Sunday, January 23, 2011

Expensive Lessons From The Probate Court

You may see references in the media and on the internet about the "high cost of probate."  Probate -- which is simply the process by which an individual's estate is administered in the probate court (called a "Surrogate's" court in New York) -- is in most cases a fairly straightforward process.  If the decedent had a will, the Executor named in the will is routinely appointed by the Surrogate Judge to administer the decedent's probate assets.  If there is no will, one or more persons having an interest in the estate -- typically family members such as a spouse or adult child -- will petition to be appointed as the Administrator who will serve essentially the same general role as an Executor.

As a court proceeding, probate will almost always involve the hiring of an attorney to assist the Executor or Administrator with the estate administration.  In New York, attorneys fees in probate proceedings are based on a broad "reasonable compensation" standard, with the appropriate fee subject to the Surrogate Judge's approval.  Under New York law, the Surrogate must consider a number of factors, including: time and labor required, the difficulty of the questions involved, and the skill required to handle the problems presented; the lawyer's experience, ability and reputation; the amount involved and the benefit resulting to the client from the services; the customary fee charged by the Bar for similar services; the contingency or certainty of compensation; the results obtained; and the responsibility involved.

Such a broad standard can -- and does -- lead to widely disparate results.  Two recent cases demonstrate the broad discretion afforded the Surrogate Judge in approving attorneys' fees in probate matters.  Estate of Trapani Bove, 1/10/2011 NYLJ 24 (Col. 3) (N.Y. Cty. Surrogate's Court, January 10, 2011), involved a bitterly constested estate involving the Executor and various beneficiaries.  The total value of the estate was approximantely $1,750,000.  One of the many items in contention between the Executor and the beneficiaries was the fees to be paid to the various attorneys who were involved in the representation of the various parties involved in the estate.   

In its decision the Court noted that the attorneys were seeking "an astonishing $813,965.00, a sum equal to just over 46 percent of the gross value of the estate" (emphasis supplied).  Ultimately the Court approved a fee award of "only" $300,000, which still represented a whopping 17% of the estate value.

Another recent probate attorney fee case is the Estate of Bubalo, 1/18/2011, NYLJ 20 (col. 4) (N.Y.  Cty. Surrogate's Court, January 18, 2011).  In Bubalo, the American Diabetes Association -- which was a beneficiary of the "residuary" of Mr. Bubalo's estate -- filed an objection to the Executor's accounting claiming, among other things, that the attorney was seeking fees for work that was duplicative of the Executor's work.  The attorney was seeking attorneys fees of just under $84,000 on a total estate of approximately $2.6 million.

The Court in Bubalo -- while making a point to note that "the attorney's experience, ability and reputation are not in dispute" -- shaved approximately $8,000 of the attorney fee award on the basis that that portion of the fee sought was executorial in nature, leaving a total fee award of $75,781.25.  This reduced attorney fee still represented over 3.3% of the total estate value.

In my view, both of the above-cited cases are examples of estate plans that "did not work."  That is, the decedent in each case surely would have been disappointed to know that their estates were subject to litigation between their designated heirs, causing emotional hardship and resulting in significant legal fees.  Invariably these poor outcomes likely could have been minimized had more time and resources been invested on the "front end" of the estate planning process -- that is, through an extensive counseling and design process involving an in-depth discussion between the client and the estate planning attorney that will work through all the client's goals, dreams and aspirations for themselves and their loved-ones.

Our practice was developed using the counseling and design model.  While our "up front" fees will almost always be higher than the usual "word processing" based estate plan, experience shows that the total cost of our planning -- which includes the cost to fund, maintain and adminster the plan at death -- will be substantially less than under the "traditional" model.  For clients in our lifetime maintenance program, our firm agrees to a 1% "fee cap" to provide the legal work for the administration of the estate, which is a far cry from the 3.3% fee in Bubalo, and light years from the 17% fee in Trapani Bove!

Sunday, January 9, 2011

Elizabeth Edwards' Will Disinherits John? Perhaps Not!

It has been widely reported that in the will she signed just days before her death, Elizabeth Edwards left her entire estate to her children.  In fact, her estranged husband John apparently is not even mentioned in the will.
But that's not necessarily the end of the story. The law of North Carolina, like most states, includes a right for a surviving spouse to "elect" against the estate of a deceased spouse.  North Carolina provides that a surviving spouse may "elect" to receive distribution of one-third of the deceased spouse's estate, which is similar to the law in effect in New York.

However, it is almost certain that the separation agreement executed by the Edwards' would have included a provision that each spouse "waived" the right to an elective share from the estate of the other spouse, even if one of the spouse's were to die prior to a divorce.  Accordingly, there is little chance that even if he were inclined to do so, John Edwards will be entitled to excercise the right to elect against Elizabeth's will.