Minimum attorney fees for settling estates in PA

Rich, I don't know PA laws, but I can tell you that such is the law in California, so your scenario sounds, if not reasonable, then legally accurate. The executor/trix is also allowed to charge a percentage of assets.

Elizabeth Richardson

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Usually the State webpage has pages of laws. Self-help law associations are also a source. It doesn't cost much to consult with an attorney, and some offices might point you to the exact statute or codicil for free. You must speak to an attorney licensed in the State.

I only took one course in business law (!) but I know of at least one State where the attorney of record is entitled ONLY to reasonable fees and expenses, as contracted. To make that definite, in three states that I cursorily know of, only the executor / trix appointed in the Will is entitled to a percent of the estate's value. You are not bound by any law I know of to hire the attorney who drew up the Will.

Parenthetically - If the estate requires active management during the settlement process (selling real estate, stocks, or re-allocating assets, for example), the executrix is entitled to reasonable management fees and expenses. These may be (that I know of) calculated based on comparable asset management fees in the industry, but there must be sound justification (the IRS will look closely and may seek to reduce those if it feels there is no reasonable diligence involved to earn them in necessary steps to *safeguard the estate value*).

The percent of the estate (and any management fees and expenses) are received as ordinary income to the executrix, and reduce the value of the estate. Money paid to attorneys is deductible to the estate. Since estate taxes are often higher than the executor's tax bracket, the appointment of an executor is often used as a tax-saving device. I have never heard of an attorney receiving a percent of the estate. The attorney is HIRED as a mere clerk and accountant and is NOT named as an heir.

I'll check the PA website, but you are in a much better position than myself to contact a disinterested attorney's office and ask for directions :-)

On Aug 5, 7:45 pm, Rich Carreiro wrote: [snip]

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On Aug 5, 7:45 pm, Rich Carreiro wrote: [snip]

[snip]

Right y'are.

The Statutes search engine is no help at all, so I went to the reliable source, the Tax department of the State of PA, inheritance tax. Pls note that for siblings the rate is 12% but if you file within three months of date of death, you get a 5% discount - definitely worth it. I would assume you could estimate and overpay, then file an ammended return, but check on it.

The direct link (if it works) is:

0&bc=0&c4165&revenuePNavCtr=|&TNID46#1546 Click on:

REV-1501 Instructions for Form REV-1500

[the text below is from page 13 or thereabouts]

B. ADMINISTRATIVE COSTS [snip] Attorney fees must be reasonable given the number and nature of the assets to be administered, the value of those assets, the complexity of the issues involved, and the time necessary to set- tle the estate. The Department of Revenue does not recognize a set percentage fee or fee schedule. Any circumstances which necessitate fees above that which would normally be incurred should be described in an attachment to the tax return. [snip]

(Only because of the high regard I have for your posts dude, did I find this! :-)

IMO a good and honest attorney should charge based on the time he spends.

Condolences as appropriate.

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Thanks to dapperdobbs I suspect you have your answer.

My suspicion also is that if you were to contact the lawyer in question and question him/her closely, what you would discover is not so much an unscrupulous lawyer as a lack of good communication between lawyer and personal representative.

But whether it is fee abuse or lousy communication, assuming the PR has not signed any contracts with the lawyer I would fire the lawyer. You might also consider helping/advising the PR, who sounds like she could use someone like you.

-HW "Skip" Weldon Columbia, SC

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I would ask the attorney to put that in writing. then fire him/her and send the info to the State Bar Association.

Of course, he likely will not be willing to put it in writing, so you can ask him "why not?"

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Elizabeth is correct, CA does have statutory fees for both the attorney and personal representative, stated as percentages of the gross estate. But those are maximum fees, and while attorneys may use them as their standard fee, the PR is free to negotiate a lower one with an attorney. (Higher fees can't be negotiated or charged, unless they are for extraordinary services that aren't normally required in estate administration).

It's been awhile since I looked at a PA estate but my recollection is that PA doesn't have a percentage-based statutory fee. I just looked on the PA bar web site and their consumer pamphlet on estate planning states, "Talk to your lawyer to find out whether services will be based on an hourly fee, a flat rate, or on a percentage of the estate assets and what would work best for you."

-Tad

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Very much esteemed Elizabeth,

Please escuse me if my post seemed to slight yours - I'm not familiar with CA laws, and obviously I erred saying "I have never heard of ..." since you had just written that CA has fees based on estate value. And you are correct. Apologies for my very sloppy posting mind - it slipped :-)

Best, Dapper

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I suspect that a lot depends on the actual amount of the fees and the size of the estate. If the lawyer's fee is 3% of a $50,000 estate, it is probably reasonable, but if it is 3% of a two million dollar estate, it is outrageous. Working with "percentages" is a bad approach and leads to abuses. What is important is that a lawyer should be paid his or her usual, reasonable hourly fee for the actual legal work that is done, and not receive a windfall just because it is an estate. The same goes for the executor. It is the responsibility of an executor to hire lawyers, accountants, stock brokers, and any other professionals as the need arises. Some estates may require specialized advice, some may not. None of these people should be paid inflated fees just because an estate with a lot of money is involved. Unfortunately the attitude often seems to be: "There is a lot of money there, so my cut will not be missed."

