Breakdown of Estate Planning Costs

Breakdown of Estate Planning Costs – SmartAsset

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Estate planning costs vary, and the difference in fees can only add to the emotional challenges. It’s difficult enough to begin managing matters of death without confusion on top of that. The pandemic has only compounded such challenges. We are most stressed when we don’t understand, though. So, if you’re trying to navigate the basics of estate planning costs, below are a few core concepts that might help. Consider working with a financial advisor if you need help setting up an estate plan or managing inherited money.

Why is Estate Planning Important?

Before diving into costs, it’s important to lay out why an estate plan is so vital. Estate planning is a crucial measure in protecting not only your interests but your family as well. Without it, all of the assets you’ve worked hard to gain, including money, property and valuables, could get caught up in a legal tug of war. A comprehensive estate plan prevents in-family strife following your passing.

Therefore, it gives you the chance to take protective measures for your children. In the event you pass away, you’ll want them to have a guardian they can rely on and to minimize their financial burden as much as possible. Otherwise, their inheritance could be swallowed up by fees and taxes, leaving them with little in the end.

Overall, the significance of an estate plan is an allowance for your family to grieve your loss without having to fear the financial repercussions that might cause.

Hiring an Attorney vs. Estate Planning Online

The internet is useful for small fixes and tips, but you shouldn’t rely on the internet for everything. When it comes to something as important as estate planning, you’re better off hiring a professional. Do-it-yourself kits are advertised online, but their main draws are their simplicity and low costs. That might appeal to someone with no heirs or substantial property, but not if you have any specialized needs.

Sites may only help you create a will. A will cannot help any of your heirs avoid probate, which could incur estate taxes on the whole. The chances of issues like these only increase the more complex your situation is without a plan to match.

While internet legal sites can be alright starting points for some basic estate plans, they will not be able to address the collection of concerns you may have. However, research can be a great advantage in a legitimate consultation with an attorney. So, bring any questions you have to your first meeting with your estate planner.

Types of Estate Planning Fees

Not all estate attorneys use the same pricing system, so you may receive a variety of estimates depending on the individual. When trying to budget for the cost of an attorney estate plan, it’s important to know who is doing the work, what type of plan you need and the legal fees your estate planning attorney prefers.

Hourly Rate

If your attorney can’t pinpoint a fixed fee to charge you, he or she will likely use an hourly rate. This would encompass any time your lawyer was working on your case. If your attorney asks for an hourly fee, they may also request a retainer upfront before they begin. This could be the total amount or a portion of it. If it’s the latter, they’ll bill you the rest at a later point in the process.

An hourly rate may come into play if your attorney believes that your estate plan will require extra time or effort due to its specifications. They may also have an hourly rate they consistently use based on their knowledge and experience.

Flat Fee

A flat fee is a fixed price your attorney may offer to accommodate their estate planning work and experience. This pricing will typically cover preparing necessary documents, such as a will or a power of attorney. If your lawyer asks you for a flat fee, you should clarify what’s included in that plan. That is because it can change depending on the estate planner’s discretion. For example, some attorneys might not include a notary or helping with trusts.

Your attorney may also require you to pay a partial or total amount of a flat fee before they begin working. So, it’s best to ask about the payment expectations for a flat fee and what it covers ahead of time.

Contingency Fee

A contingency fee is used in situations where you will receive monetary compensation. For example, when you win a court case and accept awarded money, you pay your attorney a percentage. Because of this, estate planners don’t typically use contingency fees. They don’t make sense without an opposing side.

However, if you need to settle an estate, a probate attorney might use this type of fee.

Factors that Can Increase Your Bill

Fees are just one variable that could affect your estate planning bill. Any special considerations or tasks could increase the total fee. You should know what to expect, so talk directly with an attorney. Ask to schedule an upfront consultation in person, usually free of cost, and supply you with an estimate. Also, there’s no harm in comparing prices. So, feel free to speak with a few potential attorneys and pick the one best suits your needs.

Why Do Costs Vary By Estate Plan?

Estate plan costs vary because each estate plan has unique needs. The lower end of the spectrum can include a basic will written for as little as $150 to $200. But a more complex plan may cost you upwards of $300 per hour. If you want something that reflects your situation and the necessary measures it will take to protect your assets and heirs, it will cost more. The cost also depends on how many documents you need prepared beyond your will, like a power of attorney and the circumstances of your heirs.

