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Wednesday, March 27, 2013

What can a lawyer charge to help you with an estate?

If you hire a lawyer to look after an estate, what will it cost? It may be more complicated and possibly more expensive than you realize. The following is a note I received from a reader who is dealing with that very issue.

"I'm looking for some advice regarding legal fees in relation to the administration of my late Aunt's estate in BC. The value of the estate was just over $207,000, with the highest proportion of this sum related to the sale of her apartment. She did not leave a will and therefore died intestate with all the benefactors (including me) residing outside of Canada. While I understand that completing the administration of her affairs in such circumstances presented a number of difficulties than would otherwise be the case, I consider the fees charged by the legal firm appointed to resolve matters, which amounted to $42,000 as grossly excessive. Can you advise me of the approved formula or mechanism for calculating fees relating to estate administration?"
 
There are a few factors in play here that need to be explored. First, it's important to understand what, exactly, is included in that $42,000. And as that amounts to about 20% of the estate, I can see why you're asking.
 
There is a difference between legal fees and estate administration fees. In your case, it appears that you've had the lawyer doing both. I'll talk about this more in a moment. In addition to fees, the bill for the estate likely also includes disbursements. This refers to anything that is paid out-of-pocket by the lawyer on behalf of the estate, such as probate fees, any of your aunt's unpaid bills, taxes, accountant's fees, funeral bill and so on. This money doesn't go to the lawyer; it comes out of the estate and is paid to a third party. Your aunt's estate was administered in BC, which is one of the most expensive jurisdictions in terms of probate fees.
 
The lawyer may also have charged for disbursements in his/her own office, such as for faxes or long distance charges. In any estate where the beneficiaries all live in another country, disbursements are going to be higher.
 
And of course there is tax on all of that. Canada has goods and services tax (GST) that is charged everywhere, and in all provinces but one has a provincial sales tax added to it (together they are the HST).
 
So once you separate out the disbursements and the taxes, all of which should be carefully itemized on the lawyer's statement of account, you can see how much was actually charged in fees.
 
Now here is the kicker. There is no "approved formula or mechanism for calculating fees for estate administration" here. And even if there was, you've asked the lawyer to do much more than a simple estate administration. I can give you a few guidelines though, that you can use to judge the bill you've received.
 
Normally a lawyer will charge about 1.5% of an estate simply to obtain the probate document, or as in your case, the Letters of Administration. The actual fee is not laid down in a law. Lawyers may charge more. Whoever actually hired the lawyer should have received a quote before the lawyer started work. Quotes from lawyers may include a "job" price for a piece of work such as obtaining probate, but they may not. Most lawyers will tell you their hourly rate up front even though it's impossible to tell at the beginning how many hours the work is going to take.
 
In addition to those fees, the lawyer may charge for doing the work that an executor would normally do. While an executor normally may receive up to 5% of an estate, and more if there are complications, an executor may hire experts (such as lawyers) at the expert's normal hourly rate.
 
In addition to that, the lawyer may charge additional legal fees for additional legal work. Specifically, the selling of an apartment is not considered part of the executor's fee because the executor would have hired a lawyer and paid him/her a fee to do it. You should expect a couple of thousand dollars in fees and several disbursements for this transaction alone.
 
I hope this information helps you to understand the lawyer's bill and understand what exactly the lawyer was paid to do. If you feel that the bill is still unreasonably high, you can take steps to have it changed. Believe it or not, you can ask the lawyer to adjust the bill voluntarily. If he/she won't do that, you have the option of going through a process called taxation of account. This involves the client and the lawyer meeting with an officer of the court whose job it is to decide whether lawyers' bills are fair. Whether this would work for you when none of you is local is another matter.
 
I can see why in this case your family hired a lawyer for help. None of you lives in Canada and someone had to deal with the estate. Hiring a lawyer is definitely a good way of getting things done properly, but it's not necessarily the cheapest. There probably isn't a lot you could have done to keep the bill lower. For example, you couldn't have cleaned out the apartment yourself or taken meetings at the bank.  Somebody who lives near to the deceased could have done a lot more to control costs.
 
Another option would have been to hire a trust company, who would have done the same work for a flat fee of less than 5% of the estate (plus disbursements and tax of course).
 
Anyone hiring a lawyer to help with an estate must have a frank discussion about fees, disbursements and taxes. Don't be afraid to ask what you can do to keep a lid on the costs. Get your estimate in writing before the lawyer starts working on the estate. Another good idea is to ask for a monthly statement of fees so that you can see what is happening at each step, and what each of those steps costs.
 
 

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