Sunday, August 26, 2007

Iowa Attorney Fees in Probate

Attorney fees in probating an estate of a deceased individual in the state of Iowa are set by the court. Pursuant to a state statute, the ceiling for fees is approximately 2%. Iowa Code section 633.198. While the statute states that it is the maximum, many Iowa attorneys treat it as the standard flat fee and will request - and often receive - fees based upon the 2% figure whether the amount of work equates to the 2% fee or not. Life insurance death benefits are not included when applying the 2% fee, but IRA's, 401k, jointly owned property, real estate, etc. are all included.

If there is "extraordinary" services rendered, attorneys can also request extraordinary fees. Iowa Code sec. 633.199. The statute sets out some examples of extraordinary services, such as sale of real estate, litigation and tax issues. Such fees are in addition to the ordinary 2% fees.

An option to avoid paying attorney fees based on this flat rate system and approved by the court, whether the 2% ordinary fee or extraordinary fees, is to establish and properly fund a revocable trust during your life. A revocable trust permits the administration of a deceased's estate without having to go through probate and court administration. This gives the trustee the abiliity to negotiate with attorneys on an agreeable fee.

75 comments:

Donnica said...

Thanks for writing this.

Anonymous said...

If the 2% fee is the state ceiling, can an executor negotiate with the estate's attorney for a lower fee based upon hours of service provided x normal hourly billable rate?

Matthew Gardner said...

Certainly. Some attorneys won't negotiate, however.

Ryan said...

Are CD's subject to the 2% as well?

Thanks,

Ryan

Matthew Gardner said...

Provided the decedent had an ownership interest and the CD's were included in the inventory, then yes, they are used to calculate fees.

Lorna said...

When a farm is involved - and it's held jointly by the surviving husband - does the attorney get 2% of the farm's value? This seems very exorbitant!

Matthew Gardner said...

For jointly held property with a spouse, only 1/2 of the value of that property is included in the fee calculation. But remember, show around for attorneys that are (1) Experience and knowledgeable and (2) negotiate on fees.

Shannon said...

I am the executor of an estate. Schedule D of the draft inventory I've received from the probate attorney is titled "Insurance on Decedent's Life". Yet in addition to the decedent's two insurance policies, are the policies he owned that insured the lives of his two adult children. Is it correct that these policies should be listed and included in the inventory?

Matthew Gardner said...

If there is any cash surrender value they may be included on schedule F as misc property. But not for the death benefit amount.

Shannon said...

Thanks Matt. So should I be concerned that they have listed the face value for those insurance policies on Schedule D instead of Schedule F?

Additionally, will these value be included in the estate value on which the 2% attorney fee is based, or just listed in the inventory for tax/court purposes? I ask this because the life insurance death benefit is listed on Schedule D but you stated it is not to be included in estate value subject to the 2% fee.

One last, but related question, if I may. The decedent also had an annuity, which has already been paid to the beneficiary, his ex-spouse. It is listed on Schedule I. Is this annuity subject to a 2% cut for the attorney or is it excluded like life insurance death benefits?

Perhaps a better question would be are there certain schedules that are part of the inventory but not to be included when calculating the basis for the 2% fee?

Thanks so much for answering these questions. Very generous of you!

Matthew Gardner said...

Including the face value of life insurance on Sch D when the decedent is not the insured does not seem accurate. If the decedent was the owner, the cash surrender value (CSV) would be included on sch F. Schedule D is for insurance on the decedent's life.

As for the annuity (and any other asset owned by the decedent) it is subject to the 2% fee calculation. The only asset excluded out of the 2% fee is life insurance that is payable to a named beneficiary.

In fact, there was a case this week that included certain transfers made by a decedent before their death that was included in the inventory and made part of the 2% fee calculation, even though that asset was not part of the estate. (blog post soon)

Remember that the 2% fee is a cap, it is not a floor, as the Iowa Supreme Court has said on several occasions. You should inquire about a fee commensurate for the work performed. This is a sensitive topic with Iowa probate attorneys (and may get me banned from the community).

Good luck.

Chris said...

I understand that probate is not necessary for estates that are $25,000 or less. If the estate is $25,000 or more, is the 2% legal fees figured off the estate amount minus the first $25,000?

Matthew Gardner said...

