Taxes & Estate Planning Attorney in Cary, North Carolina
Death and Taxes
"In this world, nothing is certain except death and taxes." - Benjamin Franklin. He said it best! Every person born at some point will pass away. Likewise, each dollar earned will be taxed. It is best to plan for both of these certainties. While we can't avoid death, we can avoid some taxes by using the right strategies and implementing the right plan.
The tax laws are abundantly plentiful and complicated. Taxes on the estate are not too different. However, the most common taxes we see related to estate planning today are Estate Taxes; Inheritance Taxes; Gift Taxes; Capital Gains Taxes; and Estate Administration fees. This is not a complete list, but learning about each will give you a starting point of things to consider and do when planning your estate.
Estate Administration Fees
A strict definition of "tax" would not include estate administration fees. However, whenever I discuss death and taxes most people see fees the government charges as a tax. They also see expenses of estate administration in the same way they see taxes, unavoidable costs the system imposes to transfer estate assets from one person to another. Therefore, in hopes to educate you about death and taxes, I have included a discussion of estate administration fees and the expenses estate administration may incur.
How Much Does It Cost to Administer an Estate?
There have been many studies to find out how much it costs to administer an estate. Estate Administration costs vary widely depending on a number of unique factors. Some of the factors are: where is the estate located (which state)?; who is in charge or who is the executor?; what is the estate's value?; what assets within the estate go through probate?; what assets pass outside of probate?; what do the documents say? Estate Administration is the process of transferring estate assets to estate beneficiaries. Since all estates and estate beneficiaries differ the costs are not totally known until administration happens. Many studies show that estate administration can cost up to 5-10% of the estate assets.
However, we do know more about the costs. The costs are often attributed to two things: 1. Time; and 2. Transaction fees. The longer it takes, the more it usually costs. The shorter time it takes, the less it'll cost. The more transactions that happen, the higher the fees. The fewer transactions, the lower the fees.
Typically, probatable assets are transferred much slower than non-probatable assets. Probatable asset means the asset is included in the Probate process. I have heard of stories from clients whose family members' estate took decades to finish to go through the Probate process. One told me that it took them 7 months to sell their grandfather', who was a poor preacher, only property- a 10-year-old car! Typically my experience with Probate is that it takes 1 to 2 years. And the timing is predominantly contingent upon how quickly the executor acts and how quickly the court acts. The executor can move quicker, the court typically does not. Under the current pandemic, the court is moving slower.
Non-probatable assets are typically transferred much faster! For example, life insurance pays out as soon as the beneficiary submits a death certificate. Using a Trust to transfer assets and avoid probate speeds up the time by bypassing the local government Probate process and then depends upon the person named in the Trust as in charge of distributing assets (Trustee).
Transaction fees all depend upon the transactions. For example, bank accounts can transfer without any fees, but real estate transactions can have minimal fees such as paying an attorney to draft and file a deed to transfer the property to a beneficiary or may also include the seller's cost to sell the property to a buyer after a tradition sale of real estate. Funeral and end-of-life expenses must be paid as well as any debts. These transaction fees often happen much quicker when beneficiaries have immediate control of assets via a Trust as opposed to going through the Probate process.
Two major estate administration costs that occur through Probate but can be avoided with a Trust are 1) the Government's Estate Administration Fees and Executor Fees; and 2) Attorney's Fees. North Carolina charges the estate 4% on every $100 that goes through Probate. North Carolina law also allows Executors to charge up to 5% of all the receipts coming in and out of the estate (all the assets coming into the estate and all the expenses being paid out of the estate). These fees add up quickly. The other cost, which is often hidden, is the Attorney's fees. The Probate process in North Carolina can be very confusing and frustrating for many people. This leads them to get help and eventually hire an Attorney to figure it out. Attorney will charge hourly fees that often range from $200 to $350 an hour. Attorneys fees are paid out of the estate before beneficiaries get distributions and because it is court-supervised it is hard to avoid. These fees are often avoided, or at least significantly decreased, by avoiding Probate and using a Trust, and leaving detailed estate administration instructions to administer an estate from a Trust.
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