Upstate Estate Law, P.C. Blog

My simplest Last Will and Testament is currently about 6 pages long. My next most complicated Last Will and Testament comes in at about 20 pages. Admittedly, this can be a lot of pages for a client to read through. And a large portion of the Last Will is filled with legal terms and phrases that do not make for the best leisure reading. So why does your “simple Last Will” have to be so long and complex? I see two major reasons why this is the case.

Firstly, when I draft a Last Will for a Client, I am thinking about what will happen to the estate and estate beneficiaries if the unexpected happens. If we could all be certain that our estates will be administered exactly according to plan, perhaps the Last Will could be simpler and shorter.

But life does not always go as we think it is going to go. Lots of events could occur that change the effectiveness of a Last Will. An estate beneficiary could unexpectedly pass away or run into issues of financial mismanagement, divorce, disability, or drug addiction. Particular assets could be sold off or lost. Nominated Executors can pass away or find themselves not approved by the Probate Court after your lifetime. Since some of these issues can reasonably be anticipated and planned for, you will find that even my simple Last Will contains many provisions and clauses for dealing with these kinds of events.

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1. Probate Avoidance. Regardless of whether there is an estate tax or not, the probate fees on most estates averages 1 to 5% of the total value of the estate, not including any loans on the property. For example, if you own a $500,000 home at death and there is a $300,000 loan on the property, the statutory probate fees are calculated on $500,000, not the $200,000 of equity. The combined probate fees in South Carolina on an estate that is $1.0 million, for example, could range from $5,000 to $15,000 when the probate inventory fees, possible bond fees, attorney’s fees, and all the court filing fees are added up.

Not only are the statutory fees relatively high compared to a trust administration, a probate case doesn’t cover things such as changing ownership of retirement accounts, managing distributions from life insurance policies, etc. And the probate process in South Carolina usually takes 9-12 months in most Probate courts (and that is if the estate is fairly simple). And one of the things that most people probably don’t even realize is that when a probate action is filed, the deceased person’s entire estate is now open to public disclosure. All court filed documents are readily accessible by anyone who searches.

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In 2019 the federal Estate Tax Exemption is 11.4 million for an individual or 22.8 million for a married couple.

So how does this effect you? 

Put simply, this will only effect you if the total value of your estate exceeds the estate tax exemption amount. The vast majority of estates do not approach this level, so estate tax planning does not have to be a concern for most people. Which is nice, because now much more focus in estate planning can be on other issues, such as asset protection, income tax, and taking care of your family, over having to plan around the estate tax, which in its day was quite onerous.

What if your estate is over the estate tax exemption amount?

Then we should talk about an estate tax plan. If your estate is over the estate tax exemption amount, then your estate will be required to pay a marginal estate tax rate of 40%. This can be avoided through advanced estate planning and protection planning. Sometimes just an irrevocable life insurance trust is enough to adequately deal with estate tax concerns.

The new 2019 Estate Tax Rate will be effective for the estates of decedents who passed away after December 31, 2018.

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If your spouse is disabled and has qualified to receive Supplemental Security Income (SSI) and/or Medicaid benefits, you will need to carefully consider how to provide your Spouse with an inheritance, or else those benefits be endangered. The resource and income limits required in order to qualify for SSI and Medicaid are very low. A poorly planned inheritance to your Spouse can result in disqualification from these vital programs.

There are a number of planning techniques that can be utilized in order to prevent this disqualification. They include converting counted resources into exempt resources, such as using the inheritance to fund the purchase of a home, car, a pre-need funeral contract, or a qualified-Medicaid annuity for the benefit of the disabled Spouse. Another technique is the establishment of a third-party Special Needs Trust.

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Since it is the giving season, let’s talk estate and gift taxes! The IRS recently announced the new estate and annual gift tax exclusion amounts for 2016. In 2016 the estate tax exclusion amount will be increased to $5.45 million per individual estate, which means a married couple can shield up to $10.9 million from estate taxes. The annual gift tax exclusion amount remains at $14,000.00 per donor per individual recipient.

These amounts had originally been set at $5 million and $13,000.00 respectively, by The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted on December 17, 2010, since indexed to inflation by the American Taxpayer Relief Act of 2012 enacted on January 2, 2012.

If you anticipate that your estate (including life insurance, retirement benefits, and inheritances you might receive from others) may be above $5.45 million individually, or above $10.9 million as a married couple, you should consider a thorough estate planning review. There are often ways to help reduce or even eliminate estate and gift tax liability through careful estate planning.

You can see the IRS announcement here.