Good question. However, no. The statute provides that the 2% is applied for estate values over $5,000.00 (and $220 on the first $5,000). However, you can shop around and negotiate fees. (6% on the first $1,000, 4% on amounts between $1,000 and $5,000 and 2% on amounts over $5,000)

Lorna said...

Matthew - be sure and read any papers your attorney has you sign - and ask about a lower fee! My stepfather accidentally signed away his right to be given a list of what the attorney was actually charging him for. He'd done business with his attorney in the past, so did not expect to be charged an exhorbitant rate like he was! He took the fee - and the fact that his attorney didn't give him a list of what he was paying for to the Iowa Law Board and that's what they pointed out to him.

Matthew Gardner said...

Lorna-

Wow. I can't imagine that attorney will get many future referrals from your stepdad. Good advice though.

Anonymous said...

Are assets held in a living trust subject to the calculation of attorney fees if it is necessary to probate a portion of the estate (i.e. some assets are held outside of the trust by the deceased)?

Matthew Gardner said...

If you go through probate in Iowa, all of the assets (including the ones held by the trust) are part of the probate process. Thus, it is possible that the attorney may request fees based upon those trust assets as well, per the statute. (Hint: negotiate.)

Anonymous said...

Can an individual probate a simple estate themselves without an attorney?

Matthew Gardner said...

Yes, you could probate a simple estate without an attorney. However, access to forms and the necessary requirements and procedures can be overwhelming and more of a time commitment than what you are willing to do. I'm all for self-help, but this area can be more involved than it appears, even for simple estates.

Bill said...

"Matthew Gardner said...
If you go through probate in Iowa, all of the assets (including the ones held by the trust) are part of the probate process. Thus, it is possible that the attorney may request fees based upon those trust assets as well, per the statute. (Hint: negotiate."

I thought the main reason to set up a trust was to avoid probate, particularly the associated 2% attorney fees, but apparently this does not work in Iowa -- true? If so, it seems pointless to have a trust in Iowa.

Do IRA's have to go through probate even when they have beneficiaries?

Matthew Gardner said...

Bill- Good observation. My comment only applies if there is an asset NOT placed in the trust. In that case, you do go through probate for EVERYTHING. IF the assets are properly placed in a trust, then you won't have to go through probate. A properly funded revocable trust can allow one to avoid probate, thus resulting in cost savings generally.

On the second question, IRA's (and other assets with named beneficiaries) are reported in the probate proceedings, and included for fee calculation purposes, but are not subject to the administration by the personal representative in the probate proceeding.

Anonymous said...

My father just passed away. My mother has had power of attorney. Can she change CD's that were in my dad's name only without going through an attorney? Can she leave the house in both of their names or does she need an attorney to change it to her name only? Thanks!

Matthew Gardner said...

Anonymous-

Once a person dies, the power of attorney dies with them. There is no longer any authority for the attorney-in-fact to handle those finances. Depending on the amounts involved, it may be possible to handle the account changes by an affidavit and avoid probate.

For the house, assuming this was owned as joint tenants with full rights of survivorship, there is a simple form to file to get the deceased person's name off. It isn't required, but some people like to get the name removed for various reasons, such as a sad reminder.

Contact legal counsel for specific answers to your particular situation.

Anonymous said...

Matthew, to Bill's point earlier on setting up trust (12:19pm)....Most people are under the impression that if you set up a Living/Revocable trust that one would not be subject to the 2% fee...However may people have Qualified Money (IRA's,SEPP's,401k's, etc.)that CANNOT be put into trust ownership....thus if we understand you correctly....because of that the ENTIRE estate (even the trust ownership assets) CAN be subject to the 2% fee?

Anonymous said...

Matthew, is it reasonable to assume that if a husband/wife own a farm(Jointly-wros)and they wanted to change the ownership to only one of them(say: wife 100%).... which is just changing the deed... if the one spouse(husband) dies with-in 12 months of transfer to wife that transfer amount (which is currently 100% in wife's name)...would be pulled back into the deceased husbands estate...subjecting it to the potential 2% probate fee....How much time must pass after a change of ownership....so as an asset could/would not be pulled back to the grantor/deceased person....

Anonymous said...

