When a loved one dies with real or personal property in just his or her name and not paid on death to another person, the court administration process of settling an estate, known as “Probate,” is required. The first question most people ask is, “What does it cost to probate and estate?” In order to answer this question fully, several factors must be considered. These factors include attorney’s fees, personal representative’s fees, accountant’s fees, appraisal fees, brokerage fees, taxes, insurance, and other fees and costs, depending on the issues involved. The following is a discussion of these fees, taxes and costs in greater detail, to help individuals understand the real cost of probate.
Attorneys fees are typically the largest expense of probate. There are different methods of determining attorney’s fees, depending on the facts of the case. When the attorney and all residuary beneficiaries (those who will pay the fee) can be certain as to the approximate time involved in settling the estate, a fixed fee can be determined. Clients usually like this method, as it eliminates any surprises later on. However, the attorney is taking on the risk of unforeseen events which may necessitate additional time required to probate the estate.
To solve this dilemma, the agreement can exclude certain situations which, if they arise, will increase the fee to cover those extra services. A second fee arrangement is a percentage fee. The Florida Probate Code, F.S. 733.6171, contains a fee schedule starting at 3% and decreasing for estates over $1,000,000.00. While this schedule is meant to be a guide for attorneys and judges in case of fee disputes, it has been used by probate attorneys in estates where the percentage constitutes a reasonable fee. The statute also takes into consideration additional fees for extraordinary services required to probate the estate. A variation of this type of fee is to have an agreement which is either the higher of the percentage fee or a reasonable hourly rate. This takes into account unforeseen circumstances, especially where there are multiple beneficiaries or the possibility of potential litigation. The final type of fee arrangement employed by attorneys in probate case is the hourly rate. This type of fee arrangement is based strictly on time and, therefore, does not take into account any facts which create extraordinary or complex services requiring greater skills than a typical probate case. Also, the hourly rate will vary depending on the attorney’s time, paralegal time or assistant time. Typically, a Board Certified Wills, Trusts and Estates Attorney or Board Certified Elder Law Attorney knows which of the above fee arrangements is the most appropriate for the type of probate case to be undertaken.
Personal Representative’s fees vary widely depending on how the will is drafted. Some wills state that the personal representative serves without compensation. This is typical of small estates which involve only family members. Other wills are silent or provide for “reasonable compensation.” Still other wills, usually for larger estates, appoint banks to act as personal representatives who serve based on their published fee schedules. The Florida Probate Code, F.S. 733.616, contains a fee schedule for personal representatives as a percentage, similar to the attorney statute. Again, this schedule is to be used as a guide and can be challenged if the percentage is unreasonable based on the actual time devoted to probating the estate by the personal representative. The hourly rate type billing can also be used with a lower hourly rate for a non-professional personal representative. It is advisable that both the personal representative who intends to charge for his/her services and the attorney keep accurate time records, even if a percentage is to be used, to substantiate the actual time expended to probate the estate, if requested by a judge.
Accountant’s fees are almost always computed on an hourly basis which include accountings, income and estate tax return preparation and audit services. Sometimes, Tax Attorneys will prepare Estate Tax Returns as well. Whether the attorney or the accountant prepares the Estate Tax Return depends on both the competency of each professional in Estate Taxes and Estate Tax Return preparation, and the relationship between the client and the professionals. The personal representative should discuss the accountant’s hourly rate, estimate of the number of hours involved, and the likelihood of an audit. Sometimes an IRS problem arises from the past income or gift tax returns of the decedent. Consequently, the accountant would not be aware of these potential problems until later on in the estate administration.
Appraisal fees, estate bonds, and brokerage fees are specific amounts rather than hourly fees or percentages. Complex appraisals may necessitate an hourly billing, but most appraisals can be done on a flat fee billing. Appraisals need to be done on estate assets for the preparation of the Estate Inventory as well as the Federal Estate Tax Return, if required. In addition, appraisals are also important to establish a “date of death” value so that the future sale of an estate asset, either by the estate or beneficiary, will allow the accountant to compute the capital gains tax. (Either profit or loss).
Taxes are another consideration in arriving at the cost of probate. If the estate is greater than the Federal Estate Tax Exemption, there may be Federal Estate Taxes to pay depending on several factors, the decedent’s last Federal Income Tax return may have income tax liability as well ss income earned in the administration of the estate.
Insurance needs to be in place on estate assets during the time the estate is in probate to cover all assets which might suffer a diminution in value as a result of an unforeseen disaster. Real Estate, automobiles, antiques and other personal property are among the assets typically insured during administration.
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