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.

 

 

To probate or not to probate

The Financial Post recently carried an excellent article called "To probate or not to probate", which contains an explanation of what probate actually is, as well as a discussion of some of the reasons people may choose to probate a will or not.

Click here to read the article.

This kind of background information is very valuable to executors who are trying to figure out what they should be doing. It's hard to make decisions if you don't understand the general rules! But this is also great information for people who are making their own wills, because it explains what kind of assets would not be included in a probate application.

Executors should know, though, that they won't always have a choice about whether or not to go through the probate process. Certain assets owned by the deceased simply can't be transferred without probate. An executor who isn't sure about whether or not he/she needs to go through probate should take the will, a rough inventory of the assets and liabilities of the estate, and a list of all beneficiaries and family members to a lawyer or trust company for some guidance.

Reduce probate fees

Everyone is interested in keeping probate fees low, though a dismaying number of people take steps on their own without knowing whether it's really going to work. Talking to a professional planner is worth it. For example, check out this article from http://www.capitalmagazine.ca/ that gives two really good ideas for controlling probate fees. Click here to read it.

Avoid probate and estate tax

This article from http://www.capitalmagazine.ca/ talks about how to avoid certain estate taxes by using various kinds of trusts. Trusts aren't something most people can set up on their own, as there are plenty of rules that apply to them, but they are still very popular and very flexible. Click here to read the article. Maybe you'll find it worthwhile to talk to your own estate-planning lawyer or accountant about trusts.

Where there's a will: how to minimize probate fees

I'm not a fan of home-made estate planning, except when matters are extremely simple. The problem is that people hear a nugget of information and take action based on it, without really understanding the consequences of it or even whether the information really applies to them. I can't even tell you how many lawsuits are going on and how many families have been destroyed by what seemed like a simple action at the time. I'm talking about actions like putting a parent's home or account in joint names with the kids or naming a beneficiary of a registered plan such as an RRSP or RRIF.

I'm attaching an article by Tim Cestnick of the Globe and Mail. It summarizes a number of ways that people can reduce or eliminate probate fees. However, I suspect that the most important part of Mr. Cestnick's message - that you should understand what you're doing before you do it - will be lost. I say this based on many years of unwinding the home-made estate planning mistakes that well-meaning individuals have made. Click here to read the article.

I'd like to add my own message to this article. The information in the article is accurate and is important for people to know. But before anyone jumps in to reduce probate fees, find out (not by guessing or by asking your buddy at work whose aunt died a couple years ago, but from a lawyer) the following information:
- what would the probate fee on your estate actually be?
- is the probate fee worth the trouble of taking avoidance steps (e.g. in Alberta your fee can't be more than $400 no matter what you own)
- what would taking an avoidance step do to your over-all estate plan? e.g. could it disrupt your plan to treat your kids equally? Could it cause a dispute among the kids?
- what are the tax consequences of this action, both now at the time of the action and on your estate?
- what are the risks to you while you're alive? e.g. a house held jointly with a child is at risk if that child gets a divorce
- are there other ways of reducing probate that might be better suited for you?

Don't leave your family a mess to clean up by taking legal steps that you haven't thought all the way through. Talking to a lawyer for even an hour may protect your estate and your family.

Probate fee planning - income tax, estate & legal issues to consider

This excellent article comes from Mark Goodfield, an experienced accountant who blogs at www.thebluntbeancounter.com. It goes into tax and legal consequences of the various ways that people try to avoid probate fees. It's a really good read if you are wondering about how probate fees might affect your plans. Click here to read it.

Probate fees vs. income tax

Tax is one of the trickiest parts of estate planning, so when I see good information about it, I can't wait to share it with you. Here is a link to an article by Canadian Tax Resource Blog. It compares and contrasts probate fees and income tax with respect to certain assets. In particular, it talks about the effects of naming a beneficiary on an RRSP or RRIF. To add to the advice given in this article, I suggest that you check the tax effects of your beneficiary designation with your accountant or estate planning lawyer.

What is probate?

