Secretary on telephone intercom - "Mr. Robertson, there is a new client on the line, Mr. Jones, who wants you to prepare a Will."
Mr. Robertson - "This is Bill Robertson, Mr. Jones. My secretary says you want me to prepare a Will?"
Mr. Jones - "Yes. What do you charge to prepare a Will?"
Mr. Robertson - "Mr. Jones, there are several different kinds of Wills, depending on your financial and family situation. The cost varies based on the complexity of the Wills and the estate planning necessary. Before I can advise you on the type of Will best suited to your financial situation and testamentary wishes, it will be necessary to analyze your financial situation."
Mr. Jones - "All I want is a simple Will, just leaving everything to my wife, or if she dies first, to the children. My estate will be less than the exemption amount for estate taxes when I die. What do you charge for a simple Will?"
Mr. Robertson - "My fee for estate planning is $225 per hour and my fee for a simple Will is $500, but in my thirty years of law practice, I have only done two simple Wills and they left everything to charity. Something always indicates a more complex Will is required. For example, how old are your children, and are they all children of this marriage, and does your wife have any children by a prior marriage? Do you have any grandchildren? Do you have an IRA or a 401k? Do you own any assets jointly with right of survivorship with anyone? How much life insurance do you have? Do you have a living trust? Any one of those answers could indicate the need for estate analysis and planning."
Mr. Jones - "$500 - OK I'll call back if I want to go forward."
Mr. Robertson - "Mr. Jones, I said $225 per hour for estate planning and $500 for a simple Will. If you need a more complex Will the cost is greater."
Mr. Jones - "I don't need any estate planning, I just want to leave it all to my wife or kids. I call back if I want to go forward." Mr. Jones does not call back. He gets a form Will from a "digital lawyer" software kit that cost $50 and does it himself. His wife is reluctant to sign a do it yourself Will, so he just does one for himself. He just saved $450!
Mr. Jones and his wife are in an auto accident six months later. She dies immediately and he dies a few days later. They owned a $240,000 house in Georgia as tenants in common, on which they owed a $120,000 mortgage. They owned a $15,000 two week timeshare beach front condo in another State, as joint tenants with right of survivorship. They owned three cars: his, hers and one driven by his 18 year old son from his first marriage who is still in high school and was living at home with them. He had a 401k at work with $140,000 in it and his wife as beneficiary. She had an IRA with $35,000 in it and her husband as beneficiary. They had a joint brokerage account and had $88,000 in mutual funds. They had a joint checking account with right of survivorship with a balance of $6,000. He had $200,000 life insurance, with double indemnity for accidental death, his wife was primary beneficiary and no secondary beneficiary named. She had a $50,000 life insurance policy with double indemnity, her husband was primary beneficiary. Her son from her first marriage is 14. Their daughter is 5. His form Will left everything to his wife if she survived him, otherwise to their three children (his, hers and theirs by name). He named his wife as Executrix and his brother as alternate. He named his brother as guardian of the children if necessary.
This is what happened:
1. Brother probates Will in Georgia and qualifies as Executor. Court cost $150 including serving children. Attorney fee to probate Will, $300.
2. Time required: one and a half months due to need to serve minor children and have guardian ad litem appointed.
3. Cost of guardian ad litem $300.
4. Will admitted to probate without objection.
5. Because the house was owned as tenants in common, and the brokerage account did not specify "with right of survivorship" so it was also tenants in common under Georgia law, the wife died intestate (without a Will) owning half of those assets.
6. Her ex-husband as natural guardian of their 14 year old son, filed for administration of her estate in Georgia. Her sister also filed for administration and challenged the right of the ex-husband to serve as administrator.
7. Brother sees that probating the Will was the easy part, and that administering the Will is fraught with legal pitfalls and estate tax issues. He asks probate attorney to assist at $225 per hour. He wants to be paid for the time he is spending as Executor, so he asks attorney to seek statutory fees for him as Executor.
8. Inventory of Wife's Estate prepared as follows:
- House 1/2 interest $120,000
- 1/2 mortgage on house (60,000)
- 1/2 Furniture in house 20,000
- 1/2 Brokerage account 44,000
- 1/2 Timeshare outside estate 0
- IRA outside estate 0
- Life Insurance outside estate 0
- Checking account outside estate 0
- Total Wife's Estate $124,000 Estate taxes - none.
