What Are Legal Fees When Settling an Estate?
Legal fees for the administration of an estate or a trust relate to the cost of legal services rendered by a lawyer. In short, much (but not all) of the work in an estate or trust administration involves legal work; therefore, the fees are considered legal fees. The work relates to such things as: testamentary and intestate documents; notices to beneficiaries; documents to open, administer, re-title and close assets; tax returns for the deceased (fiduciary); tax returns for the estate or trust; beneficiary payments; releases and receipts; and, perhaps , feeding and fostering and legal proceedings to appoint a Trustee or Executor, rescinding a will, or challenging the validity of a document relating to the estate or trust. All of this work – once the initial appointments and notices are completed – is generally done on an hourly basis (though in some cases percentage fees such as 3% of the value of an estate may be applicable). On occasion, however an estate or trust requires more intense legal work such as litigation around resolving issues, which can incur a lot of legal fees, or where a tax strategy needs to be implemented that requires a lot of time.
Types of Common Legal Fees
In estate matters, the cost of legal fees is always a significant factor. The size of the estate and complexity of the administration should dictate the type of fee charged, rather than the complexity of the estate planning that was done to reduce the work necessary to settle the estate. For example, in most estates where a lawyer is required to deal with a claim by the Executor for compensation or bring an Application for Passing of Accounts, there is no need to prepare a Will or deal with Lasting Powers of Attorney. In addition, an action regarding a dependant’s claim on the estate would not involve an estate planning component. Large and complex estates often have significant planning requirements; conversely, simple estates may have none. The key is for the size of the fee to follow the work involved.
There are various forms of allowable fees. The most usual are a flat fee, an hourly rate and a contingency fee. There is also a hybrid fee which involves both a flat fee plus disbursement charges and a percentage of the recovery.
A flat fee will be based on the estimated work to be performed. There will be a set fee for each item such as obtaining probate, preparing a Will, negotiating a family settlement, drawing cheques for beneficiaries, or providing an accounting for the Estate to the beneficiaries. The actual fees are applied against the amounts quoted in the estimate. Good lawyers will not overcharge on their flat fee; bad lawyers will.
A contingency fee allows the lawyer to charge a percentage of the recovery. What constitutes the recovery will be set out in the Contingency Fee Agreement but is usually set out in a percentage of the estate to be collected or in a percentage of the value of the property claimed. Thus, if there is a requirement for a Formal Assessment of the costs, the lawyer who has been successful may recover both the agreed fee in the contingency agreement and the necessary costs.
Hybrid fees may not be available from all lawyers. They consist of a flat fee for the tasks that are normally dealt with such as preparing an application, attending court and obtaining a grant, followed by a fee of a percentage of the overall recovery. You have to be careful because the work you thought might take 10 hours could end up taking 50 hours or longer. Trust your judgment when signing a hybrid agreement. If you have any doubt, "hire an appraiser", as they say!
Fees for ongoing legal work that can’t be quantified in advance are best settled on an ongoing basis throughout the administration of the estate. Reassess fees at certain benchmarks such as when the sale of real estate closes and other significant assets but before a substantial amount of the estate has been paid out. Some lawyers agree on a flat fee but do not apply it until the end of the administration. In the meantime the estate continues to incur regular disbursements. These can be significant, especially if real estate is involved.
Don’t be afraid to ask questions. The law firm should be able to explain their retainer agreement completely. Take the time to understand what is legally allowed. Your matter is not like any other for them. Although it may seem arbitrary, lawyers should apply their hourly rate to their work and then charge accordingly.
Factors that Influence Legal Fees
There are several factors that will affect the amount of fees payable to a lawyer in an estate. These include:
(a) complexity of the estate;
(b) number and location of beneficiaries;
(c) number of beneficiaries;
(d) assets in the estate;
(e) number of residuary beneficiaries;
(f) will instructions;
(g) nature of auction.
1. Complexity of Estate
In Ontario, a typical estate usually consists of one piece of real estate, debts to be settled, investments such as GICs, RRSPs, TFSA and US assets. We see a lot of estates involving high asset values. However it is important to understand that it is not the value of the estate that determines the fee payable. It is about the time taken to complete the administration and the tasks involved in settling the affairs of the estate.
Once we have set our fee for the administration work, we charge for disbursements. These are the costs associated with the steps of administering the estate. For example, a real estate appraisal, work done in the sale of real estate, obtaining copies of corporate minute books, payments to other professionals involved in the administration of the estate, such as a psychiatrist or accountant.