There is no “one-size-fits-all” plan for an estate. For example, a couple with underage children will be focused on a plan that emphasizes guardianship, long-term care and financial security. However, add extra factors such as previous marriages and multiple trust funds. That situation calls for more accommodations while spreading out the distributions. This shouldn’t stop you from shopping for the most affordable price, but don’t let it be the deciding factor. If you’re not careful, your heirs could lose money regardless because the estate wasn’t properly managed.

How to Minimize Your Estate Planning Costs

Estate planning can be unpredictable and costly. Depending on your situation, you may be paying an unexpectedly high fee. If you plan accordingly, though, you will find there are ways to help minimize the costs. Here are a few suggestions for you to consider:

  • Pick the right attorney: Research firms, read reviews and compare them. Try to schedule an in-person consult with each one.
  • Know your needs: Go into your first meeting educated. Know what a basic estate plan includes and whether you’ll need more documents.
  • Discuss money upfront: Whether it is on the phone or in-person, a firm might offer the first consultation free. Use that opportunity to discuss rates and how long the process might take.
  • Put it in writing: Once you choose your attorney, make sure you draft a written agreement you both sign. It should include the work your lawyer will do as well as any costs.

The Takeaway

Having substantial assets means lots of planning: retirement planning, tax planning and estate planning. When doing estate planning be aware of your options. You can do it online to save money or you can hire an estate planning attorney. Taking the latter course will involve various fees, some of which may be flat fees, contingency fees or hourly fees. And while using a lawyer is more expensive, it reduces significantly the likelihood that your digital DIY estate plan will hold up in court.

Tips on Estate Planning

  • The probate process can hold up the process of distributing your assets for as long as a year. However, with good estate planning, you can help your heirs avoid this inconvenience. A professional financial advisor can help you plan out your estate and manage your wealth on top of that. To find one in your local area, use our advisor matching tool. If you’d like to get connected to one, get started today.
  • A revocable living trust isn’t the only trust that can help you secure your assets from probate. Look into how different trusts work to see which kind is right for you.

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Ashley Chorpenning Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
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Washington, D.C. Estate Tax

Washington, D.C. Estate Tax — SmartAsset Blog

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Washington, D.C. does levy an estate tax on the estates of certain people after they have died. Specifically, the D.C. estate tax applies to any estate worth more than $4 million starting in 2021. In 2020, the threshold was $5.7642 million. For anyone who died prior to 2021, the rate of the estate tax is graduated and runs from 12.0% to 16.0%. Estate planning isn’t easy, and if you are planning for your estate or dealing with the estate of a loved one, you may need some help. Consider finding a financial advisor to help you using SmartAsset’s free financial advisor matching tool.

Washington, D.C. Estate Tax Exemption

In 2020, Washington, D.C. lowered its estate tax exemption to $4 million. Previously, it stood at $5,764,200. This means that if a person dies in 2021, any money in his or her estate in excess of $4 million will be subject to the estate tax. If the person died in 2020, it only applies to money in excess of $5,764,200. The estate tax exemption in D.C. is not portable between spouses. When the second of two spouses dies, that person can only apply his or her $4 million exemption, not that plus the $4 million exemption the deceased partner was entitled to.

Washington, D.C. Estate Tax Rate

The estate tax rate in D.C. is progressive, meaning that the rate goes up as the size of the estate increases. The estate tax brackets for 2021 have not yet been published. For this reason, we’ll be presenting here the brackets from the 2020 tax year, which still apply if the person who died passed away in 2020. The major difference, though, is that prior to 2021, the threshold for the estate tax was $5,764,200, while for people dying in 2021, it will be just $4 million. Still, we can use the 2020 numbers to show how calculating an estate tax burden works.

For 2020, the estate tax in Washington, D.C. ranged from 12.0% to 16.0%. The table below shows all of the rates. To figure out how much you will owe, first you’ll need to find your total taxable estate above the threshold in the first column of the chart below. In the second column, you can find the base taxes on money below your bracket. The third column shows the marginal rate you pay. Multiply that rate by any wealth above your tax bracket’s lower threshold. Add that number to the base taxes and you have the total you owe for the Washington, D.C. estate tax.

