Did you know that even in death, we cannot escape the tax collector?
When we die, estate administration tax becomes payable under the process of probate. “Probate” is a court process where your estate is assessed as to value and content for the purpose of calculating estate administration tax. This tax must be paid before any beneficiaries can be paid from your estate.
These fees, which are approximately 1.5% of the value of your estate, are calculated as follows:
|$1,000 or less||$0.00||0%|
|Over $1,000 but less than $50,000||$5 for each $1,000 comprising your estate||0.5%|
|Over $50,000.00||$15 for each $1,000 comprising your estate||1.5%|
When probate is required, it can lead to delays and increased legal fees in administrating your estate. However, there are ways to not only limit the amount of tax your estate has to pay, but also to avoid the probate process all together.
For example, when real estate transfers to a beneficiary are involved in the administration of an estate, then probate is always required. There are tips and tricks for getting around this, such as joint ownership of property.
You can also consider separating your personal and corporate assets under two separate Wills. This way, assets that would attract probate tax, such as your home, will only apply to your personal Will and not include your corporate assets.
In situations where probate tax is unavoidable, then the focus should be on limiting the taxable amount as much as possible. This can be achieved by designating beneficiaries directly through your bank and life insurance providers. These funds then flow directly to your beneficiaries as designated outside your Will and do not attract estate tax.
Remember, careful estate planning can save you (or your estate) a hefty tax bill!
Robin K. Mann, J.D., Associate Lawyer