2. Number of and Location of Beneficiaries
There are estates that contain a long series of beneficiaries. We charge $150.00 per beneficiary to transfer the funds into each beneficiary’s hands and that can increase the fees charged.
If beneficiaries live outside of Ontario the time to get their funds to them increases. We also have to consider whether the beneficiaries live outside of Canada. Funds paid to beneficiaries outside of Canada have to be reported to the Canada Border Services Agency. Currently, any cheques payable to non-residents are subject to a withholding tax of 25%. This results in us having to prepare, file and register income tax returns on their behalf.
3. Assets of the Estate
The more there is to administer the more it will cost. For instance, we have to unwind a timeshare or deal with an oil and natural gas lease, then extra work is required and more time is taken to do the work.
4. Number of Residuaries
Many wills have instructions to divide a sum of money equally amongst the residuary beneficiaries. If there is more than one residuary beneficiary, then we have to draft another all inclusive Consent form. A will with two residuary beneficiaries requires a second all inclusive form to be prepared. The time that takes to prepare the extra form is billed at the hourly rate determined at the outset of the retainer.
5. Incomplete Will Instructions
We see many wills that have inappropriate or entirely inappropriate will instructions. For example, a will may ask for the executor to wind up a corporation and return the shares to the residuary estate. That is not how a corporation is wound up. We strongly suggest to our clients that, before having us draft their will, they have the will instructions reviewed by a lawyer with corporate experience. This prevents the need for multiple drafts. Some simple wills take three or four drafts to get the instructions right. Multiple drafts cost upwards of $515.00 each time that extra work is required.
How to Plan for Legal Fees
To manage your expectations and to plan, it is important to properly budget for legal fees. It is also important to remember that these fees are not always set in stone and can sometimes vary.
In the case of various matters before the Court, such as applications for the issuance of a Certificate of Appointment of Estate Trustee with a Will or without a Will ("probate"), the legal fees can typically range anywhere between $750.00 – $3,500.00, depending on the complexity of the estate and the legal issues. There are usually more legal fees associated with contested estates because of the issues and the nature of the litigation involved in the estate. For example, administering an estate where there are numerous financial accounts, real estate properties, claims against the estate, or a large number of beneficiaries may be more complex than a smaller estate.
In December 2020 the province of Ontario implemented a new practice direction, which essentially streamlines the process of probate for estates up to $50,000.00. This means that if the estate is under $50,000.00, it is now possible to forego the traditional application process and opt instead for a more cost-effective route. That said, legal fees for a streamlined probate application are generally lower than a lengthy application or a contested Will challenge.
Similarly, there is particular cost to be considered when you are involved in an estate litigation matter. Litigation legal fees are calculated either hourly or on a flat rate, and are also generally higher than those associated with normal estate administration work. The costs of litigation can also be affected by the type of proceeding (one day vs. series of days) or other issues that may arise over the course of the proceeding (e.g. requests for adjournments by various parties). Further, the amount of time it takes for a litigated matter to settle can have further implications for the amount of the legal fees.
Negotiating Fees with your Lawyer
Negotiating legal fees with your lawyer can be uncomfortable for some clients. However, that should not be the case. A client may agree to the first fee proposal presented by a lawyer, however, before doing so, a thorough understanding of the work to be performed is necessary. The two most common methods lawyers charge clients for their work to settle the estate are on an hourly basis or for a percentage of the gross amount of the estate.
Even if a lawyer agrees to do the work for a percentage of the estate, the services to be performed and the fee structure must be clear. In negotiating a fee with a lawyer, the following questions should be asked: If you are satisfied with the answers to these questions, you should be able to accept the proposed fee. Lawyers generally want to agree upon a fee with their clients. This avoids acrimony and frustration later on in the estate. Most lawyers will look at the issues in the estate and provide a retainer agreement which sets forth the fee and the services to be performed. Neither the client nor the lawyer wants to be in a position of feeling relieved at receipt of the executor’s annual accounting only to learn that the executor’s attorney has just sent the executor a bill totaling several thousand dollars based on additional legal services provided during the year. It is important that there be a discussion about how much work will need to be done and how much the lawyer expects to be paid, so that there are no disappointments for the executor or the lawyer.
Ways to Decrease Legal Fees
There are several practical steps which you can take to ensure that legal fees are reduced without sacrificing quality of legal work.