Matthew, if you're still following this blog, I have a question. My parents have all of their assets in a living trust except 2 cars and a camper. Would there be any reason not to have the trust listed as owner of the vehicles/camper? I'm concerned about your earlier comment that ANY asset left outside the trust would trigger a probate process that would drag ALL of their assets through probate (if I understood you correctly). Should they change the car titles to reflect the trust as owner?

Matthew Gardner said...

Anonymous-

Good question on the trust - probate question. Certain assets can be transferred postmortem, without probate, to the trust. Sometimes you are left to the discretion of a 3rd party, which is not a good place to be. However,vehicles are an asset that can be transferred postmortem, in Iowa, by affidavit and without the need of probate. Your parents' plan should be safe assuming that the vehicles, in Iowa, are the only assets not titled in the name of the trust.

Anonymous said...

Does the 2% apply to IRA's that have my sisters and I as beneficiaries?

Anonymous said...

Do life insurance policies and annuities and IRA's that have beneficiaries listed have to be listed in the inventory of Assets submitted to the court?

Matthew Gardner said...

The attorney is entitled to request fees by including the amount of IRA's/annuities. However, life insurance policies that have a named beneficiary are excluded. However, all assets are reported on the probate inventory. (Whether or not the fee is calculated on the asset or not.) Thus...all reported on inventory, but not included in fee calculation.

Steve Gompertz, Calif Atty said...

I think you may be wrong about IRA's being subject to fees:
Iowa Probate Code Sec. 633.357 provides:

Custodial independent retirement accounts.
1. As used in this section, unless the context otherwise requires:
a. “Custodial independent retirement account” means an individual retirement account in accordance with section 408(a) of the Internal Revenue Code or a Roth individual retirement account in accordance with section 408A of the Internal Revenue Code, the assets of which are not held in trust.
b. “Designator” means a person entitled to designate the beneficiary or beneficiaries of a custodial independent retirement account.
2. The assets of a custodial independent retirement account shall pass on or after the death of the designator of the custodial independent retirement account to the beneficiary or beneficiaries specified in the custodial independent retirement account agreement signed by the designator or designated by the designator in writing pursuant to the custodial independent retirement account agreement. Assets that pass to a beneficiary pursuant to this section shall NOT BE CONSIDERED PART OF THE DESIGNATOR’S PROBATE ESTATE (my emphasis) except to the extent that the designator’s estate is a beneficiary. The designation of a beneficiary shall not be considered testamentary and does not have to be witnessed.
3. This section applies to a custodial independent retirement account established and a beneficiary designation made prior to, on, or after July 1, 1999. This section shall be considered to be declarative of the law as the law existed immediately prior to July 1, 1999.
4. This section shall not be construed to imply that assets or benefits that are payable upon the death of a person to a beneficiary or beneficiaries designated in or pursuant to a written arrangement not described in this section, other than a will, are part of the person’s probate estate or that the arrangement is testamentary.
99 Acts, ch 56, §4

I think that makes it pretty clear that the IRA is not part of the "gross assets of the estate" on which fees are based.

Matthew Gardner said...

Steve-

Thanks for the post. While your analysis is correct that the retirement accounts are not included in the probate estate, fee calculations are not based on the probate estate but rather on the estate subject to the Iowa inheritance tax.

The case that resolved the issue is In re: Estate of Melba Martin from 2006 (March 3, 2006, No. 04-0305). I don't have the NW2d cite, but you can get it on Findlaw or from the Iowa Supreme Court's website of archived opinions or I could forward it to you. In that case, the Iowa Supreme Court indicated that "In sum, we hold in the present case that the retirement annuities not subject to inheritance tax were nonetheless includable in the gross assets to be considered in the calculation of the maximum fees payable under sections 633.197 and 633.198." In that case, the IRA was paid to a named beneficiary and the Iowa Department of Revenue challenged the fee deduction.

Anonymous said...

In 1991 my parents set up revocable trusts because their estate at that time was around 1.5 million. Since that time their dad has died, the estate has shrunk and the amount safe from estate taxes has risen. Are we better off getting rid of the revocable trusts and paying the 2% probate fees when mom dies or keep things as is???

Matthew Gardner said...

Anonymous-

A revocable trust is a beneficial "vehicle" for handling one's estate, regardless of the size of the estate. One of the principal advantages is the potential for savings on probate fees when the trustor dies. I don't know what advantage there would be to getting rid of the revocable trust at this point. If you have it already, and the assets are properly titled in the name of the trust, you might as well ride it out and recognize the savings by avoiding probate.

