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Wednesday, February 10, 2016

If the executor is also a lawyer, can he ramp up legal fees defending his executor fee?

After reading my earlier post about lawyers charging both executor fees and legal fees on one estate, a reader emailed me with the following note, suggesting that it might be an interesting blog topic. I agree!

"What happens in a win-win scenario for the lawyer acting as the executor? What I mean by that is:
The lawyer stands to gain in excess legal fees or by charging upwards of 10% of the estate acting as the executor in Ontario. The catch is if a beneficiary challenges the passing of accounts the executor now puts his lawyer cap on and charges the estate another i.e. $8k for negotiations, but may reduce his executor's fees. Therefore, either sign the +10% executors fees or get a reduced executor rate compensated by an increase in legal fees.  Sounds pretty unethical to me. In this scenario could any of the beneficiaries sue the lawyer for misrepresentation of the estate? malpractice? gross negligence? Especially if the lawyer/executor has been purposively giving vague and misdirected responses to the point of avoiding clear terms in the release and indemnity? If the passing of accounts is forced by the courts does the lawyer still not stand to benefit by charging his legal fees? If that is the case then why bother challenge the passing of accounts as a beneficiary?"

While it's true that lawyers can be paid both as executor and lawyer on one estate, I don't believe the situation is quite as bleak as you've described it.

An executor should not be charging 10% of an estate, whether he's a lawyer or not. That is double the maximum amount normally allowed on an estate. The fee should only be that high if the estate has had additional issues such as a lawsuit that the executor had to handle.

Lawyers are also able to charge additional legal fees for tasks that are not part of the probate application, such as the transfer of real estate. Make sure you're clear on what has been charged to the estate for the basic probate application, because that's the only part of the legal fees that can properly be included in the percentage you are quoting.

You are right that when an executor charges excessively and the beneficiaries refuse to allow it, the compensation will likely have to be set by the court, and this is usually done as part of a passing of accounts application. However, you are not correct that the estate will necessarily be charged those legal fees. If, as you say, the executor has provided "vague and misdirected" information AND is charging excessively, the court is highly unlikely to find in his favour.

I find the idea of spending $8,000 on the negotiation of an executor's fee ridiculous, especially as the negotiations were not successful. That amounts to a heck of a lot of letters and phone calls. Even at the high-end rate of $400 an hour, that's 20 hours of work.

Executors are normally indemnified by an estate for legal costs, and usually that would apply on a passing of accounts. But as a lawyer, he is expected to know the rules better than lay people and to follow them. Courts hold professional executors such as trust companies, and executors who work in the wills and estates industry, such as lawyers, to a higher standard than they do the average lay executor who has had no previous exposure to wills and estates law. If the judge thinks that he's being too sloppy or misleading, the executor won't be awarded legal costs, meaning the lawyer would not get to charge his fees to the estate.

During the passing of accounts application, the beneficiaries would have the chance to argue that if the executor had done a better job on the accounts and had asked for a reasonable fee to begin with, the matter never would have gone to court. You might even be able to recover the $8,000 spent on the negotiations. How you know that the lawyer was intentionally being misleading is another matter, and in my view would be next to impossible to prove.

Remember that this can work both ways, in the sense that if the judge thinks you're nit-picking the accounting, he or she won't be pleased with you, either.

Beneficiaries always need to remember that the estate lawyer doesn't work for them. He or she works for the executor. Sometimes it's worth it for the beneficiaries to hire a lawyer of their own, when it feels as if things have spiralled out of control.


4 comments:

  1. Lynne
    Excellent question and excellent response. I have learned so much from your blog. You write in terms that the average layperson can understand.

    ReplyDelete
    Replies
    1. What a nice note. Thanks for your words of encouragement.

      Lynne

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  2. You did an amazing job on this! Thank you so much for sharing..Wills & Estate Planning Lawyers Sydney

    ReplyDelete
    Replies
    1. Thanks for reading. And it's always good to get feedback from other lawyers. It keeps me on track.

      Lynne

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