Firstly, be frank with your lawyer as to your expectations and budget. Lawyers should be able to provide you with an indication of their fees at the outset provided that they have the material facts. Remember that a lawyer cannot give you a fixed fee if they do not know what is involved. However, as far as reasonably possible, a lawyer should be able to provide you with a ballpark estimate of the fees, which going forward can be better than the standard hourly rate of perhaps $250-$550 per hour. A lawyer who refuses to advise you of a ‘within the ballpark’ estimate should be queried.
Also, you may want to appoint a solicitor who is not only experienced, but also has the necessary staff and resources to enable the work to be done in a cost and time efficient manner. For example, if the file is going to be a large one, a firm with a reasonable number of staff will be better placed than a small practice with a limited number of staff and partners. Often litigation requires hurried , although careful, work to be carried out to meet specific deadlines. A large team of lawyers can also be employed together to provide a competitive edge in providing the best argument as to why the case should settle or alternatively, be determined by a Court.
We strongly recommend in most cases where appropriate, that you seek to settle your matter through negotiation or mediation. Costs of litigation can escalate very quickly through Court action. Good negotiating skills and early attempts to resolve the matter quickly can save a lot of money. Additionally, rather than empowering a lawyer to conduct litigation which may take years, litigation can often be commenced and determined more quickly through a good mediator. We are happy to act as lawyers to mediate your dispute with the benefit of our over 30 years of experience in the area by discussing issues each party to the dispute has, without compromising anyone’s position at law, and working towards a win-win outcome.
Legal Fees When Settling a Contested vs. Uncontested Estate
As previously mentioned, the fees paid to an estate solicitor or estate trustee will vary depending on the complexity of the estate. A final legal fees bill for an estate should not be a surprise for a number of reasons. Importantly, the fees charged should be appropriate given the type of service provided and the time invested. For example, if the estate is not contested and is in fact quite straightforward (such as one where the testator had a straightforward Will, did not own real estate and all of the beneficiaries were co-operative), the estate trustee of course would not expect a hefty legal fees bill for the estate solicitor. The fees charged, assuming they are fair, would be reflective of an estate of this nature.
The scenario, however, changes dramatically when the estate trustee has an adversarial estate in his / her hands. For example, if the testator had disinherited a beneficiary and that beneficiary now wishes to take the estate trustee to Court, the legal fees should be reflective of an estate where there is no co-operation, reasonableness or common sense from the parties involved. In other words, the fees incurred in such circumstances will certainly increase and be a direct correlation to what is required to deal with such an estate. Accordingly, the solicitor will likely attend to the file in order to ensure that the estate is properly administered, but with the understanding that the type and extent of work involved, will surely be increased.
For both the estate solicitor and the estate trustee, the insight into these different types of estates is important as the costs are directly associated with timing and complexity.
Understanding Fee Agreements
An important step you (and your lawyer) should take when entering into Fee Agreements in Estate matters is to discuss and understand the underlying basis for the fees, what they will be, and when (or in some cases if) they will be paid.
Typically, estate legal fee agreements can be broken down into these five categories:
THE IMPORTANCE OF UNDERSTANDING THE FEE AGREEMENT:
We hope this can help you understand the acceptable billing practices used in Estate matters, as well as prepare you for understanding estate legal fees. You should also be aware that there is alternative billing practices that can be used, and that the Fee agreement could contain an alternate fee that might apply.
It is very important that both the client and the lawyer have a clear understanding of the relevant matters in order to avoid any misunderstanding later on in the matter. The client should not be afraid to ask questions about issues that they do not understand.
Conclusion: How to Manage Your Legal Fees
In any legal process, especially one as emotionally charged as estate settlement, legal fees may be unavoidable. You can manage them better by understanding the process, and what’s fair. You may choose to handle some or all aspects of an estate without help; saving considerable money by doing some of the work yourself. Alternatively, you might choose to hire a lawyer to manage the entire estate settlement process for you. Whatever route is taken, understanding the process will benefit all beneficiaries of the estate for years to come . Although it is a business transaction that allows you to pay upfront in order to save potential litigation costs in the future, there are many factors to consider when taking this route, such as your relationship with the beneficiaries and the assets being settled. The important thing to remember is that you and other beneficiaries have a right to know how legal fees are being handled. Seek out professional guidance to ensure this process is conducted fairly.