Personal Finance

Probate: Why do lawyers charge charge a % instead of the hours worked?

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  • Jan 6th, 2023 1:53 pm
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Jan 26, 2020
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Probate: Why do lawyers charge charge a % instead of the hours worked?

I rewrote the title. I wasn't talking about government probate fees. Just legal fees. I'm comparing a $1,000,000 estate and a $10,000,000 estate with exactly the same assets. Say its just one asset in each. Something easy to sell, like a stock or fund.

I've never understood why a lawyer would charge a percentage of the estate. Surely if everything else is the same an estate of 1
million vs 10 million wouldn't take 1/10 the time? Why isn't it just charged per hour?

How would you shop around for an estate lawyer? Are there reliable rating websites you would trust?

And what can I do as a client to minimize the cost of probate?
Last edited by MichaelZZZ on Jan 2nd, 2023 6:24 pm, edited 1 time in total.
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Dec 1, 2022
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1) AFAIK the lawyer doesn’t charge a percentage of the estate, the government does. In BC it’s 1.4% of the estate, so there is a significant difference between $1 million and $10 million.

2) If you have an accountant, try asking him/her, as they usually work together to file tax returns.

3) Once you find an estate lawyer, ask for the total price of what needs to be done, they negotiate from there.

4) To eliminate probate, try to have joint accounts; but of course, ask an accountant for better advice!

I’m sure other members here are way more knowledgeable than I am!
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MichaelZZZ wrote: I've never understood why a lawyer would charge a percentage of the estate. Surely if everything else is the same an estate of 1 million vs 10 million wouldn't take 1/10 the time? Why isn't it just charged per hour?

How would you shop around for an estate lawyer? Are there reliable rating websites you would trust? I don't even know where to start.

I also need a will done. Would it be smart to negotiate for both?

And what can I do as a client to minimize the cost of probate?
The mallee $1 million estate may include a home, a mortgage, some savings accounts, and an RRSP.

The $10 million estate may have that + stocks and bonds, a company shares in a business ownership situation, insurance policies, an additional property and other things that would all have to be accounted for and dealt with.

Additionally, as an overall concern is that there is more liability if something goes wrong in a bigger estate. Sure, the lawyer will have insurance to cover such issues, however, it’s still something that they’ll have to deal with and allocate time to deal with that probably isn’t going to be chargeable. This is similar to why court fees for probate rise as estate values rise.
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MichaelZZZ wrote: I've never understood why a lawyer would charge a percentage of the estate. Surely if everything else is the same an estate of 1 million vs 10 million wouldn't take 1/10 the time? Why isn't it just charged per hour?

How would you shop around for an estate lawyer? Are there reliable rating websites you would trust? I don't even know where to start.

I also need a will done. Would it be smart to negotiate for both?

And what can I do as a client to minimize the cost of probate?
It's legislated provincially. It makes sense that larger estates should pay higher probate costs than smaller estates. Also, probate fees go to the provincial government, not your lawyer, though your lawyer may have a scaled fee to charge for probating the estate you manage. :)

FWIW, when I die, I'm happy to have my estate pay $2000-7000 in probate costs to the provincial government. Hopefully the provincial government will spend the money wisely. :)

Also, you may not need to have a will done, depending if you have dependents (i.e., kids) or real property (i.e., a house) or not, or if the value of your estate is relatively small. If the value of your estate is small, you have no kids, have never been married, and do not own a house, the default is usually for your parents to inherit your assets. If you are in B.C., you can even use MyWillBC for free to generate a legal will. Otherwise, if your estate is not complicated, you can also use a service like Willful to generate a will for relatively low cost.

Cheers,
Doug
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A lawyer preparing a will typically charges a flat fee depending on the complexity of the will. Simple will for a single person will be less than a will for a family, multiple properties, sole proprietorship, ownership of a corporation etc. Lawyer will typically quote a rate based on the situation. You could shop around for a lawyer to do the will, but IME most would not be too amenable to dickering over their price. Cost to do a will is small relative to probate and executor costs.

As others mentioned, probate is a government fee based on the estate value, and varies by province. You can lower probate fees by naming beneficiaries on registered accounts and insurance policies. Those items will then bypass the estate, and probate will not apply to them. Need to be careful with tax deferred accounts (RRSP, RRIF) though. Income tax will be payable on the value of those accounts, and the taxes would be paid from the residue of the estate (i.e. the parts of the assets that do not bypass probate).