However, if you would like to hire me to handle the probate estate and pay the 2% fee, I'm fine with that scenario. :-)

Anonymous said...

We have come to find my parents estate was worth alot less because the life insurance was not included. The attorneys fee is 2% of the estate which is worth little to nothing now. Will I have to pay money out of my own pocket for any reason because there's no money in the estate?

Matthew Gardner said...

2% of nothing is nothing. You shouldn't have to pay out of your pocket for that.

cherie said...

my living father has his home in a life estate (dated 1992) with his 3 girls on the deed and all Cd's are POD as is his checking and savings. His personal furniture etc. are minimal (under $25,000.) Why would we need to go thru Iowa probate?

Anonymous said...

I'm not savvy about such things. If the decedent has a bank account joint owned with the beneficiaries, upon death, the beneficiaries can disperse the bank account, correct? However, if the house needs to go through probate, is the attorney fee based on the sale value of the house plus the dispersed bank accounts?

Matthew Gardner said...

Cherie-

You are correct that there probably isn't a need for probate in order to transfer those limited assets. Probate also cuts off any claims/creditors and deals with any tax issues. Whether this is an issue with your situation or not I don't know. But from a pure asset transfer issue, probate is not necessary.

Matthew Gardner said...

Anonymous -

The attorney fees is based on the ENTIRE estate, not just what passes through probate. Thus the POD is part of the calculation, as would be retirement accounts.

Anonymous said...

Matthew ,annuities can and do by-pass probate and go direct to the beneficiaries without probate as does life insurance in most cases.

Matthew Gardner said...

Anonymous-

You are correct that annuities bypass probate, but yet they are still reportable in the probate process and subject to inclusion in calculation of court costs, attorney fees, and executor fees.

Richard said...

I enjoyed reading the information provided and your comments. I live in Iowa and have a revocable trust that holds my assets. My insurance company states they do not insure trust vehicles. I could leave them in my name but am concerned of the $25,000.00 probate limit and defeating the purpose of the trust. What additional risk would the trust provided the insurance company? I have a good driving record and premiums are reasonable. Any suggestions?

Richard said...

I enjoyed reading the information provided and your comments. I live in Iowa and have a revocable trust that holds my assets. My insurance company states they do not insure trust vehicles. I could leave them in my name but am concerned of the $25,000.00 probate limit and defeating the purpose of the trust. What additional risk would the trust provided the insurance company? I have a good driving record and premiums are reasonable. Any suggestions?

Matthew Gardner said...

Richard-

Don't worry about the vehicles in your own name and not the trust. In Iowa, your beneficiaries could file an affidavit after your death and transfer the vehicles to the beneficiary under your estate plan. (Without going through probate.)

Florida Probate said...

Probate is a very long and a time consuming process. Its better to opt for the living trust rather then for the P-word.
Jude

Anonymous said...

Why is the "Inventory of Assets" used as the basis for determining attorney's fees and executors fees in Iowa, instead of the value of estate that actually goes thru probate?
Attorneys in WI and FL both laughed and said those Iowa lawyers are padding their fees and if not illegal, it's certainly unethical.
In my own case, my mother left several POD CD's to her children.They were included in her inventory of assests but are not going thru probate. They were a substantial part of her estate. The attorney and executors did absolutely nothing to warrant a fee for handling them. Certainly the spirit of the law is that by having POD CD's they go directly to the named person without probate or any other legal mumjo. Should I or could I ask that the attorney's fee and the executor's fee be based only on the estate value actually going thru probate?

Matthew Gardner said...

While attorneys in other states may disagree, the Iowa Supreme Court and the Iowa rules of Probate permit the fee calculation on those non-probate assets (other than life insurance). As to "why", I can't fully answer that. The most recent case from 2006 addressed the calculation. See http://caselaw.findlaw.com/ia-supreme-court/1117615.html

Best idea is to shop around with the attorneys. You may have difficulty finding an attorney to take the case if the fee is so small to not be able to justify the work involved. (That may be the "why".)

Anonymous said...

