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 ability to negotiate with attorneys on an agreeable fee.
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!
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).
Wow. I can't imagine that attorney will get many future referrals from your stepdad. Good advice though.
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?
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.
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.
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.
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.
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.
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. :-)
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.
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.
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.
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.)
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?
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".)
Thanks for taking the time to respond to my question.
As my 14 year tells me, "just saying".
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?
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!
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.
Her divorce attorney and the attorney handling the probate are from the same law firm. Is this considered proper?
There isn't necessarily a conflict when the divorce attorney is also handling the probate matter, as long as they are competent.
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?
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.
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.
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.
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.
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.
1. Father and Mother jointly own a farm. Father dies testate, leaving his half of the farm to his children after a life estate in Mother. Mother dies testate, no trust, leaving her half of farm to children.
2. Mother's estate goes to probate in Iowa. Farm is listed on Schedule A of the Report and Inventory. Farm is valued at $10,000 per acre by Executor. The farm sells at auction 5 months later for $5,000 per acre.
3. Final report seeks executor and attorney fees at 2% of $10,000/acre. Can the other heirs get the fees reduced to 2% of the sale price?
Interesting issue. I'll assume nothing significant transpired between date of death and auction that could have impacted the sales price. (E.g., commercial development nearby fell through, contamination found on land, etc.) The sales price for an asset of an estate is typically utilized as an indication of the fair market value (FMV). The Iowa Department of Revenue's position for tax purposes is that if a sale occurs within 6 months of death, they will accept that sales price as the FMV as of date of death. Thus, I think that an auction 5 mos. after death should be an accurate indicator of FMV as of date of death. Also, given that it was double the estimated value would seem to justify a modification of the Report and Inventory. I'm sure my position will not be welcomed by the executor and attorney, however. The argument may also be made that you can take a ax deduction for the capital loss on the reduction of value between date of death and auction. Let me know how it goes.
1. Out of pocket expenses. (e.g., postage, copies, fax, court fees, etc.)
2. Extraordinary fees (certain cases have additional work. There are special rules and requirements in order to get those types of fees that doesn't seem to apply here.
You need to request better clarification/support on that point.
The statute does not clearly separate out ancillary vs. domiciliary estate assets in the fee calculation, but courts in Iowa will generally (and should) calculate the fees for an Iowa attorney on the Iowa property.
For "small estates", there is a different section of the code (Iowa Code ch. 635) that allows for attorney fees to be set by agreement and thus not subject to the 2% limit under "regular" estates under Iowa Code ch. 633. To be a "small estate", the total probate assets would need to be less than $100,000.00.
Unfortunately, that is accurate under the Iowa Code. As to "why" insurance benefits are exempt, I suspect the answer lies in the lobbyist strength for the insurance companies. Other than that, all I can say is "just because".
Thanks so much!
The POD fees are included in the attorney fee calculation. The only item that a person can own that would be excluded is life insurance if it is payable to a named beneficiary. Thus POD, TOD, and joint property is included in computing court costs, attorney fees and PR fees.
So I follow your question: Non-Iowa resident dies owning stock in a corporation that owns Iowa real estate. Any Iowa work required? Answer: No. The stock is considered personal property which follows the residency of the decedent. For example, if he was a Nebraska resident (poor soul) and owned stock in a corporation (located anywhere), no Iowa probate or work is needed for the estate.
As long as you aren't objecting to my fees...
Simply file a resistance with the court, but you will need to file it electronically as Iowa courts utilize electronic filing. After you file your objection, the court will set the matter for hearing and at the hearing you will have a chance to explain why you believe the fees are excessive.