You go to your estate planner to have your financial and health care powers of attorney, will and trust drafted or updated. Oftentimes, it is challenging to choose the people who are going to handle your finances and property when you are unable, either during your mental disability or after your death. If you have kids, which one or ones do you pick, if any, and in what order? If you do not have kids, or the kids are unable, do you have someone whom you trust who can handle the job?
When choosing an agent for your financial power of attorney, a personal representative of your estate in your will, or a successor trustee of your trust, look at the skill set of the available candidates. I often have clients who want to name their kids in birth order as financial agents because it is the “fair” thing to do. However is it really “fair” to the rest of the kids if money management skills was not one of the gifts that God had given to one of your older children tasked with handling your finances and property? If they cannot handle their own finances, how can you expect them to properly handle yours?
If you do not have kids, or do not have kids who are able, look to others in your life who may have that money management skill set, such as relatives, friends and trusted professional advisors, such as your CPA, tax preparer or financial advisor. When appointing an agent to handle your finances and property when you are unable, choose carefully and make sure that you properly investigate and evaluate their abilities.
There is no shortage of people who are trying to separate you from your money. In the financial services industry, it’s the annuity peddlers. With estate planning in legal services, it often is the attorney who “volunteers” to help you out and offers or accepts your request to be your personal representative of your estate in your will, and/or the successor trustee of your trust.
After your trust is drafted, your attorney may deed your home into your trust, but nothing else is funded in the trust during your lifetime. Trust funding is completely and correctly naming your trust and individuals as owners, beneficiaries and insured parties of your assets. Basically, it’s putting your stuff in your trust. You have to retitle assets, change beneficiary designations and add additional insureds to your casualty and liability insurance policies. The attorney says it is no big deal because your trust can be funded after your death. You think you are all set. Your estate plan is all signed and you have the attorney who is going to handle it all.
What you are not told about are all the fees that the attorney is going to charge for doing this work after your death. And you are not around to object. After your death, the attorney has won the lotto. The attorney is in charge. The attorney decides who they are going to hire to assist them and decides how much to pay themselves and their helpers. They have already been paid for drafting your estate plan. However, by getting you to name them as personal representative of your estate in your will and the successor trustee of your trust, they have four more jobs for which they can repeatedly pay themselves. They will end up charging you, your estate and your trust five fees:
Fee Number 1 – Legal fee for drafting your plan.
Your attorney charges a fee for preparing your estate planning documents. Your attorney will draft your will and unfunded trust really cheap, so you get a false sense of security that the fees will be similar after your death. The attorney will not give you a fee quote for the after-death administration because it is going to “depend upon the work that needs to be done at that time.”
Fee Number 2 – Personal representative fees.
When you were told that your trust can be funded after your death, you were not told that in order to fund your assets into your trust, they had to be probated. A personal representative must be appointed by the probate court to transfer all of you assets into your trust. The attorney acting as personal representative is entitled to a personal representative fee. Some attorneys will charge their full hourly attorney rate for all work done as personal representative. I know of one attorney personal representative who charged his full attorney hourly rate of nearly $200 per hour to bag trash and clean out a refrigerator. I know of another firm of five-fee estate planners who “value bill” as personal representative; the personal representative fee is not based on time spent but on the risk and responsibility taken on by the attorney as personal representative. The “value billed” fee is invariably much higher than would have been charged at the attorney’s regular hourly rate. The longer the probate estate remains open, the more personal representative fees the attorney can charge.
Fee Number 3 – Personal representative legal fees.
The personal representative is entitled to legal counsel. The attorney as personal representative will hire his or her own law firm to act as legal counsel for the personal representative. And of course, the law firm is entitled to legal fees for acting as legal counsel for the personal representative. These fees may be at the attorneys’ regular hourly rates, but I have also seen them “value billed.”
Fee Number 4 – Trustee fees.
Once your assets are in your trust, the attorney as successor trustee gets a trustee fee for administering the trust. The attorney is entitled to continuing trustee fees so long as the trust is open. Trustee fees may be at the attorney’s regular hourly rate, but I have also seen them billed annually as a percentage of the trust assets or “value billed.”
Fee Number 5 – Trustee legal fees.
The trustee is entitled to legal counsel. The attorney as trustee will hire his or her own law firm to act as legal counsel for the trustee. And of course, the law firm is entitled to legal fees for acting as legal counsel for the trustee. These fees may be at the attorneys’ regular hourly rates, but I have also seen them “value billed.”
If you are considering naming or have already named your estate planning attorney as your personal representative or trustee, make sure that he or she is properly insured to act as such. Ask for their certificate of insurance covering fiduciary activities. Many attorney malpractice insurance policies will not cover the attorney acting as your personal representative or trustee, or will only cover the attorney if he or she has applied and paid for a fiduciary rider.
Also make sure that your estate planning attorney who wants to be your personal representative or trustee is up to date on all the laws. Although attorneys should, they are not required to attend any continuing professional education, ever. I regularly attend and present at Michigan Institute of Continuing Legal Education (ICLE) functions. I know of one five-fee estate planner who has been an attorney for more than fifty years, and in the thirty-two years I have been an attorney, I have never seen him in attendance at any ICLE function. And his firm’s estate planning documents reflect it. Ask your estate planner how many hours of continuing professional education that he or she has attended in the past year in estate and trust planning and administration. If they are going to act as your personal representative or trustee, it should be at least forty hours annually.
And as Paul Harvey used to say, “And now you know the rest of the story.”
By Matthew M. Wallace, CPA, JD
Published edited July 1, 2018 in The Times Herald newspaper Port Huron, Michigan as: Beware the 5-fee estate planner