The Basics of Estate Legal Fees
Estate legal fees are a category of legal fees that encompass various expenses incurred during estate and probate administration. Essentially, any legal service that is required in an estate administration is part of that matter’s estate legal fees. However, there are a few issues to keep in mind.
First of all, the requirement in probate is that any estate legal fees charged be reimbursed to the attorney out of the funds of the estate. In other words, an attorney cannot bill an individual for services rendered to an estate, such as preparing the estate tax inheritance return.
Secondly , almost all the allowance of estate legal fees is overseen by the local court validating the existence of the estate. In order to be paid, an estate legal fee must be submitted to the appropriate local court for approval. Local courts will not approve an estate legal fee that is frivolous, above commonly accepted limits, or has been incurred poorly. If a local court finds that an estate legal fee has been improperly assessed, it will grant a motion to remove the fee from the estate. If you encounter this process with your estate, sense early on which fees may be questioned and which may not, so you can avoid additional stress down the line.
Types of Estate Legal Fees
There are several common types of Estate legal fees that can be incurred throughout the administration process. Each of these fees will be described below in alphabetical order.
Administration Fees
Administration fees are the fees charged by the estate trustee for the work performed in the administration of the estate. Ontario courts take the position that the reasonable estate trustee costs must be provided for out of the funds of the estate and cannot be recovered from the beneficiaries of the trust and estate. This is set out in Ontario Regulation 53/95 made under the Trustee Act that states:
Costs, charges and fees
6. (1) Subject to section 7, the remuneration payable to an estate trustee shall be "costs, charges and fees" for the purpose of subsection (1) of section 42 of the Act.
Maximum remuneration
(2) The maximum amount referred to in subsection 42 (1) of the Act is,
(a) in the case of an estate trustee who acts without a solicitor, 2.5 per cent of the total value of the property of the estate;
(b) in the case of an estate trustee who acts with a solicitor, 2.5 per cent of the value of the property of the estate that is realizable or 2.5 per cent of the value realized from the sale of the property of the estate that is not realizable, whichever is the greater;
(c) in the case of an estate trustee who acts without a solicitor and who also serves as a guardian of the property of a person who is incapable of managing property or of a minor, plus 2.5 per cent of the value of the property for which he or she is guardian; and
(d) in the case of an estate trustee who acts with a solicitor and who also serves as a guardian of the property of a person who is incapable of managing property or of a minor, plus 2.5 per cent of the value of the property for which he or she is guardian.
General rule
(3) Despite subsections (2) and (4), the maximum amount referred to in subsection 42 (1) of the Act is 5 per cent of the aggregate of the amounts determined in accordance with subsections (2) and (4).
Probate Fees
Probate fees are the ones everyone thinks of when they think of estate taxes. In Ontario, probate fees apply at the commencement of a process called probate, which is when an estate trustee applies to an Ontario court for a Certificate of Appointment of Estate Trustee.
There are two types of probate fees: the Estate Administration Tax (EAT) and the probate Tax paid for by estate trustees.
Estate Administration Tax (EAT)
Estate Administration Tax (EAT) is a tax based on the value of an estate that must be paid to the Ontario Minister of Finance when an estate trustee obtains a Certificate of Appointment of Estate Trustee through the probate process. The tax rate is $5.00 for each $1,000.00 of the value of the assets not passing under a will, or for which there is no will, as of the date of death, to a maximum of $247,000.00, and $15.00 for each $1,000.00 of the value of the assets above that amount.
For example, if the value of the assets of the estate is $300,000.00, the EAT payable when the estate trustee obtains the Certificate of Appointment of Estate Trustee under the Rules of Civil Procedure would be $1,295.00. ($247.00 + $795.00).
Estate Trustee Litigation Costs
Estate litigation costs are a wide range of fees. Generally speaking, these fees can be charged to the estate or to the parties that participated in the action.
Factors that Determine Estate Legal Fees
The cost of estate legal fees can vary significantly based on a variety of factors, including the size of the estate, the complexity of its contents, and the geographic location. Larger estates or estates containing substantial non-liquid assets, or assets that are difficult to value such as businesses, real property and art, may require more legal work for their administration. If there are creditor claims against the estate or if there is litigation between beneficiaries, the legal fees can be substantially increased.
Aside from the size and nature of the estate, certain geographical locations tend to have higher or lower average estate legal fees than others. Consultations with clients show that in downtown Toronto, Ontario, fees tend to be higher than other areas of the province, and province-wide have a significantly higher average than other Canadian provinces.
Managing and Reducing Estate Legal Fees
You can save your estate (that is what you leave behind) a significant amount of money by taking steps ahead of time to plan and organize your affairs. For example, when individuals die without a will, your loved ones or other committee can end up spending thousands of dollars obtaining court orders necessary for the administration of the estate. Being prepared with a will and by organizing a good deal of information before you die can greatly reduce potential legal fees.
