On death, if you have to get probate for a will, you will pay probate fees - basically, a tax - on the value of the Estate. Normally, you're looking at half a percent on the first $50,000 and 1.5% on everything thereafter. So on any estate of any reasonable size, you're looking at thousands of dollars.
There are ways of reducing or eliminating that tax, but are to be approached with caution.
First of all, not all wills need to be probated. Some institutions will allow you to deal with assets of up to a certain value without the need for probate. (For example, each bank will have it's own cap, but for accounts under a specified amount, they will deal with the estate trustee on the basis of the will and an indemnity.) If you don't have any assets in your estate that require probate, then you don't need to probate the will and don't need to pay any probate tax.
However, if you have even one asset in a will that requires probate, all the assets to be distributed under the will are subject to probate tax.
One way of dealing with this is to create multiple wills: One for assets that won't require probate and one for assets that might. You need a lawyer for this: If framed improperly, you might end up with the second will actually revoking the first. Thus, the cost of actually making the multiple wills means that you have to really ask whether or not your savings on probate will be worthwhile; it depends on the value of the non-probate assets in the estate.
Next thing to consider in estate planning: Insurance plans with designated beneficiaries never become part of the estate. These are really helpful for the beneficiaries: The amounts aren't subject to probate, but furthermore they aren't subject to the claims of creditors.
Another common approach is to use jointly-held assets. An asset held by two people in what's called "joint tenancy" passes by right of survivorship to the surviving joint tenant, and never forms part of the estate. (As distinct from "tenancy in common', in which your interest in the property passes to your estate.) This is something you will frequently see with real property (i.e. your house) and with bank accounts. Spouses will frequently take significant advantage of this, but when you start planning succession to children or other heirs this way, it gets tricky.
Firstly: You can put a bank account jointly into your name and the name of your child, but without a declaration (in your will or otherwise) that you intend the full benefit of the assets in the account to pass by right of survivorship to your child, then your child may be deemed to hold the assets "in trust" for your estate.
Secondly: If you have multiple beneficiaries, it's difficult to ensure an equal distribution of your estate this way.
Thirdly: Putting your house into joint tenancy with your children can be a risky venture, and might not save you money in the long run. There are a lot of potential risks. One of them is that your children will actually have an ownership interest in the house. You can't go back afterwards and say "Well, it's still my house"; you own only a partial interest in it, and your children also have ownership rights, so if the relationship breaks down, you could end up in trouble.
Even if the relationship doesn't break down with your kids, though, their ownership interest might end up subject to creditor claims, spousal interests, etc. If your son (who has an ownership interest in your house) and his wife stay at your house even briefly, then it's possible that the wife may be able to assert a matrimonial claim against the house. If your daughter gets sued successfully, then her creditors will be able to enforce the judgment as against your house.
Major risks, among others. But the benefits are good, right? You might be saving up to 1.5% of the value of the house in probate...so if the house is worth $300,000, that's $4500 you're saving. Perhaps, but there are other considerations. Firstly, there are the transaction fees of changing the title, but that's small in comparison. But there may be a larger tax burden you end up having to deal with.
Capital gains tax. There's an exemption for your principal residence. But if the house is half-owned by your child, and your child doesn't live there, then the child's half is not subject to the exemption. So you put your house into a joint tenancy between yourself and your child when you're 68 years old, and you live another 20 years. Over those 20 years, your house appreciates in value, and your child's portion of that increase will be subject to capital gains (income) tax. The appreciation could easily be a six-digit increase over that period of time. So the capital gains tax on your child's share on that could very easily exceed your probate savings.
There are other options, as well, such as inter vivos trusts. Ultimately, there are a lot of ways to plan your estate so as to improve its value and save money for your heirs. But not every idea is a good one for everyone, and your particular needs will depend on your particular circumstances. Talk to a qualified financial advisor and/or lawyer to make the most out of your estate.
This Blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.