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The Cost of Probate Administration

There are two circumstances where clients normally ask me about costs involved in probating an estate. The first is obvious. After somebody passes, the probate court will appoint a personal representative. The personal representative will be responsible for estate accounting and finances. Naturally, that person asks the probate attorney how much the estate should expect to pay in expenses.

In that situation, strategies to save certain expenses are more limited. The probate lawyer can certainly advise on time and liability matters. The estate should be probated efficiently and to reduce the risk of current or future disputes. That can be a large time and money saver. But my point is that the composition of the estate will not substantially change. In other words, the assets of the estate are certain and probate must move forward.

The second circumstance where I get that question provides more tactical possibilities. It is when estate planning is underway and the estate planning attorney and client are organizing affairs. The client wants to know what will happen with his or her estate on a practical level. What are the costs of probate and can they be reduced or avoided? There are endless paths to take here. Besides the basic documents like wills and trusts, assets can be restructured or retitled.

Whatever the setting, this article discusses some of the basic costs involved with administration of an estate in South Carolina probate courts.

Probate Fees

This is the fee a probate court will charge based on the value of the estate. It is not significant and is almost never a reason by itself to alter an estate plan. The smallest of estates might expect to pay in the neighborhood of $25. A more moderate estate is in the hundreds of dollars with very large estates reaching the thousands. It is a progressive system in that the fee any estate pays is calculated to its exact dollar value.

There are other administrative costs in the probate court for copies and postage. Certain filings will carry a separate filing fee.

Time and Time Value of Money

This might be the largest cost to the personal representative. Estate administration usually takes a year and sometimes stretches much longer. Throughout the process, there are time-intensive duties. Not to be forgotten is the inheritance that will ultimately be received. If assets are tied up in the probate court, time value of money is lost.

Taxes

Final income taxes of the decedent are the responsibility of the personal representative. Many estates that earn income also pay estate income tax. Estate taxes are beyond the scope of this article.

Family Strife and the Cost of Disagreement

This one is hard to quantify. I see family members that disagree on probate issues regularly. It’s safe to assume that this is the last thing the decedent would have wanted. This cost can be as heavy as any monetary sum.

 

Probate avoidance is a common goal in estate planning. The costs can accumulate but the time and possibility of dispute are the reasons many estate planners want to stay out of the probate court. Estate planning attorneys and probate lawyers can be an invaluable resource.

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Callison Law Firm at Goose Creek Finance & Food Trucks Event

The Trident United Way held its first ever Finance & Food Trucks event on Saturday, April 29, 2017. The gathering was a collective effort of the Prosperity Centers, South Carolina Federal Credit Union, and Overcomers and Outreach ministry. It was a great event and I enjoyed being one of the speakers involved.

The topic was “Wills, Estates, & Probate”. The session included discussion about the interaction of estate planning and probate administration. Attendees had the opportunity to get questions answered and learn about resources available to them.

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President Trump’s Proposed Tax Reform and Estate Planning

Change to the federal tax code is always a hot topic and it is gaining steam right now. It’s clear that a goal of President Trump will be elimination of the estate tax. Some refer to it as the “death tax”. President Trump, and others, argue it is unfair. For the very wealthy, income gets taxed once during life and a second time at death. It is a tax on success. Others counter that the estate tax hits only those who can most afford to pay. The wealthy have means to get sophisticated planning. The revenue earned from the estate tax might be used productively to help everybody.

I’m not so concerned with the policy arguments for now. I’ll let the politicians sort that out. The focus of this article is how removal of the estate tax will impact estate planning. What will individuals need to consider? How will estate planning attorneys respond?

To know whether the estate tax is something you need to consider, it helps to understand in a nutshell how the exemption works. Here is an over-simplified idea of the exemption concept. Right now, there is an exemption for nearly five and a half million dollars. In other words, a single individual that dies this year can leave that amount of money without being taxed. Considering most recent fluctuations, the exemption is at the high end.

Estate tax rates gouge those estates that get taxed. The choice is give forty percent of the excess to the IRS or consider some strategies. Plans often involve a will, trusts, investments products, and gifting. Approaches that only serve to reduce estate value would be unnecessary with no estate tax.

A common assumption then is that there will be big changes in how a will, trust, and estate lawyer gives advice. My prediction is the exact opposite. I see a few reasons for this forecast.

To start, the estate tax is already a non-factor for most. Legislation cutting the estate tax will not change anything for these people. Clients that do have significant wealth will still want to see it passed down in an orderly way. That is, there are many planning needs that are not tax motivated. Would you want your 21-year-old child to receive a large sum of money all at once? Do you want your loved ones to spend a year or more in the probate court? Is there a business that will continue? Do you want a charity, special needs individual, or future generations to benefit? These are serious questions outside the world of tax. There are plenty of other examples.

