13 Dec

So what is probate and how much should it cost? In true lawyer fashion, I am going to say the cost to get probate depends since there can be complications in some files. However, in many cases it should not really be all that much – around $2500-$3500 (plus taxes and disbursements). First let’s explore what it means to get probate.

In narrow terms, probate refers to the process of proving a Will to confirm its validity and the appointment of the executor (referred to as the estate trustee in Ontario). It also refers to the process of appointing an executor where there is no Will or the person applying is not named in the Will.

Probate is sometimes also used to refer to the broader process of administering an estate or at least the portion overseen by the courts. However, in Canada there is little court supervision of the estate administration process so it is best to use the term narrowly to avoid confusion with legal and other professional fees to complete work other than getting probate.

Not all estates are the same and neither are all executors. Some have more experience with financial and legal matters than others. Therefore, they may be more comfortable in the role of executor and not require much professional assistance beyond the core functions of the lawyer, accountant or financial advisor. Others prefer to delegate a significant amount of their administrative duties to professionals.

This distinction between the core functions of professionals, especially lawyers, and those of the executor is important. Firstly, it can have an impact on the fees executors charge for doing their work. The guideline in Canada, established by case law, is that executors can charge up to a maximum of 2.5% on each of income received or distributed by an estate trustee and 2.5% on each of capital received and distributed by an estate trustee. For long and complex estates, there can also be a care and management fee of about 2/5th to 3/5th of 1%.

As stated, the 2.5% on income and capital receipts and distributions is a maximum. This is not a set tariff rate. In order to qualify, executors must do virtually all the work of the estate themselves, other than what falls within the realm of expert professional services like applying for probate. The estate also needs to be complex and take a while to complete. Where estates are fairly small, simple and short, some court cases have suggested no more than 3% of the total value of the estate is appropriate for a non-professional executor but that still assumes the executor did most of the work personally rather than just supervising.

If executors delegate work that they should be able to do themselves, the fees charged by professionals to do this work are deductible from the executor’s compensation unless otherwise stated in the Will. It should also be noted that executor’s compensation is treated as employment income for tax purposes although technically it is income from an office. Either way, this poses a problem in terms of being able to deduct expenses incurred by the executor, such as using professionals to help with their job, for tax purposes.

As stated, the cost of these professionals to do executor’s work is not payable from the estate unless stated in the Will. Another option would be to get the consent of all of the beneficiaries but this only works if they are all over the age of majority and legally competent not to mention they all need to agree.

Executor’s fees are one consideration in determining the overall cost to administer an estate. The estate administration tax (or probate fee in some jurisdictions) is another. In Ontario, the estate administration tax is currently 1/5 of 1% on amounts up to $50,000 and 1.5% on all amounts over $50,000 with no maximum. The tax is calculated based on the total value rounded to the nearest $1,000.

The estate administration tax in Ontario is tied to the probate process for reasons that escape me. There are simpler ways to collect a little extra tax in the year of death. An unfortunate side effect of the tax is that it creates significant avoidance behaviour at the estate planning stage that can be problematic and lead to expensive litigation. In the year of death, it is common for executors to implore financial institutions to waive probate even though this normally means the executor has to provide a personal guarantee and certain limitation periods will never expire because probate was not obtained.

The estate administration tax, which essentially amounts to $15,000 per $1 million dollars of estate value, is a key driving reason for people to try to avoid applying for probate. The other reason tends to be an expectation that legal fees for obtaining probate will be huge. This is not necessarily true and should not be assumed although there is definitely variation.

There are lawyers who will charge around 1.5-2% of the estate value to get probate. In other words, they want to collect about the same amount as the estate administration tax and even a little more. These amounts may also include fees to do some of the executor’s work but not always. In some cases, if the lawyer is also doing some executor’s work in addition to applying for probate, some will charge a percentage that approaches the executor’s fees. The courts have not been entirely receptive to these practices and are now requiring lawyers to have separate files: one for legal work and one for executor’s work. Some courts are also denying lawyer’s fees for executor’s work that is based on an hourly rate. This is a bit strange since it can end up being significantly less than using a percentage.

In some jurisdictions like Saskatchewan and Alberta, there is a clearer distinction between what is lawyer’s work and what is executor’s work as well as how lawyers are permitted to charge. Ontario does not have legislation on the issue at the moment or law society guidelines on appropriate fees for core legal services. It has been left to the courts.

Not all lawyers charge as described above and I would suggest that most do not. Many lawyers distinguish between legal work (core probate or other legal work) and executor’s work and tailor costs to the amount of work done as well as the difficulty. Probate applications in many estates are not that difficult. The two issues that tend to create problems are getting a full list of assets with accurate values and locating beneficiaries. Challenges to the validity of a Will and other more significant problems, such as a dependant’s relief claim, can also arise but this puts the file into the contentious or litigation category so fees will clearly be higher to help executors resolve the legal issues.

Assuming an estate of average complexity (i.e. no litigation and the executor does not need much help) and less than $1 million of value, a fee of about $2500-$3500 is reasonable for probate of a single Will. If the executor needs help with various issues or there are assets such as real estate to be transferred, fees will be higher. For small estates of under around $150,000 of value, an even lower fee may be appropriate to obtain probate.

Other costs to consider are accounting costs, costs to transfer assets such as commissions on selling investments or legal fees for real estate or corporate reorganizations. There may also be premiums for executor’s insurance or a bond of indemnity in some estates.

As stated at the beginning of this post, not all estates are the same. Some can have problems requiring significant professional assistance but many do not. The trick is to figure out which kind of estate you have and find professionals willing to charge appropriately for the work being done. Right now there can be wide variation with respect to legal fees for probate and assistance with estate administration in Canadian jurisdictions such as Ontario. Therefore, it is wise to get several quotes (after disclosure of all that needs to be done) and try to break it down into legal fees for probate, legal fees for other legal work like disputed issues or transferring assets and then legal fees for general assistance to the executor in doing their job.