When one spouse passes, no estate tax is required to be paid to either the federal government or the Commonwealth of Massachusetts. This exception is called the “Unlimited Marital Deduction” because no matter the size of the estate, a surviving spouse will not have to pay death taxes upon the death of their spouse. This is important in the short run, but in the long run, death taxes will catch up to the family. When the last living spouse dies and the estate passes to his or her beneficiaries, federal and state taxes may be due, depending on the size of the estate, perhaps at an even higher rate if the estate has increased in value.

Federal and State Death Taxes – and Exemptions
After your death, your family may be liable for federal estate tax and state inheritance tax. These taxes are in addition to any expenses you may have to pay such as probate and legal fees, and, under current federal law, can be between 41–55% of every dollar of your estate over the exemption thresholds outlined below. “Estate taxes” are often referred to as “Death taxes.”

The Federal Death (“Estate”) Tax
After your death, the federal government allows your beneficiaries to receive up to $5,340,000 (indexed for inflation) without paying death taxes. Every dollar above that will be taxed unless there is a plan in place before your death to avoid high death taxes.

Massachusetts Death (“Estate”) Tax
Many estates that do not owe federal estate tax will, nevertheless, owe Massachusetts estate tax.  This is because the amount that passes tax-free for Massachusetts’ purposes is much less than what passes tax free under federal law. While the federal estate tax exemption is currently $5,340,000 per person, the Massachusetts exemption is only $1,000,000.  Although the $5 million estate of a Massachusetts resident will pay no federal tax, that same estate nevertheless will owe substantial Massachusetts tax on over $4 million in assets. 

The Massachusetts Estate Tax applies to all estates of Massachusetts residents.  The $1,000,000 exemption is a filing threshold.  That is, a Massachusetts estate tax return must be filed—even if no tax is actually due—for any Massachusetts decedent whose “gross estate” (the gross value of all property owned at death or the ownership of which otherwise legally is attributed to the decedent) exceeds $1,000,000.

A Living Trust is an excellent way to avoid the probate process, whether you’re still alive or have passed away. In a Living Trust you’ll transfer the title for all of your assets out of your name and into the name of the Trust. This is done by changing the name on the deeds to your real property, and by signing transfer of ownership documentation for other assets.

This leaves you, personally, with little ownership of anything. But once everything is in the name of the trust, you and/or your spouse can be named as “Trustees,” which means you have the power to make all decisions about every asset the trust owns. You can even revoke the Trust at any point and reclaim formal ownership. If you become ill or die, your previously named “Successor Trustee(s)” will take over the management of the Trust’s assets, but will control them to your specifications.

One significant advantage of having a Living Trust is that upon your death, there’s no need to go through the probate process. Your family will avoid unnecessary probate court and attorneys’ fees, and there’s no need to delay the distribution of your assets; intended heirs can receive their inheritances instantly. Your successor trustee must follow your written instructions on how you intended your estate’s assets to be distributed.

Estimated Death Probate Fees in Massachusetts

There are cases in which Joint Tenancy can help avoiding Death Probate. For example, if one person in a married couple dies, anything they owned in joint tenancy passes automatically to the surviving spouse. But when that surviving spouse dies (or if they both die at the same time), the entire estate is required to go through the full probate process.

Joint tenancy has even more disadvantages in other circumstances. In a case in which parents and their children own assets together, joint tenancy does not protect them from probate, can result in unintended beneficiaries, and can create legal complications around gift and death taxes. Overall, joint tenancy is an extremely poor estate planning tool.

Probate is Lengthy and Time-Consuming
Probate can be a very long and arduous process for your family. It usually takes at least eighteen months to complete; in some cases, probate proceedings go on for years. Even under the best circumstances, it’s almost impossible to fully process an estate through probate court in under twelve months due to the complexity of the process and stringent court requirements.

Your Estate in Probate Becomes Public Record
Whatever pains you took during your lifetime to maintain your privacy will be irrelevant if your estate winds up in Death Probate. All records of probate proceedings and every detail of your estate are open to public scrutiny. Anyone who’s interested can see your probate file which includes details of every asset you owned at death, the name of every creditor you had (plus the amount you owe), and exactly what each of your heirs is intended to inherit. Unscrupulous salespeople often use this information to sell goods and services to grieving family members who have inherited money or other assets. If you owned a business, even confidential business information can be revealed during the probate process, making your surviving business vulnerable to competitors after your death.

Multistate Probate
Adding to the already time-consuming and expensive process of Death Probate, if you own property in more than one state, a new probate must be filed for each state in which you owned property. Because each state has jurisdiction over property within its borders, this “ancillary probate” requires that the same Death Probate process be followed, and a local attorney be retained to settle the estate.

Death Probate has several other serious disadvantages:

• Your family loses control of your estate and cannot sell assets, or use estate cash to purchase assets, without the court’s permission.
• Opportunities to buy, sell, or transfer assets may be lost to the slow-moving court proceedings.
• Many families suffer emotionally during the probate process because the court proceedings are a constant reminder of their loss.
• Because of the stressful process, fighting within families is a common side effect of probate, especially if one person has been named the executor of the will, which leaves other family members feeling powerless.

