Whether you are planning to write your Will or you are appointed to be an executor of a Will, you will want to keep the costs as low as possible and at the same time complete the process as quickly as possible.
In some circumstances, you may be able to save on probate fees and on estate/inheritance taxes. This will be elaborated separately.
Overview of Costs Managing Probate Fees - Assets that Usually Go Through Probate - Assets that Usually Do Not Go Through Probate - Why Do I Exclude Assets that Don't Need to Go Through Probate? Managing Estate Tax Managing Inheritance Tax What Should I Do?
Overview of Costs
In general, all costs involved will be paid entirely by the estate as long as the executor has acted reasonably throughout the process. This normally means that the executor has followed the advice of relevant professionals, if need be.
The key costs involved usually include:
- Legal fees: This refers to the fees for obtaining a grant of probate. An experienced lawyer may charge a fixed fee if they are familiar with the process necessary to obtain the grant of probate/court order. However, if the lawyer needs to spend more time administering the estate, the costs become difficult to predict and therefore are likely to be charged on a time basis;
- Accounting fees: Depending on the complexity of the estate, you may need to engage accountants to prepare and lodge all the necessary tax returns. Similarly, this may be charged on a time basis if the estate is complex or involves multiple jurisdictions;
- Disbursements: These are expenses relating to executing the Will, including publishing the notices, obtaining title searches, stationery, couriers, etc. These costs are generally on top of the legal fees;
- Court Fees: When you apply to probate a Will, most courts will charge Court Fees. Depending on the size of your Estate, the amount can become sizable very quickly;
- Estate Tax: Estate tax is a tax charged against the estate, regardless of who inherits the assets;
- Inheritance Tax: Inheritance tax is a tax charged against the assets inherited by each beneficiary.
Managing Probate Fees
When a person passes away with a Will, this Will should be probated. These are fancy legal terms that simply mean to submit an application to the court in order to obtain a certificate to proves that the executor has the authority to take control of the assets of the estate.
Common Assets that Go Through Probate
When it comes to distribution of assets, some require probate and some do not. Assets that require probate are generally:
1) Assets owned solely in the name of the deceased person - for example, real estate or a car titled in that person's name alone, or
2) A share of assets owned as "tenants in common" - for example, the deceased person's interest in a shophouse owned with his sister as an investment.
2) Investments or accounts with a financial institution that are not registered investment with a designated beneficiary.
3) Shares of publicly traded companies.
In brief, any asset that requires a formal document for the executor to have official authority, would require probate. This includes going to a bank, stock brokerage firm, transfer of a property to the beneficiary, etc. You simply cannot get by without probating a Will.
Assets that Do not Need to Go Through Probate
Typically, many assets in an estate do no need to go through probate. If the deceased person was married and owned almost everything jointly, or did some wise planning, court proceedings may not be necessary thus simplifying the whole process and ensures that your loved ones are taken care of as soon and as hassle-free as possible.
Here are some assets that typically do not need to go through probate:
1) Retirement accounts booked with a Government; such accounts usually have a named beneficiary;
2) Life assurance proceeds with a named beneficiary;
3) Property held in an irrevocable trust;
4) Property held in joint tenancy with right of survivorship; such property will go straight to the surviving party;
5) Personal effects items including household goods, movable goods, collectibles items, jewellery, etc. These items can be assigned directly to the beneficiaries without going through the probate process.
Why Do I Exclude Assets that Do not Need to Go Through Probate?
The simple answer is to manage the probate fees. When you apply to probate a Will, most courts will charge fees against the total assets that are part of the process. For example, if the fee is $5 per $1,000 on the first $50,000 ($250) and $15 per 1,000 on each additional $10,000, you would be paying a fee of $1,500 for every $100,000 in assets after the first $50,000.
Managing Estate Tax
Some countries/states have an estate tax. In general, only the net value of an estate that exceeds the exemption amount is taxed, and the tax comes off the top of the estate before bequests can be made to the beneficiaries from anything that remains.
The executor is responsible for filing a single estate tax return and pays the tax out of the estate's funds.
Managing Inheritance Tax
Some countries/states have inheritance taxes and this is the responsibility of the beneficiary of the assets. This tax is calculated separately for each beneficiary, and as such, each beneficiary is responsible for paying his or her own inheritance tax. In some cases, transfer to surviving spouses may be exempted from inheritance tax and occasionally, exempted for children and grandchildren too. More distant heirs such as siblings, nieces, nephews and friends, must typically pay the tax which tends to increase progressively as the degree of kinship decreases.
What Should I Do?
In order to reduce probate fees, one option is to set up two different Wills, one for assets that require probate, and one for the assets that do not. If you have valuable assets that would not require probate, you can save the estate a considerable amount of money. A lawyer can advise you if dual wills are appropriate for you.
There is no immediate solution to avoid estate tax. However, you can plan ahead to reduce your estate tax liabilities by reducing the size of your estate. This kind of planning usually involves giving up ownership and control of some of your wealth, either through planned giving or through specialized trust.
Managing inheritance tax is a somewhat different challenge because it is less about the size of your estate than about the relationship between you and the recipient. You might want to choose your beneficiaries carefully so as to avoid having them incur inheritance tax. You can also consider having the estate pay for the inheritance tax, but this will leave less for your beneficiaries overall. To create an estate-tax-efficient-plan isn't easy, simple or cheap. In fact, this usually means you have many millions of dollars before you are concerned about estate tax. In such cases, you should hire a professional to make a personalized plan that is best for your situation.
Writing your Will is the very first step, and it’s an important one. But that’s not enough. In the digital age, the next step is to store your Will online. Otherwise, what happens if your person of confidence is not able to find your Will in a timely manner? liteWill is the only Will registration platform that is available globally and that provides the option to store your Will online. ‘A Will that is not online is like a Will that does not exist’.
This portion of the website is for information only. The statements and opinions are the expression of their author, not of liteWill, and have not been evaluated for accuracy, completeness or changes in the law. Information contained in this article is not a substitute for tax or legal advice.
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