surviving spouse who inherits an estate dies, the beneficiaries will be obligated to pay the government taxes in excess of the threshold.
A personal estate consists of various categories and it is important to know the application of each one for the purposes of law and other personal obligations. A personal estate can be classed into the following:
This is the first category of items in an estate property. It is essentially the major items that determine a person’s net worth. Real property is mainly the largest volume of wealth in a person’s gross estate and it includes their houses, buildings, farms, woodlands and any property they may own. The gross estate also comprises of businesses, investment, bank accounts and retirement accounts.
A residue estate consists of an individual’s personal estate property. These are things such as a car, furniture, clothes, jewellery, equipment, tools and other items found in a home. This category also covers any ongoing investments or payments previously omitted in a will or apportioned in a trust. For instance, if a person sent out an invoice hours or minutes before their death, the money from that invoice makes up a part of their residue estate.
An estate debt is the final category, and not usually popular amongst many people. It consists of all incurred debts and obligations owed by the estate owner. The most common forms of estate debts are mortgage loans, student loans, hospital bills, credit card debts and business invoices. Lawsuit damages and taxes owed to the government also form part of an estate debt.
So far this has listed what an estate is and what it entails. But it is important to know what doesn’t count as an estate. An estate does not include assets an individual placed into an irrevocable trust while they were alive. The assets in an irrevocable trust cannot be taken back. As soon as such a transfer is made, the person is no longer the owner of the assets in that trust.
Property that the deceased put into an irrevocable trust, like a living trust, irrevocably becomes the property of that trust when the person dies. All the assets in that person’s trust are no longer part of their estate.
Other property which are excluded from a person’s estate include those passed directly to another person upon death. Examples are pension funds, insurance policies, savings bonds and so on.