According to a recent national survey, the average cost of Death Probate is typically between five and ten percent of an estate’s gross value. Of that amount, around 60% goes to pay attorneys’ legal fees, while the rest goes to pay personal representatives, and other costs.

Every state has a different method for calculating probate court fees, including the fees that attorneys and personal representatives demand. In some states, there are no limits to what a probate attorney can charge a client. In others, fees are limited to a maximum percentage of the estate’s worth. In any case, the fees can be a tremendous burden on your family. For example, a married couple could potentially pay probate fees upon the death of each spouse, each time chipping away even further at their intended heirs’ inheritances.

Not only are these fees extremely high, but in states where the fee calculation is percentage-based, they are especially unfair because fees are calculated based on your estate’s gross—not net—value. For example, if you own a property that’s worth $1,000,000 on the market, but you owe $600,000 on it, your probate fees will be calculated using a percentage of the $1,000,000 figure, not the $400,000 in equity owned by the estate after debts, liens, or other expenses are paid. Because of this lopsided calculation, your estate will be forced to pay higher fees.

Death Probate is the court process of distributing and managing an estate after your death. Even if you have a written will, it must go through the probate process. Debts need to be paid, and assets need to be distributed to your designees. The court takes care of these tasks for you. Simple as it sounds, Death Probate is a tedious and lengthy process that can tie up assets for months, and consume the value of your estate in court and attorney fees.

There are five basic steps that every estate goes through in Death Probate.

1. File the Petition
Before the probate process can begin, someone must formally file a written petition to the probate court and pay the filing fee. If you have no Living Trust, the court will then approve or appoint someone from your family to be your personal representative, more formally known as your will’s “Executor” or “Administrator.” Because the probate court’s paperwork and filing procedures can be so complex, most personal representatives find it necessary to hire an attorney even when it is not legally required.

2. Publish Notice to Creditors
This step of the probate process can take months to complete. First, every debt you owe must be documented. The court then notifies the deceased’s creditors by mail and by placing an ad in the local newspapers. This gives creditors an opportunity to file a claim for payment with the court. The probate court decides how long this portion of the proceedings will be left open for creditors to file claims. In most states, this period lasts several months. Death is not an escape from financial obligations.

3. Appraisal and Inventory of All Assets
While the notice to creditors is being published, every asset in an estate must be listed and appraised. During this phase, assets are usually “frozen,” meaning they can’t be sold or distributed to heirs without written permission from the court. This includes everything from real estate and investments to furniture, antiques, jewelry and more. Formal written appraisals can be costly and the estate must pay them out of pocket.

4. Distribution of Payments on Debts, Claims and Taxes
After the court has approved creditors’ claims, it gives approval for the estate to pay the claims. On top of creditors’ claims, death taxes must also be paid, if applicable. The estate proceedings must stay open until all liabilities are paid. But sometimes wills are “contested,” which means that anyone (usually heirs who feel slighted by the will) can file a lawsuit with the probate court to try and gain access to what’s left of the assets. These contests not only prolong proceedings for months or years, but have been known to tear families apart.

5. Final Distribution and Closing of Estate
Once any contesting lawsuits are settled, the court officially orders the estate’s Executor to pay all remaining debts, claims, taxes, attorney’s fees, personal representative compensation, and other expenses. If the estate doesn’t have enough liquidity to pay these expenses, the court will order that the estate be subject to a public auction or estate sale to raise the cash. If this is done in a depressed economic climate, the estate’s assets may bring in less than they might have under more favorable circumstances. Whatever is left after all debts are paid will finally be distributed to beneficiaries (if there is a will) or to whom the court designates as heirs (if there is no will). Then the probate court can finally close the case.

A Living Trust, if well written, can help you avoid the expense and lengthy process of Living Probate. There is a section in the Living Trust that lays out exactly how you want your estate and health care to be handled in the that event you’re unable to manage your assets yourself. Your fellow trustees are bound by law to follow your instructions, so the probate court doesn’t have to assume a role in your life. This relieves your family of the stress of working with the courts, plus leaves you with the assurance that things will be handled according to your wishes.

Probate court isn’t just for processing wills after death. If you become mentally disabled and can no longer make decisions about your own care (and how to pay for it), the court will appoint an agent to take over your personal affairs. That includes making decisions about your assets. This kind of “Living Probate” is also known as “Conservatorship” or “Guardianship Proceedings.” The Living Probate process is very time consuming and expensive, plus your assets and debts are exposed to the general public through the process.

Joint Tenancy and Living Probate
If one of the joint tenants in a joint tenancy ownership is mentally incapacitated or otherwise unable to make a major decision regarding property (such as the sale of property), nothing can be done without the help of the probate court. The court actually takes over the incapacitated joint tenant’s role, and will manage the property until the incapacitated owner recovers or dies. The risk of leaving your property in the hands of the court, which does not necessarily have your best interests or those of your co-tenant in mind, should be avoided at all costs.

A Will and Living Probate
Since a will only goes into effect after your death, it plays no part in a Living Probate. It also does nothing to protect your assets during difficult times that can be very expensive if you or your spouse needs nursing or home care.