9. Expenses of Wife's Estate:
- Petition for Intestate Administration
Court costs including service $ 175 - Attorney fees to prepare & file 300
- Litigation between ex-husband and sister 2,500
- 1/2 Cost of sale of house 9,600
- Administrator fees 6,200
- Attorney fees during administration 1,500
- Total expenses $20,275
Expenses - 20,275
Net for division $103,725
Division per intestate succession:
Husband 1/3 = $34,575 to Husband's estate
Son of prior marriage 1/3 = $34,575 to Guardian for her son
Daughter 1/3 = $34,575 to Guardian for daughter
Husband's son of prior marriage - none
Cost to open Guardianship for son = $1,575
Net $33,000 in custodial account in ex-husband's name
Cost to open Guardianship for daughter = $1,575
Net $33,000 in custodial account in brother-in-law's name
10. Inventory of Husband's Estate prepared as follows:
- House 1/2 interest $120,000
- 1/2 mortgage on house (60,000)
- Claim on wife estate 34,575
- 1/2 Furniture in house 20,000
- Timeshare condo 15,000
- Three cars in his name 30,000
- 401k 140,000 * (also owes income tax)
- IRA from wife outside estate 35,000 * (also owes income tax)
- 1/2 Brokerage account 44,000
- Life Insurance proceeds 400,000
- Wife's Life Insurance 100,000
- Checking account balance 6,000
- Total his Estate $884,575
11. Expenses of Husband's Estate:
- Petition for Probate of Will:
- Court costs including service $ 150
- Attorney fees to prepare & file 300
- Guardian ad litem 300
- 1/2 Cost of sale of house 9,600
- Collateral Probate cost in State where
- Timeshare is located 2,000
- Funeral Expenses for both 12,000
- Expenses of his last illness 30,000
- Executor fees 44,000
- Accounting fees & Estate tax return 10,000
- Attorney fees during administration 15,000
- Total expenses $123,350
- Gross Estate $884,575
- Estate Taxes -52,000
- Income Tax on IRA & 401k:
- US @ 28 % -49,000
- GA @ 6% -10,500
- Expenses -123,350
- Net for division $649,725
- Division per Will:
- 1/3 to his son of first marriage $216,575
- 1/3 to Guardian of wife's son $216,575
- 1/3 to Guardian of daughter $216,575
Total to his son of first marriage $216,575 outright
Total to her son of first marriage $251,150 Guardianship to ex-husband
Total to their daughter $251,150 Guardianship to brother
Total to Estate Taxes $ 52,000
Total to Income Taxes $ 59,500
Guardianships cost about 5% of total of income and receipts each year, plus court costs ($75) and bond ($300) each year. Investments are limited to FDIC insured instruments, Treasury Bills or Treasury Notes.
Mr. Jones "saved" $450 by having a simple Will.
It disinherited his son from his wife's estate, and gave his son the money from his estate outright while he is still in high school. It cost his son $34,575.
It cost his estate unnecessary estate taxes $52,000
It cost his estate additional attorneys fees on his wife's estate $4,000
It cost unnecessary guardianship expenses $3,150
It cost collateral probate $2,000
Total additional costs for a simple Will $61,150
If Mr. Jones had gone through the estate planning process, had their assets allocated properly, had the first to die's estate tax saving assets put in a bypass trust, had contingent trusts for all three children, he would have saved that $61,150 and spent about $1,200 on planning and asset allocation and about $3,000 on Wills and Trusts.
When Mr. Jones asked me to prepare a simple Will for him, he was asking me to commit malpractice.
Estate Planning is a necessity in the financial world today. Ideally, it is done by a team of Estate Planning Attorney, Life Insurance Agent, Certified Financial Planner and Trust Officer. It begins with an estate analysis and asset reallocation to position the estates of both spouses for maximum use of the estate tax exemption equivalent. If there is no spouse, the planning becomes more difficult. Insurance Trusts may be necessary to prevent insurance proceeds from being taxed. ByPass Trusts may be necessary to use both exemption equivalents. Trusts for children may be necessary to avoid guardianship costs. Charitable Remainder Trusts may be necessary to reduce the tax bite on IRAs and 401ks, giving the children more over time than they would have gotten outright, and giving a major gift to ones church, school or favorite charity. Living Trusts may be advisable for disability planning, for avoiding collateral probate and for avoiding guardianship costs. Family Limited Partnerships may be advisable for reducing tax values and facilitating lifetime gifting to children. Buy-Sell Agreements funded by life insurance may be advisable to liquidate business interests.
There is no substitute for Estate Planning, only huge costs when planning is not done. Saving money on Estate Planning is like writing blank checks to the IRS and the Probate Court. Your Estate Planning team should be able to save you five to ten times the cost of the planning and documentation cost the first time through. You should then update the analysis every five years. Unless your estate grows significantly, you probably will not have to amend your documents, but laws change quite frequently, and new advantages are always being found.
CAVEAT. The creation and use of any of these techniques requires competent independent legal counsel and tax advisers. This article is not legal advice, and you may not rely on it as such. Laws of the various States are different by degrees, and the Congress cannot leave the estate tax laws alone from year to year. Even if they do, the IRS changes its regulations or a Court renders a decision that changes something. You need competent local counsel before you act on any matters described herein.