Regarding Item number 47 & 48 on your postings on "Iowa Attorney Fees in Probate", I understand that it's legal but that doesn't make it right. Congressmen can use insider information to get wealthy whereas for the same act, I would go to prison. I just wonderred if it was worth pursuing as a negotiation point. Overall, the good people in Iowa are getting screwed on attorneys' fees and executors' fees for handling estates when compared to the exact same estate being settled in other states.

Thanks for taking the time to respond to my question.

Matthew Gardner said...

Agreed that it worthwhile to negotiate with an attorney on fees. My posts encourage it. There are several services/products where fees are based on a percentage and not on work performed, but are perceived as fair: realtors may get a large commission on an expensive home, even though it may not require any more work. Sales of financial products may give the agent a fee based on the amount of the product/premium.

As my 14 year tells me, "just saying".

Will said...

I am (or was) the owner of a group universal life policy on my ex-wife. She died without leaving a will, there were no beneficiaries named on the policy, and it was not mentioned in the divorce agreement. The life insurance company has decided that the proceeds of the policy should be paid to me, and has done so.
Now the probate attorney's office is calling wanting to know the value of the policy so they can "add it to the probate inventory." Is this appropriate?

Matthew Gardner said...

Yes, it is a requirement that all life insurance policies owned by the decedent be reported on the inventory, regardless of the fact they are or are not included in the probate process. I am confused about your comment that you said "you owned it". If you truly owned it, they it would not be included on the inventory. However, it seems unusual that you would own a group life policy on your ex-wife. Was it just a policy that you had through your employment that was offered for spouses that continued coverage?

Anonymous said...

The advice on this blog is extremely valuable. Thank you. Our Mom just passed away and "her" attorney never mentioned fees in our first discussion with him. As we were leaving his office, I asked that, as the executor, should I keep a reserve of funds for things like attorney's fees (assuming that it would be figured on billable hours). He said casually that fees are "around 2 percent of the estate." Once out of the office, we realized the huge difference that would be (thousands of dollars) between percentage and billable hours. He literally only has to file a few documents with the court. Bottom line question...if Mom did not sign an agreement with him, can we now negotiate a fee, or find a new attorney?

Chellb said...

My ex-husband just passed away, he was in the process of refinancing the house to get me off the mortgage, but the process was never complete. I had already signed the quit claim deed...what are my rights to the house?
He didn't really have any assets and we don't think he had a will or life insurance. we have 2 boys age 9 and 6 together. what will they get?
his family just called and said they were going to be coming down next week to empty the house!

Matthew Gardner said...

Chellb-

If you have already deeded the house to him in the divorce, you no longer have any rights in the house. (The mortgage is just an obligation that you have.)

If there is no will, and assuming no surviving spouse, the boys are the sole heirs. With minors as the sole heirs, the are certain difficulties involved in handling the estate. As the sole heirs, they alone have the rights to the house and contents.

Good luck. You should strongly consider legal counsel to help you out as there may be some issues for the kids.

Matthew Gardner said...

Sorry about your mom passing. If you don't have a fee agreement, you should get one in writing. Feel free to negotiate fees and/or shop around.

Anonymous said...

My ex-spouse passed away shortly after our divorce became final. Most of her estate is from what she obtained via the dissolution agreement, and she left no valid will.

Her divorce attorney and the attorney handling the probate are from the same law firm. Is this considered proper?

Matthew Gardner said...

Anonymous-

There isn't necessarily a conflict when the divorce attorney is also handling the probate matter, as long as they are competent.

Anonymous said...

Is there an easy and inexpensive way to transfer real property upon death in Iowa?

Other states have beneficiary deeds.

Probate is expensive and takes a long time.

How expensive and complicated are setting up revocable trusts?


Lawyers may advise against quit claim deeds as they are like gifts and there is no step up in basis in value of the property. But they don;t involve probate.

Any good options?

Matthew Gardner said...

Avoid probate question-

You can utilize a deed that conveys a remainder interest but keeps a life estate in the property. That can help you avoid probate, but there are other issues that you have to be aware of and consider. Similar to the beneficiary deed you mentioned.

Please contact me if you want pricing on revocable trusts. There are different pricing structures depending on the particular needs.

You are correct about the stepped up basis. The potential capital gains tax from low basis property can make probate costs look like chump-change. Just depends on the specifics.

Anonymous said...