Here’s an example: Let’s say your total estate is worth $9.5 million. Subtracting the $5,764,200 exemption, you have a taxable estate of $3,735,800. Next, find where that number falls on the chart. The base taxes for the bracket is $436,512. The bottom of the threshold is $3,237,600, so we subtract that from $3,735,800 and get $498,200. That amount multiplied by the marginal rate of 15.2% is $75,726. When we add that number to the base taxes ($436,512), we get a total tax of $512,238 owed on a $9.5 million estate.

$0-$237,600 $0 12.0% $0
$237,600-$1,237,600 $28,512 12.8% $237,600
$1,237,600-$2,237,600 $156,512 13.6% $1,237,600
$2,237,600-$3,237,600 $292,512 14.4% $2,237,600
$3,237,600-$4,237,600 $436,512 15.2% $3,237,600
$24,237,600+ $588,512 16.0% $4,237,600

*The taxable estate is the total above the exemption of $1 million.
**The rate threshold is the point at which the marginal estate tax rate goes into effect.

What Is the Estate Tax?

The estate tax is levied against some estates after someone has died but before the money passes on as directed in the deceased’s will or other legal documents. It generally only applies to estates worth a certain amount as determined by the state government levying the tax. The federal government also has an estate tax.

The estate tax is not the same as the inheritance tax, which is paid by someone receiving money from a person who recently died after they’ve gotten the money.

Washington, D.C. Inheritance Tax and Gift Tax

There is no inheritance tax in Washington, DC. If you are getting money from someone who lived outside of D.C. when he or she died died, though, check local laws. In Kentucky, for instance, all in-state property is subject to the inheritance tax even if the person taking ownership lives elsewhere.

D.C. also does not have a gift tax. The federal gift tax kicks in at $15,000 in annual gifts.

Washington, D.C. Estate Tax for Married Couples

The Washington, D.C. estate tax is not portable between couples. When both spouses die, only one exemption is applied to the estate.

Federal Estate Tax

The federal estate tax has a much higher exemption level than the D.C. estate tax. The estate tax exemption for 2021 is $11.7 million. Unlike the D.C. estate tax exemption, the federal exemption is portable between spouses. This means that with the right legal steps, a married couple can protect up to $23.4 million upon the death of both spouses.

If an estate tax exceeds that amount, the top tax rate is 40%. A full chart of federal estate tax rates is below. By following the same method described in the D.C. Estate Tax section, you can use the table below to figure out your federal estate tax burden.

$1 – $10,000 $0 18% $1
$10,000 – $20,000 $1,800 20% $10,000
$20,000 – $40,000 $3,800 22% $20,000
$40,000 – $60,000 $8,200 24% $40,000
$60,000 – $80,000 $13,000 26% $60,000
$80,000 – $100,000 $18,200 28% $80,000
$100,000 – $150,000 $23,800 30% $100,000
$150,000 – $250,000 $38,800 32% $150,000
$250,000 – $500,000 $70,800 34% $250,000
$500,000 – $750,000 $155,800 37% $500,000
$750,000 – $1 million $248,300 39% $750,000
Over $1 million $345,800 40% $1 million

*The taxable estate is the total above the exemption of $11.7 million.
**The rate threshold is the point at which the marginal estate tax rate goes into effect.

Overall Washington, D.C. Tax Picture

Washington, D.C. is moderately tax-friendly for retirees. Social Security payments are not taxed, but withdrawals from retirement accounts are fully taxed. The income tax in Washington, D.C. ranges from 4.00% to 8.95%. If you are moving to Washington and want to figure out your take home pay, use the paycheck calculator from SmartAsset.

The average property tax in the District is 0.55%, and sales tax sits at 6%.

Resources for Estate Tax Help

  • If the estate tax seems overwhelming, you should consider finding a financial advisor to help you. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool connects you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors, get started now.
  • If you have a sizable estate, estate taxes on either the state or federal level could be hefty. However, you can easily plan ahead for taxes to maximize your loved ones’ inheritances. For example, you can gift portions of your estate in advance to heirs, or even set up a trust.

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Ben Geier, CEPF® Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance (CEPF®). When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.
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