What is estate shrinkage?
Estate shrinkage is the loss in an estate's value between death and distribution, caused by federal and state estate taxes, probate court costs, debts, funeral expenses, executor commissions and professional fees. Effective planning reduces how much of the estate is consumed before heirs inherit.
What costs reduce a US estate the most?
For large estates, federal estate tax (40% above the exemption) and any state estate or inheritance tax are the biggest items. For most estates, probate costs, debts, funeral expenses, executor commissions and legal fees are the main sources of shrinkage.
How can I reduce estate shrinkage in the US?
Strategies include a revocable living trust to avoid probate, lifetime gifting to reduce the taxable estate, irrevocable life insurance trusts (ILITs) to keep insurance out of the estate, and beneficiary designations on retirement and payable-on-death accounts so they pass outside probate.
How much does probate cost in the US?
Probate costs vary widely by state but commonly run 3–7% of the estate when court fees, executor commissions and attorney fees are combined. States with streamlined or small-estate procedures cost less; states with percentage-based statutory fees (like California) can be considerably more expensive.