Appreciate your informative guidnce. My wife & I had revocable trusts made & at our attorney's advice had our assets placed in individual trusts. At the time of my wifes's death there were several stocks that had increased in value & I understood there was a stepped up cost basis of costs, however I was told that does not work for a trust. The attorney who did this was well recommended & quite thorough so I find it difficult to think he would not advised us knowing the assets with which he was dealing. Unfortunately this attorney is no longer with us. Would you please advise where I stand or what I might do? Thank You

Matthew Gardner said...

Anonymous-seeking-stepped-up-basis-

General rule: Those assets in your wife's revocable trust would have a stepped-up basis to the value at her death. Not sure where the advice on not getting the stepped-up basis came from, but I would question it.

Anonymous said...

2yrs. ago attorney talked my 90yr. mother out of doing a revocable trust, use her 30yrs. old will instead. Mother has passed and now ALL assets must go thru probate, attorney charging 2% and more on land she owned in her name. We live out of state. Do we have any recourse to this process? Should we seek another attorney to use? Feel vulnerable when we should be grieving!

Matthew Gardner said...

Grieving child-

This sounds like another post I just responded to.

Education is your best option. Your recourse is to get another attorney. 2% fees are not required.

Hint: I presume you have my contact information.

Anonymous said...

My wife and I are both retired, in our mid sixties, own a house and have an IRA. At what level of net worth does it become worthwhile to have a trust made up? We have 3 children all living in the same state as us. Our total net assets are in the range of $800,000. This would be house, contents, IRA, savings, etc. We're told that would cost $2000 to $7000 to have a revocable trust set up. Thanks

Matthew Gardner said...

Anonymous mid-60's husband and wife-

Good question (and a frequent one). My first response is that I better raise my fees if people are charging $2,000-$7,000 for trusts. Maybe in some parts of the country, and maybe even here in IA, but not on my bills. Hmmm...

Revocable trusts (aka living trusts) can avoid probate. Court costs for an $800,000 estate would be just under $1,000.00. (It comes out to be about $25 for every $25,000). Attorney fees are in addition to that. The public records is another addition to probate, but is an intangible cost.

Some people feel that the privacy component is more important than any financial savings. That is a personal decision. From a financial perspective alone, you are crossing into the area where it is advantageous. $600,000 or higher is where I believe it makes sense financially. However, if you get an attorney that charges a flat 2% fee, that amount gets lowered significantly.

Good luck on your decision.

Anonymous said...

I don't understand your answer to my question on cost/need for a revocable trust. For a $800,000 estate, your 2% rate would be $26,000. Yet you said $2000 to $7000 was too high. What am I missing here?

Matthew Gardner said...

I'll clarify. I meant fees to set it up during life, not post-mortem attorney fees.

Anonymous said...

Is the value of property that the 2% fee us charged the gross value or the difference. Mom left a home with a mortgage and no mortgage insurance, we are selling property and only netting about $5000. so is the 2% based on sale price of home or amount we receive?

Matthew Gardner said...

Statutory fees are based on the gross amount (not the net figure you receive). The amount reported on the Report and Inventory (which should be the full, fair market value) is used as the basis for the fee calculation.

Matthew Gardner said...

Statutory fees are based on the gross amount (not the net figure you receive). The amount reported on the Report and Inventory (which should be the full, fair market value) is used as the basis for the fee calculation.

Mr. Schulte's Life Science said...
This comment has been removed by the author.
Matthew Gardner said...

Mr. Life Science-

Possible. Normally the wrongful death proceeds are allocated between the estate and certain family members. Thus, the portion allocated to the estate could be part of the fee calculation for the estate. At least that is my understanding.

Anonymous said...

My mother in law passed away Aug 2011. We just received probate of the estate(Dec.6,2013) after some issues with farm ground. The attorney's fee was calculated at 2% but was based on current assets and the value of farm ground that was given to one child back in Nov. 2010. Is there a time limit that would have prevented this from being used in the calculation? I've been told it is 3 years but the time of giving and the time of final report is 3 years plus one week.

Matthew Gardner said...

2% on prior transfer info - Hmmm. That is interesting. Transfers within 3 years of death in excess of the annual exclusion amount are reported (but not necessarily for the federal estate tax return). The key period is 3 years from the date of death (not the report). Now, whether the 2% fee should be applied is another question. Technically, it is permitted under the Iowa Code as it is based on the assets reported on the inventory, which includes the 3 year gift inclusion.