Also, where will the estate tax be in ten years? Nobody can honestly answer that question. Avoiding tax planning now might mean overhauling documents in the future.

It will be interesting to see how President Trump’s proposal develops. Some certainty on the future of the estate tax would be great but don’t expect it in the short-term.

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All I Need is a Simple Will

Most estate planning conversations I have seem to start the same way. It can be a meeting, a phone call, or a casual conversation with a friend. That person wants me to know that the only need is the most simple of wills. And I get where people are coming from. To start, most individuals feel their assets are straightforward. The idea is also easy – everything to a loved one. Why make anything more complicated than it needs to be? And who wants to pay for that?

It may be that a simple will covers everything. There is no doubt your estate planning attorney will be happy to draft that for you. The truth is that there are endless ways to draft even simple wills. Whatever the result, it is important to know why the estate plan fits. It’s like showing your work when doing algebra equations in school. It is preferable to see how you got there than to hope to stumble on the answer.

This article mentions a few items worth discussing with your estate planning lawyer. 

The Will

Most people know that a last will and testament says where you want everything to go. It might be to a spouse, child, loved one, or some combination. If somebody predeceases you, the will addresses that situation. It also nominates a personal representative of your estate, guardians, and trustees. I have seen probate situations where those designations can be just as important. The will also speaks to more specific gifts of cash or assets to people or charity. It can also list personal property and household items that go varying places.

Trusts

Most wills include some sort of trust. A gift to somebody who predeceases you might result in that person’s minor child taking the gift. The minor cannot take the gift outright so it is held in trust for them. If a gift is directly to a minor, young adult, or special needs individual, there might be a more obvious trust situation. Trusts also come up in situations where estate tax and/or probate avoidance are important. Those scenarios frequently involve a trust in a separate document.

Non-Probate Assets

Some estate planning occurs outside of a will or trust. It turns on how assets are titled. This might be where real estate is jointly held with a right of survivorship. It could be something simple like a bank account with joint owners. Or something more transparent like an insurance policy with a beneficiary designation. The point is to identify these sorts of assets in a meeting with the wills & trusts attorney. That way you can be sure they are structured properly.

Powers of Attorney

Estate planning is also about incapacity. How will funds be accessed for personal or business needs? Your last will and testament is only relevant when you are gone. It is not uncommon for incapacity to last weeks, months, or years before a will is even considered. Without planning, the guardianship and conservatorship process can be costly and time consuming. With a General Durable Power of Attorney, that procedure might be less critical. A Healthcare Power of Attorney gives an agent some additional decision making power.

The terms simple will and complex will are subjective. They probably mean something different to each person you ask. The more important thing to understand is how your estate plan operates. Your will, trust & estate lawyer can craft suggestions after a thorough meeting.

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Tax Filings in Probate Administration

Does the estate have to pay tax? Somebody has died and a personal representative for the estate has been appointed. That person is trying to figure out if the estate is taxable. This is a good question to be asking. But try to remember that it is not the only thing to consider.

Estate tax is a tax on the right to transfer property at death. Estate tax is only imposed if the estate has a certain value. The federal exemption from having to pay estate taxes is relatively high at the moment. In 2017, over $5 million for a single individual can pass tax-free upon death. The South Carolina estate tax exemption mirrors the federal rule. For South Carolina estates under the threshold, there is no estate tax and no filing required.

This might be a pretty simple calculation for your estate. It is also where I see some confusion from time to time. When there is no estate tax, the personal representative might assume that no tax filings need to be made. That might not be correct. The problem is that there are other tax filings that a personal representative is responsible for. Some need to be considered at the time the estate is opened, in a discussion with your probate lawyer or CPA.

To start, a personal representative should consider individual income tax returns for the decedent. There are a few moving parts here. When the person died and what he or she already filed is important. There may be joint filing options for somebody leaving behind a spouse. Sometimes a decedent has missed prior year filings. Those might need to be made by the personal representative. The deadlines to file generally line up with the ordinary filing deadlines of the person who died. In the end, the estate will get a refund or owe taxes.

Estate taxes have already been mentioned. So have individual income taxes. But what about the income the estate produces? An estate is a separate entity that that might need to file for income it earns. It has a value when the estate is created. Sometimes that value increases. The increase might be from a business, rental property, or appreciation of investments. Probate administration usually takes a year or longer so some change in value is not uncommon.

The reality is that estate tax is one piece of the tax puzzle. The issue is when this goes unrealized until attempting to close the estate. A delay is likely. Those that will inherit might get anxious and the IRS may have its own concerns if deadlines were missed.

A personal representative does not have to work through all this independently. It is helpful to have a sense of what the requirements are. The goal should be to get a clear understanding of deadlines when the estate is opened. A probate lawyer or a CPA can help. Often, the client, probate attorney, and CPA all work together. Sometimes it is a mix of these.

 

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