More Estate Planning Services & Costs

RECIPROCAL WILL

A reciprocal will is a common practice among married couples. Basically, both wills leave everything to the surviving spouse, and then to the children. While this works in small estates (total of under $675,000 for 2001) without any resulting estate tax, probate costs are payable if formal probate is required. Probate would generally be required if assets subject to probate exceed $100,000 in gross value or if the estate owns California real estate worth more than $20,000); for smaller estates, simple affidavits should work. Further, if there are assets in other states, ancillary probates with additional fees would be required.

Statutory basic probate fees, which are the same for both the probate attorney and for the executor/administrator, are based on the gross estate, as follows:

Again, these fees are on the gross estate, before reduction by debts such as mortgages on real property. In addition, for extraordinary work (like will contests, contested matters, real property sales and preparing the estate tax return), the attorney can get additional fees.

Reciprocal wills also generally result in the entire estate being subject to estate tax at the second death, so that only $675,000, rather than $1,350,000 (2001 amounts; will increase to $1,000,000 per person, or $2,000,000 for a couple in 2003, 2004, 2011 and later, with higher amounts in between), can pass tax-free. Post-mortem planning, such as a disclaimer by the surviving spouse of the $675,000 tax-free amount of the deceased spouse, will require regular probate (and fees) of the disclaimed amount, and the surviving spouse does not have access to the disclaimed amount if needed.

The fees can be less in the first estate for a simplified probate to transfer spousal property to the surviving spouse. This will not be available in the estate of the second spouse to die. However, use of this simplified probate will not save any of the deceased spouse's $675,000 tax-free amount and, thus, could result in up to $371,250 additional estate tax in the second estate. If the surviving spouse disclaims assets equal to the tax-free amount in order to save it, then normal probate of those assets is usually required, with normal probate fees, costs and delay.

WILLS WITH TRUSTS

Wills can be drafted to take advantage of the tax-free amount that can pass free of tax in the first estate. This can be done by either making outright bequests to someone other than the surviving spouse, or by setting up a "bypass" trust that will not be taxed in the surviving spouse's estate. The trust can pay all its income, as well as distribute some of its principal, to the surviving spouse and still escape tax in her estate, if properly drafted. Probate fees will, however, generally be the same as for simple reciprocal wills, except that, at in the second estate, fees will not be paid on the amount put into a trust or paid to beneficiaries other than the surviving spouse.

EXAMPLE

Mr. and Mrs. X have a gross estate of $2,500,000 and no debts. We will assume that the estate does not appreciate except to make up for probate fees on the first estate, and that the surviving spouse acts as executor of the first estate and waives probate fees. Taxes and probate fees will be approximately as follows (2011 and thereafter tax-free amount used):

CONCLUSION

Even before EGTRRA, there were many pitfalls and opportunities in estate planning. Now, we also have uncertainty. No one wants to plan their death for tax savings in a specific year, and the savings now on the books may disappear or be altered before they become effective. I can help you sort through the uncertainty and options to achieve the best plan for you.