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Yeah for estate planning!

But seriously, numerous states have laws similar to CA's that allow an attorney to collect a fee based on the assets in the estate. It is common to have a step-rate system (e.g. 6% of 1st $10,000; 4% of everything else up to $1,000,000; 1% of everything over). In Rich's case it appears PA does not have such law, but "reasonable" is often not agreed upon. Here, in AL, a court must approve an attorney's fees, but as much as 4% is not uncommon for more complex estates.

[Soapbox]: I commonly hear "I don't need estate planning because my estate won't be more than $X, so I won't owe taxes anyway". I've seen $1M estates with $25k in fees that could have been almost totally avoided with $4k in estate planning. Other than tax avoidance (the "biggie"), keep in mind that estate planning also removes assets from your estate. The lower the probate estate the lower the fees. Just one more thing to consider when deciding if estate planning is necessary.

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I did some more googling and among other things came up with the following from the Pennsylvania Bar Association website itself. In a pamphlet on estate planning, under the heading "Costs of Probate", the PA Bar Association says: "Talk to your lawyer to find out whether services will be based on an hourly fee, a flat rate, or on a percentage of the estate assets and what would work best for you."

That would appear to put paid to any claim that there's a state-mandated minimum percentage the attorney is entitled to.

Some more googling did turn up a fee schedule table that supposedly a number of PA judges use to assess reasonableness of fees. But that's just the opposite -- that's the largest percentage that is considered reasonable (e.g. an effective MAXIMUM fee), not a minimum entitlement, as well as a cite that there's no statutory provision for attorney's fees in probate cases.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

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The ideal situation is where one of the heirs serves as executor and receives a reasonable fee for his or her services. In that situation there is no need to have an "estate lawyer" who is paid a percentage of the assets. In most estates, the work involved is not all that demanding, and it can be done by someone without much experience. Unless unexpected complications arise, the costs of legal work can be held to a minimum. In fact, preservation of the estate's assets and making sure the heirs receive as much as possible is one of the legal responsibilities of an executor.

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Ah, but here's the rub. Being an executor is not a job with which most of us have familiarity. Most executors don't know what work needs to be done and must consult an attorney to learn the ropes.

Elizabeth Richardson

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Being an executor also carries with it the burden of fiduciary duty. As a result, the executor(trix) actually has an obligation to seek competent help for matters in which they are not adequately qualified. Failure to do so could result in breach of duty (for which ignorance is not a valid defense). Perhaps the smallest and simplest of estates do not need an attorney's help, but the majority of the ones I have encountered were greatly aided by legal counsel.

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Yes, but in that case the executor is acting as an executor, and getting legal advice. The attorney is giving legal advice, and not acting as an executor. Just like the accountant is not acting as the executor; just as the tax preparer is not acting as the executor, just as the real estate broker is not acting as the executor, just as the plumber is not acting as the executor . . .

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Usually what needs to be done and how to do it can be learned without too much effort. There are good self-help books available on how to serve as an executor. Bear in mind that an executor gets paid for the work done. People will go to great lengths to save money when buying a car or a new lawn mower, or renovating a house. They will even drive for hours all over town to find the grocery with the lowest price on foods. Why not invest a little effort in learning about the duties of an executor and thereby save many thousands of dollars that otherwse would be paid to someone else?

If an estate is complicated, or if there are disputes among the heirs, by all means consult an attorney. Then, that attorney can be paid the usual legal fee for whatever work is done. Similarly, if there are tax issues, consult a tax expert. But it is not necessary to give up the role of executor because someone with special expertise is needed.

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You are absolutely right. The executor has a fiduciary duty to preserve the assets of the estate. And in many cases that means making the right financial decisions, which usually is outside an attorney's area of expertise. The key phrase in your statement is "an attorney's help." By all means get legal help as it is needed for legal problems. But it is not necessary to turn over everything to an attorney (or to a bank, for that matter), who then may charge a substantial amount of money for small tasks that could easily be done by one of the heirs acting as executor. That would indeed be wasting money, failing in one's fiduciary duty.

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Agreed. Serving as executor not only gives one the chance to assists the deceased and beneficiaries, but it also provides valuable insight into the process. This helps immensley when planning your own estate. It would be foolish to just pass-off that opportunity.

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