Probate is a process of submitting a deceased person's Will to the court and obtaining a court order called a Grant of Probate. Along with the original, signed Will, the executor sends a group of documents that together are called an Application for Probate. The Grant of Probate confirms the validity of the Will, confirms that the executor is the person in charge of the estate, and confirms that all parties, including beneficiaries, creditors, banks, land registries etc, should follow the instructions and wishes set out in the Will.

Some of the information sent along with the Will includes:
- facts about the deceased person's age, marital status etc
- details of the Will and/or Codicil that is being probated
- information about the family of the deceased person
- an inventory of the deceased's assets and debts
- evidence that the Will was properly signed and witnessed
- proof that the executor who is applying is the right person to do so
- a schedule of what each beneficiary under the Will is going to inherit
- proof that notice of the application was given to everyone entitled to it

The above list is simplified, but gives a general idea of what the Application for Probate is all about.

If there is no Will, or the Will is invalid, the person who wants to be appointed as being in charge of the estate will apply to the court for a Grant of Administration rather than probate. Once the person is appointed by the court, he or she has the same authority and responsibility as an executor. The estate would be distributed according to intestacy laws.

If there is a Will that is valid except for the executor appointment (e.g. the executor named has passed away and there is nobody else named), someone may apply to the court for a Grant of Administration With Will Annexed. In this case, the administrator would be appointed to fill the shoes of the executor and would follow the Will's instructions.

When the Application for Probate is filed with the court, there is a fee that must be paid. In the "Links" section of this blog I've linked to a chart of probate fees across Canada. I encourage people to learn about the fees that apply in their province, as I regularly see estate planning mistakes that people tell me were made to "avoid probate". See my earlier blog post here about the pitfalls of trying to avoid probate without proper advice.

Not every Will must go through the probate process. Whether or not probate is required will depend on the type of assets owned by the deceased, how they are owned (joint, individually etc), the value of the assets, the clarity of the Will, and other issues. If anyone contests the Will or if any parts of the Will are unclear, the executor will have to go through probate.

Probate is not a quick process. The gathering of information for the inventory is a slow process. Also, once the documents are complete and filed with the court, you can expect to wait up to six weeks for te documents to be processed by the Clerk of the Court and signed by a judge.

Multiple wills: an estate planning strategy

I'm attaching an article from Ontario about using multiple Wills as an estate-planning strategy, as it contains a good explanation of what they are. I don't find that many Albertans want or need multiple Wills, probably because our probate fees are so much less than Ontario's fees. In any event, it's food for thought for anyone thinking about protecting high net worth estates. Click here to read the article by Michael Cobb, an Ontario lawyer.

Should I put my home in joint names with my kids?

I am always surprised at the large number of people who put their homes in joint names with their adult children. If only they could see that transaction from a lawyer's perspective! When I ask people who advised them to do this, the majority reply that they did not use professional advice.

Before you decide to add your children's names to the title to your home, consider this: the child whose name you put on the title will own your house just as much as you do. It won't matter in most circumstances that it's "really" your home or that you're the one who paid for it. Think about what that could mean to you.

Risk #1: You put your son Frank on the title to your home. A few years later, Frank gets divorced. He and his wife divide their property between them as fairly as possible. She claims half the value of your house. Because Frank is the owner of the house too, she actually has a viable claim. Does Frank have enough assets to give his wife an amount equal to half the value of your house? If so, what will that do to Frank's financial picture? What happens if he doesn't have enough to pay her out? You risk at worst losing your home, and at best leaving Frank a couple of hundred thousand dollars poorer.

Risk #2: Frank opens a business of his own. He gets bank financing, and as is usually the case, he signs a personal guarantee for the loan. After a while he realizes that his business is not working out, and he closes up shop, owing the lender much more than his business is worth. The lender has the legal documentation that allows it to realize on Frank's personal assets, which includes your home. If Frank can't pay off his business debt, are you in a financial position to bail him out to save your home?

Risk #3: Frank is driving too fast and causes a motor vehicle accident in which someone is severely injured or killed. The settlement amount is in the millions of dollars. Frank has only $1,000,000 in public liability insurance. He is sued for the rest. It's going to take everything he owns, and more, to satisfy this judgment. Since he owns your house, it could well be seized and sold to help pay off the judgment.

