First: By Avoiding Probate You Avoid the Time It Takes to Complete the Probate Process
This is important because the entire process can take months or years to complete before all the assets are finally distributed to the rightful heirs. Creditors have to be given notice of the death and have an opportunity to prove the amount they are owed from the estate. There are sometimes minimum waiting periods set by law before an estate can be closed. All this waiting means that the heirs have to wait before there is a complete distribution of the remaining estate assets to them. It is their money, but not until the court says so.
Then there is the time involved for your family. Meetings with lawyers. Court time, which in most cases ends up taking half a day per hearing due to travel time and waiting your turn in front of the judge. Probate court is often a cattle-call, with dozens of cases scheduled for the same hearing time and date. Taking time off work is usually required—not the way most of us want to spend a vacation or personal day. These all add up.
The time delay also exacerbates family relations. The longer the process takes, the more impatient people get. Maybe we should have our own lawyer, they each might think. Whenever there is more than one lawyer, there are going to be additional costs and problems. The new lawyers have to show they are doing something to earn their fees, so the mud gets stirred up.
Second: Privacy is an Issue
Court documents are public record unless the judge, in an unusual move, seals them. Anyone can take a look at the will and other paperwork, and even receive copies. They can find out who the heirs are, where they live, how much they are inheriting, and who may have been included or excluded. This information should be private, but if the estate is probated, it isn’t. Beneficiaries are sometimes subjected to unwanted solicitations from those who watch the probate filings.When a non-probate settlement method such as a trust is used rather than a will, the only people entitled to a copy of the documents are those who are specifically named in the trust, and even they only get to see the parts that pertain to them. Privacy is an advantage of trusts.
Third: Cost
Probate is expensive. The number-one cost is not court costs, as people think. It is attorney and executor fees. These can be based on the attorney’s hourly rate multiplied by the number of hours she spends on the case, or in some states it can be a percentage of the total value of the assets being probated. In the percentage situation, the amount can be increased if there are issues that require additional time, such as will contests. Money spent on probate is money taken out of your heirs’ inheritance. You are paying for it.Several states have published suggested fees for attorneys and executors that are based upon the gross dollar value of the estate (before deduction of debts owed, such as mortgages). Here is the chart relied upon by Florida attorneys to determine their fees as set out in Florida law. Also, keep in mind that the executor will often expect the same compensation.
Note that this fee schedule is not necessarily related to the amount of work done, since it may take no more work to administer a $2 million estate than a $100,000 one, though the fees would be vastly different. These are suggestions and not rules, so the attorney may end up charging much more than the schedule but rarely less. Most people don’t realize that attorney fees are negotiable, though many lawyers won’t vary from the chart at a minimum. You should always get a written and signed fee agreement.
The other ways to charge for attorney fees are a flat rate or an hourly rate. Hourly is most common, preferred by lawyers, and can add up fast. With fees ranging from $150 to $600 per hour or more, depending upon the attorney and location of the courthouse, the hourly rate is a great moneymaker for lawyers—often the resulting charges exceed the state suggestions. That fifteen-minute court hearing might cost you several hours when you add in travel time, research, waiting time in court, telephone calls, and document preparation. It really is possible to get a flat rate attorney fee, but most attorneys shy away from that. They are under pressure, particularly in large firms, to bill hours and maximize their fees.
I have had estate planning attorneys tell me that I am wrong about the cost of probate. They say that the costs of probate and the costs of a trust are comparable. When I asked how much they charged for a trust and for trust settlement (which is carrying out the instructions of the trust—most of which is not legal work but is charged as such), I was not surprised at their conclusion. They were charging a lot for probate, which was not unusual, but would charge just as much for a trust, settlement of the trust, and preparation of the related documents. One attorney a few years ago said his office used a performance-based fee structure, charging a percentage of how much they saved a client in estate taxes. This was back when many clients had to worry about the estate tax because the exemption threshold was so low. So, yeah, he was right, mainly due to his exorbitant fee structure. There are some attorneys who will quote a reasonable flat rate for a trust and all the related documents. Shop around.
Court costs are also very significant, if not as expensive as the attorney fees. The administrator, executor, or personal representative is entitled to a fee, sometimes on the same basis as the attorney—again, itemized hourly or a percentage. Guardians may be appointed for minor children beneficiaries, and they are also paid from the estate funds and are often attorneys as well.
There are other court costs, including filing fees, bond fees, and an inventory fee. The inventory fee is a percentage of the total estate value, which goes to the court. In most cases, this is based on the value of the asset without deduction for debt. So, on a $200,000 house with a $150,000 mortgage, the inventory fee is charged against the $200,000. Sounds like a tax, doesn’t it? Any time I write a check to the government, to me it’s a tax by another name. All these fees are eliminated if you avoid probating the estate. How to do so is revealed in the following chapters.
Fourth: Litigation
Opening a probate case means that a court case has been filed. It has a court file number, a judge is assigned, and there are generally preprinted or downloadable forms to cover nearly any sort of issue that might arise. If an heir does not believe a will is valid then it is quite easy to contest the will, since the court file already exists. Contesting a will can be close to extortion, since the mere fact of filing an objection, no matter how specious, means that there will be vast amounts of attorney time, and thus attorney fees, paid to sort out the complaint. Even if a claim or challenge is unsuccessful, the heirs lose anyway because the estate attorney’s fees come off the top before any distribution is made to the heirs. Sometimes it is easier and cheaper to just make a cash settlement with the person contesting rather than go through lengthy and expensive legal proceedings. Sure, it’s wrong, but that’s the way things work.
(To be continued...)
This excerpt is taken from “How to Avoid Probate for Everyone: Protecting Your Estate for Your Loved Ones” by Ronald Farrington Sharp. To read other articles of this book, click here. To buy this book, click here.
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