10 Ways to Reduce Estate Planning Costs


1)Having a valid will.  A will is a document where you decide who gets your real and personal property, to take effect after death.  Having a valid will can reduce estate costs by directing how you want your property divided after you die.  Without a will, the state determines who gets your property through.  Intestacy can be more expensive than dying with a will since South Dakota now allows “informal probate” without going to court.

2)Guaranteed Probate Fee Agreement.  Probate is a court procedure by which a will is proved to be valid or invalid; or the legal process wherein an estate is administered and distributed to heirs.  Probate fees to attorneys can run as high as 3% of a decedent’s gross estate.  A Guaranteed Probate Fee Agreement establishes a probate fee before you pass away.  This means your heirs pay a flat fee for specified probate work performed by an attorney, not a percentage of the gross estate.

3)Using South Dakota’s Informal Probate Law.  In the past, probating an estate consisted of attorneys waiting in court for Judges to sign a variety of documents to complete disbursement of an estate.  This time consuming and expensive procedure has been replaced by “informal probate” procedures of the Uniform Probate Code.  Under South Dakota law, the time and expense necessary to probate an estate has been reduced considerably.  Using the “informal probate” law is as simple as placing a clause in your will requesting your Personal Representative to use the procedure.

4)Using a Living Trust.  A Living Trust can be created and operated during the lifetime of the trustor.  The trust holds property and the document directs how the property will be distributed upon the trustor’s death.  Property placed in a Living Trust is not subject to probate except state and/or federal tax filings.  Living Trusts eliminate some, but not all, expenses associated with probate.  These trusts are more expensive to create than wills and Living Trusts also incur administrative costs not associated with wills, but are appropriate for many families

5)Using a Bypass Trust.  This trust should be used by couples with combined estates exceeding $1,300,000.  It takes advantage of each spouse’s applicable credit amount.  It utilizes the maximum amount allowed to pass to heirs without incurring federal estate taxes ($650,000 in 1999 and gradually increasing to $1,000,000 in 2006).  The Bypass Trust is designed to utilize the unlimited martial deduction – the concept of no taxation on property passing between husbands and wives.  The trust is created by a will and is used to bypass any federal taxes due when the first spouse passes away.  The Bypass Trust is also known as a Credit Shelter Trust, or other descriptive names. 

6)Using the Family Business Estate Tax Exemption.  The estate of an owner of a family business (including farms) now can qualify for an additional federal estate tax exemption if certain requirements are met.  In 1999, the exemption is $650,000.  This amount gradually decreases until the year 2006 when the exemption will be $300,000, but the applicable credit amount for each person gradually increases during this same time from $650,000 to $1,000,000.  This is a result of recent changes in federal estate tax law.

7)Gifting.  Each person is allowed to give to anyone they choose up to $10,000 per year tax free.  Gifting is an easy way to reduce your estate if federal estate taxes may be levied against your estate.

8)Life Insurance.  Insurance can provide liquidity to an estate to help defer costs of probate and federal and state taxes.  It can also help to “even out” distributions from your estate.  For example, when one heir receives the family farm worth $250,000 and another heir receives the proceeds of a life insurance policy worth $250,000.  Life insurance is an important estate planning tool because most can be structured tax free regardless of the amount.

9)Distributing Your Personal Effects as You Want.  Wills generally contain a clause directing the distribution of personal property.  All to often these clauses are vague or incomplete.  They often do not distinguish between “personal property” and personal effects.  Dividing Mom’s diamond ring equally between three children is a legal impossibility.  A great deal of time, expense and heartache can be avoided by specifying in your will how your personal effects are to be distributed.  This can take some time and effort, but it can avoid family feuds and lifetime bitterness over estate distribution.

10)Using a Dynasty Trust.  A Dynasty Trust is an irrevocable trust created to benefit multiple generations and designed to exist as long as allowed by applicable law.  In South Dakota, a Dynasty Trust can exist forever.  Large legacies can be passed to future generations with minimal estate taxation through a properly drafted Dynasty Trust.  It is an estate planning tool having increased popularity.