Ask the Probate Judge—Probate v. Taxes
Rudd, appeared August 28, 2003, Albuquerque Journal, Business Outlook
Reprinted with permission
Editor's note: This column may not be quoted or reproduced in whole or part without express written permission of the author.
Q: What is the maximum asset value allowed to be owned by an individual that would not be required to go through probate? My husband and I own all assets jointly, but when the survivor of us dies, we'd like to have pre-planned our estate to avoid probate. M.S.T., Albuquerque
Your question raises an important issue. The simple answer is that the value of the assets does not determine whether a probate is needed. Rather, the title of each asset is the key to whether a probate is necessary.
How an account or property is titled controls who receives the account or property after the owner's death. As previous columns have discussed, assets held in joint tenancy, payable on death (POD) accounts, transfer on death (TOD) accounts, life insurance, transfer on death deeds, and trust property pass automatically to the named survivor or beneficiary without a court probate proceeding. If an estate contains assets worth more than $30,000 that are titled in the sole name of the decedent or as "tenants in common," then the estate would need a probate.
You can own assets worth a billion dollars. If all of the assets were held in joint tenancy, accounts with named beneficiaries, or a revocable living trust, no probate would be required. (You would probably owe considerable estate taxes on your billion dollar estate, however, unless you made substantial gifts to charities.)
To summarize, the titles on your assets determine whether or not a probate is necessary. The value of your assets is used to calculate the estate tax liability, if any, of your estate.
Q: What is the inheritance tax or death tax for New Mexico? M.P., Albuquerque
New Mexico's estate tax is tied to federal estate tax law. If no federal estate taxes are due, then no New Mexico estate taxes are due.
In 2003 estates worth $1,000,000 or less are not subject to estate tax. Estate tax rates start at 41 percent of the amount over $1,000,000 and rise to higher percentages for larger estates. For estates worth more than $1,000,000, once the estate tax is calculated, a portion of the tax due is sent to the state, and the remaining tax due goes into the U.S. Treasury.
In 2004 and 2005 estates of $1,500,000 or less are not subject to estate tax. Under current law this figure continues to increase to a maximum of $3,500,000 in 2009. The estate tax is repealed altogether in 2010 before reverting back to 2002 figures ($1,000,000) the following year. Confused? Don't worry; Congress is likely to revisit estate tax laws before 2011.