If you read the conventional advice for executors, the first step is usually “hire a lawyer.” And you may well decide, as you wind up an estate, that you want legal advice from an experience lawyer who’s familiar with both state law and how the local probate court works. Not all executors, however, need to turn a probate court proceeding over to a lawyer or even hire a lawyer for limited advice. If the estate that you’re handling and doesn’t contain unusual assets and isn’t too large, you may be able to get by just fine without a lawyer’s help. To determine whether or not you may be able to go it alone, ask yourself the questions below. (If you don’t know the answers, ask a lawyer before you agree to hire the lawyer to handle things for you.) The more questions you answer with a “yes,” the more likely it is that you can wrap up the estate without a professional at your side. Some common examples of assets that don’t need to go through probate are assets are held in joint tenancy, survivorship community property, or tenancy by the entirety. Assets held in a living trust can bypass probate, too. Probate is also unnecessary for assets for which the deceased person named a beneficiary—for example, retirement accounts or life insurance policy proceeds. It’s best if no probate at all is required, but if that isn’t an option, figure out whether the estate can use “small estate procedures. In most states, these include streamlined “summary probate” and an entirely out-of-court process that requires presenting a simple sworn statement (affidavit) to the person or institution holding the asset. Every state has its own rules on which estates can use the simpler procedures. But in many states, even estates that are fairly large not counting non-probate assets can use the simpler processes. Will contests are rare, but if a family member is making noises about suing over the estate, talk to a lawyer immediately. Probate lawsuits tear families apart and can drain a lot of money from the estate in the process. A lawyer may be able to help you avoid a court battle. If the state where the deceased person lived has adopted a set of laws called the Uniform Probate Code, probate should be pretty straightforward. In UPC states, most probates are conducted with minimal court supervision. A few other states have simplified their procedures without adopting the UPC.
One of the reasons that many people find hiring a probate lawyer intimidating is that there’s no price tag in sight. Many clients literally have no idea how much they might end up owing. But the process doesn’t have to be so mysterious. If you’ve found that you need expert help, first become familiar with the different ways lawyers charge. Second, protect yourself by getting a written fee agreement from the lawyer.
Who Pays
Remember that the estate pays the probate lawyer’s fee it doesn’t come out of the executor’s pocket. Of course, if you are both the executor and the only inheritor, then the fee does, in essence, come out of money that is soon to belong to you. Otherwise, the cost is taken from the estate before assets are distributed to the people who inherit them.
Probate “Costs” or “Expenses” vs. Legal Fees
Costs are how lawyers refer to all the miscellaneous expenses that arise during a probate or other court proceeding. They can add up to a considerable sum, depending on the circumstances. Some examples include court filing fee, postage, publication of legal notices in the newspaper, property appraisals, and recording fee for real estate deeds.
How Probate Lawyers Charge
There are three main ways that lawyers charge for probate work; legal communities in different parts of the country have different customs. The lawyer may also offer you a choice of ways to calculate the bill.
By the Hour
Probably the most common way for probate lawyers to charge clients is to bill by the hour. Hourly rates vary depending on where you live and how experienced (and busy) the lawyer is. In a rural area, you might be billed $150/hour; in urban areas, you’re more likely to see rates of $200/hour and up. Specialists charge more per hour than do general practitioners, but they’re likely to be more efficient. If they’ve filed probate paperwork a hundred times in the local court, they’ve probably figured out how to do it quickly and in a way the court will accept. Because so much of the typical probate case is just standard paperwork, most attorneys use paralegals to help them. Paralegals aren’t lawyers, but they’ve had special training or have simply learned from the attorney how to prepare certain documents. The attorney supervises their work and typically bills their time at a lower rate.
Flat Fee
Another popular billing method is the flat fee. An attorney who’s done a lot of probates knows about how long the work takes, and charging a lump sum means the attorney doesn’t have to keep careful records of how the lawyers and paralegals spend their time. Some attorneys also find that clients are more relaxed and comfortable dealing with the attorney when they know the meter isn’t always running. If you are quoted a flat fee, make sure you understand what it covers. It likely won’t include extra costs such as court filing costs or appraiser’s fees. And if you have a complicated case involving a will contest or an estate tax return, for example—the fee will go higher.
Percentage of the Estate
In a few states, lawyers are authorized by law to collect a percentage of the value of the estate as their fee. They’re not required to do so you are free to negotiate an hourly rate or flat fee with them. But many prefer it because it usually pays so well in relation to the amount of work actually required. One of the reasons these fees are so often unreasonable under the circumstances is that they are based on the gross value of the probate assets, not the actual net value. For example, if the estate contains a house worth $300,000, but there’s still $100,000 left on the mortgage, the lawyer’s fee is based on $300,000 not the $200,000 of equity. Also, it’s not usually more difficult to prepare probate paperwork for a $700,000 house than it is to prepare it for a $150,000 house so why should the fee be so different? A probate estate with a gross value of $500,000 would generate $13,000 in legal fees. If you were paying by the hour, you could get a lot of hours of the attorney’s work for that much money.
