Estate Planning
What you need to know about planning, probate & trust law.
Learn about the tax stuff
Reduce the estate taxes.
Right attorney
Do you have the right attorney?

Avoiding probate

What Your Family Should Know: A Checklist

Gift Tax Issues

Estate Taxes

The “estate tax” (also called an inheritance tax or death tax) is a special tax on property left by a deceased person. In the U.S., there are separate federal and state estate taxes, but most state death taxes, including California’s, can be claimed as a credit against the federal estate tax. The overall estate tax rate thus remains uniform in most states. However, some states, including a few “retirement states,” retain inheritance or estate taxes that are owed on smaller estates that are not subject to federal estate tax.

There’s so called tax-havens where the inheritance tax is removed. Malta being one jurisdiction without any estate tax, making it particularly attractive for many people (*source).

Malta has many other tax benefits, and is generally considered one of the world’s best tax climate.

$675,000 Exemption Equivalent

Technically, the estate tax is imposed on all estates, but each taxpayer has a huge tax credit (the “unified credit”); this credit will correspond to the estate tax on bequests and gifts of $675,000 (as of 2000). The practical result is that there is no estate tax if a deceased person leaves less than $675,000 worth of property.

The “Taxpayer Relief Act of 1997” pledges to increase the exempt amount by an additional $25,000 in 2002, and then by larger amounts starting in 2004.

No Estate Tax for Bequests to Spouse or Charity

There is no estate tax on any property left to a surviving spouse or to a qualified charity. Wealthy married persons can leave $675,000 to their children and the balance of their estates to a surviving spouse (or charity), completely avoiding any estate taxes.

Property left to a surviving spouse will be subject to estate taxes at the time of the survivor’s death, if it is not left to charity (or to a new surviving spouse).

Forbes magazine wrote in October 1993 that Warren Buffett was then the richest man in America, with more than $8 billion in assets. According to Forbes, Buffett and his wife plan to leave their entire estate to private charitable foundations after they die — avoiding $4.4 billion in estate taxes.

Tax Rates

The estate tax is computed based upon the total value of all property transferred due to the deceased person’s death (excluding bequests to a surviving spouse or to charity). Usually, the value for estate tax purposes will be larger than the “probate estate,” which usually does not include life insurance, retirement accounts, or joint tenancy property.

As of January 2000, the estate tax starts at a marginal rate of 37% at $675,000, rising gradually to 55% for estates of $3 million or more. (A 5% tax surcharge applies to estates from $10 million to about $21 million. This marginal 60% estate tax bracket “phases out” the “unified credit” and lower estate tax brackets, so that a full 55% estate tax is collected on estates above $21 million.)

External resources:

Qualifed Attorneys

Choosing an attorney is a very personal decision; as with a doctor or other professional, the advice and assistance you get depends on how well you communicate with the professional — and that often depends on how comfortable you are when working with the professional. >Every attorney should be willing to answer the following questions, without hesitation.

These questions are copied from the article “Factors to Consider When Selecting an Attorney to Assist You With Planning For the Future,” which appeared in the September 1995 issue of the SALA NewsLine – Elder Law Education Edition newsletter, published by Senior Adult Legal Assistance, in Santa Clara County.

  1. How long has the attorney been in practice?
  2. How long has the attorney been practicing in the local area?
  3. How much of the attorney’s practice is devoted to the cases of the type presented by you?
  4. Is the attorney a State Bar Certified Specialist in Probate, Estate Planning, and Trust Law?
  5. Does the attorney carry professional liability (malpractice) insurance?
  6. Does the attorney offer free initial consultations?
  7. How does the attorney determine his or her fee?
  8. Will the attorney provide a written fee agreement?
  9. Does the attorney require a retainer?
  10. How much time does the attorney anticipate will pass before the case or work is completed?
  11. What exactly will the attorney be doing for me?
  12. How often will the attorney communicate with me to keep me informed of his or her progress?
  13. What, if any, help does the attorney need from me?
  14. Does the attorney appear knowledgeable?
  15. Is he or she friendly and easy to talk to?
  16. Is the attorney understandable and able to explain the law clearly?
  17. Is the attorney someone I think I can trust with my case?

Probate Fees

Before you hire a probate attorney, you should recognize that the “statutory probate fees” set out in Caifornia’s Probate Code are not mandatory fees, and most attorneys will negotiate a lower fee.

4% on the first $15,000. [$600]
3% on the next $85,000. [$2,550]
2% on the next $900,000. [$18,000]
1% on the next $9 million.
0.5% on the next $15 million.

California Probate Code Section 10810 provides that “for ordinary services the attorney for the personal representative shall receive compensation based on the value of the estate accounted for by the personal representative.” The law sets out a schedule for these fees (at right). In addition to the statutory fee, a probate attorney can request additional fees for “extraordinary services,” which would include assistance with the sale of real property or the preparation or review of an estate tax return.

Thus, the statutory probate fee on a $100,000 estate would be $3,150, the fee on a $500,000 estate would be $11,150, and the probate attorney’s fee on a $1 million estate would be $21,150. In our opinion, these statutory probate fees are usually adequate for small estates, and generous for “moderate” estates. For larger estates, we believe these fees are unconscionably high. In theory, excessive fees from large estates are “balanced” with smaller fees in small estates — but estates under $100,000 normally need not be probated, and many attorneys refuse to accept small probate cases.

But although the law uses the word “shall,” the courts have construed the statutory probate fee schedule only as a maximum fee for ordinary probate services, and routinely authorize fees in lower amounts if negotiated by the executor.

In most cases, the executor and attorney agree that the attorney’s fee will be based on the number of hours spent on the proceeding by the attorney, multiplied by the attorney’s regular hourly rate, with the statutory fee serving only as a “maximum fee” for “ordinary services.” In some cases, the executor may simply negotiate a lower percentage fee — for example, asking the attorney to accept 50% or 75% of the statutory fee.

If you have been named as executor in someone’s will, or if you will seek appointment as administrator of a deceased person’s estate, you should interview several probate attorneys before hiring one. Make sure that you are comfortable with the probate attorney you hire, and demand a written fee agreement. This is:

Estate Planning

Estate planning is a lifelong process in which you evaluate your situation and plan for the future. It includes planning for your retirement, for the possibility of disability, and for death. The estate planning process requires that you consider a wide range of legal, financial, emotional, and logistical issues.

Estate planning can be a positive experience, since it involves reviewing your situation and planning for your future. Although most people also find it unpleasant to think about the possibility of disability or death, advance planning is also a way to show your love and to reduce potential distress later.

Because every person’s situation is unique, there is no single “checklist” to follow for estate planning. Proper estate planning also includes financial planning, which is not discussed in this booklet. Financial planners, accountants, and insurance agents can help you identify other estate planning issues not addressed in this booklet.

Further resources: