Why is probate so expensive?
In addition to taking up many hours of your time and taxing your emotions, the probate process can be quite costly—sometimes eating into as much as 10% of the value of the estate.
Executors or beneficiaries might find themselves wondering why, if their loved one already created a will stating how they wanted their estate to be handled, the survivors now have to go through an expensive probate process. It’s a reasonable question, and the answer is that drafting a will does not trigger an automatic transfer of assets.
Instead, a court must determine whether the will is valid, make sure creditors and taxes are paid, and adjudicate any potential contests against the will—all part of the probate process.
So what exactly are the costs of going through probate? We’ve broken it down so you can understand where those dollars are going—and where you might be able to save.
Probate court fees—those fees that are required by a court before you can file the necessary forms to begin the probate process—are determined by individual state statutes, and the amount can be quite different depending on where you live and the size of your estate.
A very small estate in North Carolina could have court fees as low as $40.00, whereas a more complex or high-value estate in New York might spend $1200 just on court fees.
These fees are set by statute, but all states have a form where individuals with limited funds can apply for a waiver of court fees. Also check to see if your state has a simplified process or exemption for small estates.
The fees you may be charged by an attorney for handling the probate process could vary widely by state and by attorney. Some charge a flat fee, some charge by the hour, and some charge a percentage of the estate. Some states put a cap on probate attorney’s fees—generally a percentage of the gross value of the estate.
For simple estates — those without families fighting over the will or heirs — attorney fees typically range from $3,000 to $7,000. If going through probate will involve family controversy, someone is challenging the will, or there was theft or fraud related to the estate, the legal fees could be dramatically higher.
Some attorneys charge based on the value of the estate, a factor which often has nothing to do with the actual complexity of the probate process.
Attorney fees are paid for by the estate, not by the individual executor. However, depending on the fee structure, an executor may have to pay some or all of the fees up front and be reimbursed by the estate once the funds are available.
For many estates, attorney fees are the largest expense of the probate process and could easily run into the tens of thousands of dollars. Keep reading for a way to mitigate this cost.
Most states have laws providing for “reasonable compensation” to the executor of an estate. Sometimes a will indicates a flat fee that should be paid to the executor, but even if it doesn’t, state law often gives a formula for what a reasonable fee would be—generally around 3 or 4% of the value of the estate.
An executor isn’t required to take a fee for managing the probate process, but it can be a long and time-consuming task. Many say it’s like having a second job for a period of months or even years. On the flip side, an executor that deals with a particularly complex probate case could ask for “extraordinary fees.”
Depending on the particular assets belonging to the estate, the probate process may require appraisals or business valuations. To determine the value of the estate, assets like jewelry, artwork, vehicles, and real estate may need to be appraised—as would any business interests.
These appraisals could cost a few hundred dollars or thousands of dollars, depending on what’s in the estate.
As with most of the other fees associated with probate, accounting fees vary depending on the value and complexity of the estate.
During the probate process, accountants can assist with the creation and filing of final income and estate tax returns as well as help handle tax issues related to the sale of property or administration of charitable bequests. An accountant can also request an estate tax closing letter from the IRS if a federal estate tax return is filed for the estate.
For simple estates, an executor may be able to file the necessary taxes on their own if the executor is comfortable with an online tax filing program.
In most jurisdictions, an executor must post a bond before they can be appointed as the personal representative of the estate. The probate bond is intended to protect the estate (and its beneficiaries) from fraud or embezzlement.
A bond is generally a small percentage of the estate, and the executor can usually be reimbursed by the estate once probate is closed.
The above fees do not include any debts that are owed to valid creditors, taxes that are due, or miscellaneous fees that could result from things like working with a realtor to sell property or paying to have the title transferred on a vehicle.
Can you avoid the cost of probate?
Some costs of probate can be avoided during the estate planning process when an individual makes choices to limit the assets that must go through probate. Taking these actions before death is the best way to avoid the costs of probate.
But if you’re already managing an existing estate, there are ways to reduce probate expenses.
How to reduce probate expenses
The single best way to reduce your expenses is to cut out the most costly piece of many probate processes: the probate attorney. Some estates are so complex or so contentious that an executor needs a skilled attorney to help. But in most cases, individuals can handle the probate process without an attorney.
A DIY probate process may involve some additional legwork, but it could also save the estate (and thus, the beneficiaries) thousands of dollars. If taking on the task of doing it yourself sounds like an exciting challenge, go for it—our founder did.
But if you’d like something in between paying thousands to an attorney or wondering whether you’re filling out the correct forms, we provide a probate package that includes ready-to-sign probate forms for your jurisdiction and can answer your questions throughout the process.
The probate process is rarely free, but it doesn’t have to break the bank. Let us help you reduce the cost and the headaches. Contact us for a free consultation.