"It depends on what the definition of 'estate' is."

           Most of us consider the word “estate” to mean, in essence, all of the property owned by a person at the time of their death. This is accurate, but the word takes on some important nuances after a person dies and you are the executor, an heir or beneficiary, or even a creditor. Today, I want to translate some common phrases you may have heard people say to show how the word “estate” does not always mean what people think it means.

“The deceased person’s estate has to go through probate.”

Translation: The deceased person’s probate assets must go through probate; their non-probate assets do not.

            Here, the word “estate” is referring to a person’s probate vs. non-probate property. We have talked a lot about this distinction, and here is the one-paragraph version: Probate property is property that is titled only in the deceased person’s name, such as real estate with no rights of survivorship, bank accounts that are not jointly held, vehicles that are not set up to transfer-on-death, and investment accounts that are only in the decedent’s name. The transfer of these assets to the heirs (with or without a will) must be approved by the probate court. Non-probate property is property that transfers to another person almost automatically upon the decedent’s death, such as real estate in survivorship, joint bank accounts, annuities with a designated beneficiary, and life insurance policies. The probate court has nothing to do with the transfer of these assets.

            Therefore, when we say that a person’s “estate” has to go through probate, their estate includes only their probate assets; not their non-probate assets. As you can see, the word “estate” in this instance means something different than the definition in the first paragraph.

“My mother’s will says that all her debts must be paid out of the residue of her estate.”

Translation: My mother’s debts must be paid out of her probate property. If the probate assets are insufficient to pay the debt, then the debt just doesn’t get paid.

            This relates to the same distinction between probate vs. non-probate assets we just saw. In Ohio, heirs are not responsible for the debts and unpaid bills of a loved one. If a person dies leaving a will with a clause like the one above, then the debts must be paid from the probate assets. If you are, for example, a joint bank account holder with the deceased, or a beneficiary of a life insurance policy or annuity, you do not need to pay these debts yourself. In this situation, “estate” again means only probate assets. “Residue” simply means the probate property left over after the expenses of administration and specific gifts have been distributed.

            When planning your own estate, if, for some reason, you are really adamant that your debts be paid when you die, then do not take steps to turn probate property into non-probate property. For example, do not add a joint bank account holder and keep the account in your name only. Also, be sure to name your estate as the beneficiary of any life insurance policy or annuity. That, in effect, will turn non-probate property into probate property that creditors can recover. We do not recommend that you do this, as we are in the business of helping you protect your assets.

“If a person goes on Medicaid, Medicaid will make a claim against their estate.”

Translation: If a person goes on Medicaid, Medicaid can recover both probate and non-probate assets.

            When it comes to Medicaid Estate Recovery, the word “estate” has a much more expanded definition: it includes all probate assets and any other real property, personal property, or other assets in which the deceased had any legal title or interest at the time of their death. This includes non-probate assets such as joint bank accounts, real estate in survivorship, assets held in revocable or living trusts, etc. Ohio is one of several states that have adopted this expanded definition of estate for Medicaid Estate Recovery purposes. In short, Medicaid gets special treatment and is the one creditor who can recover non-probate assets. This is why Medicaid Asset Protection is a different animal than setting up an estate just to avoid probate.

            As you can see, estate planning and probate are not do-it-yourself projects and there are many nuances and complexities, especially when it comes to Medicaid Asset Protection and navigating probate court when necessary. Feel free to call 740.346.2899 to set up a telephone consultation with one of our attorneys or to request your copy of one of our free guides such as “Ohio Estate Planning Secrets” and “The Consumer Guide to Medicaid Planning in Ohio” to help you stay informed and make the right decisions for you and your family.