Protecting Yourself: Fee Agreements
When you hire an attorney on behalf of the estate, get a fee agreement in writing. It’s required by law in some states, and it’s a good idea no matter where you are. The agreement should state: the hourly fee of each lawyer and paralegal who may do work for you, an estimate of the total cost or number of hours, other costs you may need to pay (including court fees, postage, publication and so on), how often you will be billed, when payment will be due, and how detailed the bill will be (each item should be described, so you don’t just get a bill for unspecified “legal services”). If you have a unique situation, need a special needs trust, or are overwhelmed by a complex or large estate, hiring a living trust lawyer can definitely help you sort out any questions or handle creating a complicated living trust.
If any of the following circumstances apply to you, you should consider hiring an attorney:
• Your net worth is close to the estate tax exemption
• You have a child with special needs
• You need advice about funding the trust
• You want to include complicated conditions dictating how and when beneficiaries receive assets
Hiring an attorney to create a trust usually will cost more than other estate planning documents but paying the upfront cost for sound legal advice can save you and your loved ones money in the future. Even if your trust is simple, you should consider speaking with an attorney. An attorney can review the trust you created or advise you about laws that are specific to your state. Before questioning whether you need a lawyer to create a trust, you should know what a trust is and think about whether you need one at all.
Trust
Trusts allow people to say how their property will be distributed after they die while maintaining some control over their property while they are alive. A trust can be simple or complicated to create, depending on your assets and family situation. Trusts often are misunderstood. A trust is not a document, but you will need to draft a trust document to create a trust. A trust is a legal relationship through which someone manages assets for the benefit of another person. Like a will, a trust is a way to ensure your property is distributed to your loved ones according to your wishes. Unlike a will, which does not take effect until the person dies, a trust can begin operating as soon as it is signed and funded.
Living Trust
A living trust is a trust created during life to either save tax money or establish a long-term way to manage property. Living trusts are specifically designed to avoid probate and are also used to safeguard financial privacy and manage assets should the owner pass away or become incapacitated. A trust is not necessary for everyone. If you are single, have no children, rent your home or apartment, and do not own significant assets, you likely do not need a trust. If you have minor children, a child with special needs, or significant assets, a trust is a wise tool to use.
Typical reasons for having a trust are:
• Avoiding the probate process and the costs and time associated with it
• Protecting assets for children until they are mature enough to own them
• Avoiding or reducing estate taxes
• Having more flexibility than a will
• Managing assets when the settlor is incapacitated
• Preventing finances from becoming public record in probate court
Most people do not need to worry about estate taxes. Few states have estate or inheritance taxes, and the federal government only assesses such taxes on estates with significant assets. However, Congress revises the estate tax laws from time to time, so you should learn what the current estate tax exemption is when creating your trust. Merely having a trust does not automatically mean lower estate taxes. You will need an irrevocable trust that contains the necessary terms to avoid or reduce your estate tax liability. If you feel that your net worth is close to the estate tax exemption, you should consult with an estate planning attorney.
Types of Trusts
A trust can be revocable or irrevocable. Most people choose a revocable trust because they want to retain the power to revoke or amend it. An irrevocable trust can be beneficial for tax purposes, but it is not a good option for most people. It cannot be revoked or amended except under limited circumstances. A living trust is a trust used to manage property while you are still alive. A testamentary trust is a trust that is created through a will. It only becomes effective after the person who made the will dies.
How Do I Make a Living Trust?
A living trust document usually starts with a very basic template and includes the following information:
• The creator of the trust (your name if it’s your trust). The person who creates the trust is called the “settlor.”
• The trustee, the person in charge of managing the trust (again, this is your name if it’s your trust).
• The trustee who will take over managing the trust and distributing the property when the original trustee dies or becomes incapacitated. This is usually a spouse, close friend, or adult child.
• The beneficiaries – the people who will get the property of the trust (the same as in a will).
• The trustees who will manage any property left to young beneficiaries. Often times, when children or young adults inherit property from a trust, there is a delegated trustee to manage the property for them until they are of a mature and competent age to manage it themselves.
After you have drafted your trust with all of the pertinent information, sign it in front of a notary. Then, to make it effective, use a deed or standard transfer document to transfer the property of the trust into the trustee’s name, per the trust’s terms. Your next step is to fund the trust. This involves transferring ownership of property to the trust. Real estate will require a deed, and you should re-title other assets in the trust’s name. You also can add a provision to a will that makes the trust the beneficiary of any assets you fail to place in your trust or name in your will, but these assets will go through probate and will not transfer to the trust immediately.
Who Should Be the Trustee?
Unless you are creating an irrevocable trust, you should be the initial trustee so you can maintain control over your assets. You should name a successor trustee to manage the trust after you die or become incapacitated. It is also a good idea to name additional successor trustees to manage the choice if your first successor trustee cannot serve. Your successor trustees should be people you trust to manage your assets. Do not micromanage your trustees with an extensive list of what they can or cannot do. Choose people you believe will make good decisions and who are responsible with money. After all, it is called a trust, not a mandate.
Legal Assistance
Individuals who are considering drafting a trust or a will may wish to consult with an estate planning lawyer. He or she can explain the advantages of using a trust as well as a will. He or she can make recommendations based on the specific considerations of the client. He or she may even recommend using both documents, such as by using a pour-over will that places any property owned at the time of the testator’s death into the trust.
