Estate Planning Costs and Taxes
Costs and Taxes
Costs to have a trust drafted by an attorney vary like everything else. You should expect to pay in the neighborhood of $2,500 for all the documents.
- There are no ongoing charges.
- The attorney may charge to assist in retitling the assets.
- The attorney may charge to help the successor trustee wrap up the trust including filing any tax returns if necessary.
Simple wills typically have been a loss leader for attorneys. The average fee for a simple will is $75. Cheap don’t you think? Not when you add in the associated costs of probate. It is here where he or she will make up the difference, and then some.
Cost to probate estate: $5,000 (Using an estate value of $100,000 and a very conservative three percent attorney fee plus costs)
Total cost to probate a $100,000 estate equals $5,075.
The above does not take into consideration estate taxes. See the next section to learn more about how to reduce or eliminate taxes on your estate.
No one likes them. Perhaps the most insidious of all taxes is the estate tax. Its as if the government has to take one last bite when the taxpayer has no way to contest it because he is dead. For most of us federal estate taxes, thankfully, are not an issue. Federal estate taxes only become a factor to plan for in estates that are approaching, or over $5.4 million.
Through the use of a slight variation of the living trust, most commonly referred to as the A-B Trust, estates of up to $9 million. A small investment in time and money now can net huge returns by tax savings upon your death. The A-B Trust is the way most people who have an estate tax problem do a quick step around the tax man, thereby passing the bulk, if not all of the estate, tax free.
The federal government allows everyone to give away up to a total of $5.4 million. You can give it away either while your are alive or at your death. Any amount that you give over the $5.4 million total is going to be taxed, and taxed heavily with tax rates starting at 37 percent and rapidly escalating.
The good news is that the government will allow you to give ANY amount to your spouse free of tax. For example, married people typically leave their assets to each other with the assets going to the children after the second spouses death. Upon the first spouses death there is no tax. The bad news is that upon the second spouses death the children get hit with the tax. By making a straight disposition to the spouse the couple has wasted one of their two exemptions and have over funded the surviving spouse’s estate. Remember each person can give away $5.4 million.
The A-B Trust solves this problem by a little trick that puts a portion of the assets in a separate trust which allows the couple to fully utilize each exemption allowing $5.4 million to avoid being taxed. While a little more complex than a straight forward living trust if you have a large estate estate taxes can be greatly reduced. If avoiding income taxes were this easy!
Will or Trust?
One of the most frequent estate planning questions we get is should I have a will or a trust?
There are several factors to consider but the most is the cost-benefit of having a will versus a trust. When someone dies owning assets in just their name to move it to their heirs the property must go through the court probate process. The biggest downside with probate is the attorney fees associated with going through probate. As a rule, the attorney fees equal approximately three percent of the value of the estate’s property. So, an estate that has $100,000 of assets would cost about $3,000 in attorney fees to probate. While a will generally costs around $75, a trust plan can usually cost around $2,500 to set up. The big advantage of the trust is that as the estate size increases, the cost of moving the assets does not go up. When you look at it, a will is usually the better choice for estates that are smaller than $100,000 because the cost of the will and probate will end up being less overall. A trust is a better choice as the size the estate grows beyond the $100,000 mark.
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