Then there is the executor's compensation. You can specify executor compensation in the will. Note that the executor fee is considered taxable income. I would be wary of specifying it by the hour though. Some executor tasks take a long time and cannot be done in one session. Many people would not be good at tracking their billable time which could cause friction among beneficiaries. If the will does not specify executor compensation then there are typical fees that vary by province. In Ontario it's about 5% of the estate value (2.5% of assets gathered plus 2.5% of assets disbursed). Lawyers may be used for some tasks associated with settling the estate, like filing for probate, and each lawyers would have their standard rates for such tasks.
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MichaelZZZ wrote: How would you shop around for an estate lawyer? Are there reliable rating websites you would trust? I don't even know where to start.
You go to vendor A, talk to them, look at what they offer and the price they charge. Then go to vendor B, talk to them, look at what they offer and the price they charge.

Lather, rinse, repeat.
MichaelZZZ wrote: I also need a will done. Would it be smart to negotiate for both?
Yes :)
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In some provinces the provincial probate fee is capped, in others it isn't. Careful where you die!

Your best bet to avoid probate entirely is to use joint accounts with right of survivorship (account automatically passes to the survivor rather than to the estate), specify beneficiaries on registered accounts like RRSP, RRIF, TFSA, and sell/transfer any real estate holdings before death.
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Scote64 wrote: In some provinces the provincial probate fee is capped, in others it isn't. Careful where you die!

Your best bet to avoid probate entirely is to use joint accounts with right of survivorship (account automatically passes to the survivor rather than to the estate), specify beneficiaries on registered accounts like RRSP, RRIF, TFSA, and sell/transfer any real estate holdings before death.
I don't necessarily recommend adding other individuals to accounts to make them joint just to avoid arguably minimal probate fees. That requires a lot of trust and opens up a hornet's nest of potential tax consequences in doing so. Your second and third suggestions are great ones, though. It's ideal if you can die holding no real property. The ideal would be to transfer most of your assets prior to your death. :)

Cheers,
Doug
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Another nice advantage of Alberta. Maximum probate fee is $525.
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You can use the following free will kit:
https://www.canadawills.com/willkit/

use code (all lower case)
willkit2023

Once you have the pdf, print it out. Most jurisdictions require that a witness not be a spouse, a child of the spouse, an immediate family member or a blood relative and that the witness is an adult (i.e., a person that has reached the age of majority in that jurisdiction). The two witness can not be on your will.
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It is not appropriate for me to draft a will for you as it is a legal document and there are specific requirements that must be followed in order for the will to be valid. It is important to seek the assistance of a licensed attorney to draft a will, as they will be able to advise you on the legal requirements and ensure that your will is properly executed. Additionally, it is generally not advisable to completely disinherit a spouse as this can lead to legal challenges and difficulties for your family. It may be more appropriate to consider a prenuptial or postnuptial agreement if you wish to exclude your spouse from inheriting your assets. Again, I recommend consulting with a licensed attorney to discuss your options.

Otherwise ChatGPT can render lawyers obsolete already...
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Why do realtors charge a % of the sale to post a few photos and show a house?
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haliwood wrote: Why do realtors charge a % of the sale to post a few photos and show a house?
Excellent question. No really good answer. To be honest, in terms of value add for the fee paid, I would argue people should worry less about the fee(s) they pay their lawyer in settling real estate transactions and more on the fee they paid their realtor. Some lawyers offer a "for sale by lawyer" platform, and the fees are much, much lower. They won't, however, have access to MLS.ca, which is unfortunate.

Cheers,
Doug
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What lawyers charge their work on probate matters on a %? They may increase their fees if the probate involves either an expensive or complicated estate. Maybe you mean lawyers are retained to administer the estate, ie. act as the executor? The person who acts as executor is often entitled to be paid for that work, usually a % of the estate.
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MichaelZZZ,

Will Preparation - This is usually a set fee. However, if the will is going to be complicated, it can go hourly.

Estate Lawyer
- Let's exclude all the government fees in this discussion.
- If you want the lawyer to prepare all the documents for probate application and forms such as how much each beneficiary gets, etc..., you usually can get an estimate from the lawyer for his fees.
- If you want someone like a trust company, who will oversee the execution of the will, sell the assets, prepare income tax returns, distribute to the beneficiaries, I read these are usually % of assets.