As a rule of thumb, attorneys appreciate it when clients help them out by making things as easy as possible to do their job. Vast sums of money are wasted when attorneys have to investigate or verify information. For example, an attorney will spend a handful of hours gathering information about your asset holdings, values, tax basis etc. if no such information is provided. If your asset records are organized into neat folders, the same job might take less than an hour to complete. By organizing your estate assets and liabilities, you not only save the estate money, but also make your attorney’s job more manageable.
Attorneys that are very busy or disorganized themselves will have a difficult time effectively managing an estate. Even if your attorney is bright and capable, if they do not have the time or organizational skills to manage your file (and dealings with their clients), the estate could suffer. This could turn into a situation where it takes very long periods of time to complete simple tasks or something gets missed that results in negative tax or legal consequences. Do your best to choose an attorney who has a good reputation and manages their business well.
What is the Role of an Attorney in Estate Legal Fees?
An attorney is often an important adviser in the administration of an estate and can also be useful when addressing estate legal fees. Most estate attorneys are experienced in both probate and non-probate issues, including trust administration. Determining how and whether an estate needs legal assistance is an issue that should be raised at the outset of an estate administration or estate planning process.
Attorneys can help estate administrators determine whether or not court proceedings need to be filed to obtain a Certificate of Appointment of Estate Trustee, formerly known as a Grant of Probate or Administration. Legal counsel can also determine whether an estate is large enough to require a Certificate of Appointment of Estate Trustee ("Certificate"). In Ontario, a Certificate is typically required to transfer any real estate or stocks or bonds (with some exceptions). However, if estate assets total less than $25,000, a Certificate may not be necessary . Often a Certificate is required before the assets can be paid out from an estate bank account. This is an example of legal fees being used to reduce administrative costs, since having to have an accounting and distribution done "outside" the bank could be considerably more costly than the fee for obtaining a Certificate.
Estate planning clients who do not have lawyers involved in their estate administration often try to manage the process themselves. It ultimately costs more for personal representatives to deal with matters without proper legal assistance, as waiting until an estate is in court to determine how to properly proceed is often time consuming, and will result in mistakes that usually end up costing extra in legal fees to fix. In many cases, having an attorney vet the entire process prior to the administration becomes the best value for the time and effort spent.
Questions to Consider When Choosing an Estate Attorney
When interviewing attorneys to handle your estate matters, there are generally some basic questions that will help you determine the best lawyer for the job. Those questions should include:
- What is your fee structure? Most estate attorneys handle matters on an hourly basis. This means that the attorney will charge by the hour for every matter handled, and then bill the client on a monthly basis for the time spent on the file. If there is going to be a lot of work required for an estate administration matter, then hourly billing may be your best option. If you are doing an estate planning matter where a will is being done, then hourly fees could get more expensive than a flat fee.
- What kind of experience do you have with this particular type of matter? If you are in need of litigation counsel for the estate matter, make sure to have a litigation attorney. If you are in need of an elder law attorney, then make sure to hire someone who concentrates his or her practice in that area. Not all attorneys are equal in experience and expertise. You must be sure to hire an attorney with substantial experience in the area you need assistance with.
- How quickly do you respond to phone calls and e-mails? This is a problem that many clients have with attorneys. If your attorney is not responsible about this issue, then you should be cautious about hiring him or her. You should have an attorney who is prompt with handling phone calls and e-mails to you and other individuals in the case.
By believing these issues will not be a problem down the road, a client may be hiring an attorney that is not responsive to their needs and who they cannot count on to perform his or her duties.
Estate-related Legal Fee Disputes
The relationship between an Estate and its legal advisor can become quite strained if there are disputes about the fees or about the work that is being done. The concern for the Estate is the same as the concern for the lawyer that the Estate is not being administered properly because the parties are distracted by disputes about the legal fees.
A common dispute is whether the portion of the legal fees paid by the Estate to the lawyer should be repaid if the lawyer is later found to have been negligent or if a different fee than was paid was later determined to be more appropriate? It is rare for one year passes without one of the legal journals publishing a decision where this question was determined by the Court. The most common answer is that the Estate and its lawyers are bound by the agreement between them. In simple terms the underlying question is whether the Estate was the lawyer’s client or whether the lawyer was doing the work for the client’s benefit alone. If the lawyer was found to have been the client, then the lawyer will be fined and its liability insurance will not respond. In the alternative if the client is also the lawyer’s client and it is found that the lawyer was negligent, then the lawyer is relieved from liability under its insurance policy . Ultimately, however, the remedy for the Estate is to sue the lawyer. This result is consistent with the law of contract which holds that parties are bound by the agreement they make with one another.
By far the most common dispute is over the amount of the legal fees. The smallest or largest portion of the fee is where the lawyer has done little or no work in the administration of the Estate. This occurs where a lawyer has done nothing but file wills and do some tax returns – in Ontario called "no frills service". If the work was done and the lawyers fees are high the question becomes whether the lawyer was negligent in performing the work – did the lawyer do too much work or work that is not necessary? In most cases the lawyer is not negligent either for charging too much or doing unnecessary work.
Mediation, negotiation and even litigation are other alternatives to resolving legal fee disputes. While litigation is expensive it can be a way of obtaining information and pricing estimates to determine more accurately what work will be required and what might be a reasonable fee for that work.