Risk #4: You and your spouse decide that the old family home is too big and that it's time to downsize to a condo. You're ready to put the house on the market, but Frank won't sign the Transfer of Land. He believes that the housing market is too low right now and just might recover if you hang on for a year or two. You and your spouse won't be able to sell your home because the other owner, Frank, isn't co-operating.

I could go on, but I'm sure you get the point.

The bottom line is that it's risky to put names other than your spouse on the title to your home. It is usually one of the most significant assets on anyone's financial sheet and not something that most people can afford to have taken away.

So why do so many people take this risk? Usually it's because they have been advised to avoid probate fees by putting everything in joint names. It seems like a good idea as long as you're willing to avoid thinking about the potential downside. In my view, people take this step knowing too little about the process itself, and too little about how it actually applies to them.

For example, in Ontario and BC, probate fees are quite high and it's understandably tempting to find ways to reduce those fees. But why would anyone in Alberta, where probate fees cannot exceed $400 no matter how large the estate, want to reduce probate? Who would risk a $500,000 asset to save $400? It's often because they don't know the fees are that low and added names to the title without ever finding out how it applies to them.

If you are considering putting your child's name on the title to your home, you need to get professional advice that is geared towards you personally by someone who has all the facts about you, your children, your assets and your liabilities. This could be an estate planning lawyer or a certified financial planner. While it is certainly legitimate to consider this step as part of estate planning, make sure it's also kept within the larger context of your risk.

The mythical "will that doesn't need probate"

Earlier this week I spoke with a customer who told me that some years ago he had asked for, and paid his lawyer for, a "Will that doesn't need probate". He seemed annoyed when I told him that based on the assets he currently owned, his Will would have to be probated if he should pass away.

There is no such thing as a "Will that doesn't need probating" because the Will itself is not the only determinant of whether probate is necessary. Whether or not you need to probate someone's Will often depends on what kind of assets they own, and how those assets are held (e.g. jointly owned, owned solely but with a designated beneficiary, etc.). If you own certain assets, your Will must be probated, or if you don't have a Will, someone must be appointed as an administrator.

The customer I was dealing with owned a mineral title. On talking with me in more detail, he remembered that the lawyer had said if he didn't want his Will to be probated, he had to change or get rid of his mineral title. The customer hadn't done that.

An estate plan is a jigsaw puzzle, and the pieces are the Will, the assets, the family, the beneficiary designations, the jointly owned property, the incapacity documents (Power of Attorney and health-care directive) and the taxes. All of the pieces have to work together.

When you ask an estate-planning lawyer for a "Will that doesn't need probate", what you are really asking is for a plan in which all of your assets are dealt with during your lifetime. This is achievable, as long as you're willing to own absolutely everything from your car to your business to your bank account in joint names with other people, or to name beneficiaries (where that is possible) other than your estate. This is generally only practical for married people and even then, not always. People do get divorced, after all.

You have to ask yourself why you'd live your life that way just to avoid probate. Particularly in those provinces where the probate fees are low, probate isn't expensive so it simply makes no sense to put your assets at risk this way. You may think that avoiding probate is simpler, but if you have to change the ownership of everything you own, and possibly lose some of those assets to other people, is that really easier?

So if you're thinking of asking your lawyer for a "Will that doesn't need probate", get the facts about probate first. Don't rely on anecdotes told by co-workers or friends about what they think happens on estates. If you're reading advice in magazines or blogs, check with a lawyer in your area to see whether it applies to you. Think about whether avoiding probate is actually worthwhile - and workable - for you.

Chart of probate fees across Canada

As I get tons of questions about probate fees in various provinces, I'm posting a link to a chart put together by all of the Wills and Estates lawyers who work for Scotiatrust across the country. It's information that is available to the public, but of course you have to know where to look, and this makes it much easier. The chart shows the calculation of fees, and says whether or not there's a maximum.

Chart of Canadian Probate Fees by Province