Probate fee
- In BC, there is a $200 probate application fee plus probate fee which is based on assets. Maximum probate fee is 1.4%.
- Joint accounts/ownership (Joint Right of Survivorship or Joint Tenants) is excluded from probate assets. Tenants in common is included. Don't just go for joint accounts for the sake of saving probate fee. If there are multiple beneficiaries, you may have intended the asset of that account be given to not just the joint party. Or if you change your mind about passing your share to other joint holder, unless it's done prior to your death, you're screwed. Just remember, when there is a possibility of commotion in your estate, paying 1.4% probate is worth it.
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many flat fee real estate options now... google it
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MichaelZZZ wrote: Probate: Why do lawyers charge charge a % instead of the hours worked?
Because they can (???)

MichaelZZZ wrote: I rewrote the title. I wasn't talking about government probate fees. Just legal fees. I'm comparing a $1,000,000 estate and a $10,000,000 estate with exactly the same assets. Say its just one asset in each. Something easy to sell, like a stock or fund.

I've never understood why a lawyer would charge a percentage of the estate. Surely if everything else is the same an estate of 1 million vs 10 million wouldn't take 1/10 the time? Why isn't it just charged per hour?
Those are not specifically legal fees, i.e. you don't need a lawyer to do it. Executor compensation is what the executor gets paid for their efforts settling the estate, which can be complex, time consuming and stressful (for someone that is not a lawyer or professional trustee). There are additional fees such as disbursements for preparation of documents, filing documents etc, that would be charged back to the estate.

Executor compensation can be specified in a will. But if it is not specified in the will, then executor compensation is determined by customary levels established by courts in the deceased's province. That is typically a percentage of the estate. This explains it in more detail:
https://www.legalwills.ca/blog/executor-fees/
legalwills.ca wrote:Executor fees are generally established on a Provincial level by the courts. They are calculated as a percentage of the estate according to a range based on the “size and complexity” of the estate. Keep in mind that these fees are over and above any costs that may be incurred through the process of estate administration.

In Ontario, Executor fees are usually calculated as 2.5% of all assets gathered, plus 2.5% of all assets disbursed to beneficiaries. In other words about 5 percent of the estate.
...
You also have no idea how complicated your estate administration will be.

Supposing you are hit by a bus, and the bus company are held liable. But the bus company is holding off on paying any settlement. Your estate is going to get both larger in size, and significantly more complicated. There may be claims made against your estate that you are currently unaware of, because usually you have no idea how you are going to die.

You want to avoid a situation where you have stated in your Will that your Executor will receive $10,000 for their work, and your Executor realizes that this is going to be much more work than $10,000 worth. So they simply refuse to take on the role. You could end up with a situation where nobody wants the job because the level of compensation is too low for the work involved, particularly if the Will comes into effect 30 years from now when $10,000 is worth $1,000 in today’s money!
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yvrwindsor wrote: MichaelZZZ,

Will Preparation - This is usually a set fee. However, if the will is going to be complicated, it can go hourly.

Estate Lawyer
- Let's exclude all the government fees in this discussion.
- If you want the lawyer to prepare all the documents for probate application and forms such as how much each beneficiary gets, etc..., you usually can get an estimate from the lawyer for his fees.
- If you want someone like a trust company, who will oversee the execution of the will, sell the assets, prepare income tax returns, distribute to the beneficiaries, I read these are usually % of assets.
So even if the will specifies an Executor, can that Executor simply hire trust company or similar to oversee execution of will, tax returns, pay beneficiaries, etc.?

Not everyone can handle duties of an Executor so would be good if can have a professional handle.
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georvu wrote: So even if the will specifies an Executor, can that Executor simply hire trust company or similar to oversee execution of will, tax returns, pay beneficiaries, etc.?

Not everyone can handle duties of an Executor so would be good if can have a professional handle.
An executor may delegate some or all of their duties. Especially things that require specialized knowledge or expertise like tasks customarily done by a lawyer. But they cannot take executor compensation for things they delegate. For example if the will specified 5% executor compensation, but the executor outsourced all of their responsibilities, then they would not be entitled to any executor compensation.
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