Those familiar with serving as an executor or navigating probate understand the daunting nature of the task. The process often entails numerous filings and can extend over several months or even years. Consequently, seeking legal counsel is frequently necessary to navigate this complex procedure and ensure the estate is managed appropriately. One common question concerning the engagement of attorneys for probate concerns their fees: what are their charges?
The Ohio Revised Code allows attorneys to receive "reasonable fees" for their services in aiding with estate matters. However, Ohio law doesn't offer a specific definition of what constitutes reasonable fees, nor does it prescribe a straightforward formula for determining them. Ultimately, it falls upon the county probate judge to decide whether an attorney's fees are reasonable for overseeing estate administration. Given the potentially burdensome task of assessing fees for each estate, many county probate courts set standardized rates that estate attorneys can charge, thereby streamlining the process.
The probate rates vary from county to county but generally range from 1% - 5% of the total value of the estate. As an example, the following are the probate rates for Brown County, Ohio:
For all personal property:
5.5% on the first $50,0000;
4.5% for $50,000 - $100,000;
3.5% for $100,000 - $400,000;
2.0% above $400,000.
For real estate:
1% for all real estate transferred to a spouse;
2% on the first $200,000 transferred to a non-spouse;
1% over $200,000 transferred to a non-spouse.
Let's examine the potential probate fees for a medium-sized farm located in Brown County. This farm comprises $1,000,000 worth of real estate, $500,000 of machinery, $300,000 in crops/livestock, and $200,000 in savings/investments. Under these circ*mstances, an attorney could charge up to $37,500 in legal fees, which would be automatically approved by the probate court.
Probate fees work well for smaller/simpler estates. In fact, attorneys are sometimes justified in asking for more than the county rates to cover their fees. However, for farm estates, especially with significant real estate, the county probate rates can cause permissible legal fees to become very high. For example, a large farm estate in Brown County with $5 million of land and $2 million of equipment/crops/livestock would result in permissible legal fees of $97,500.
To tackle the issue of high legal fees in farm estates, two strategies can be employed. Firstly, opting out of using the county rates to determine legal fees can be beneficial. The county rates represent the maximum fees that the court will approve but are not obligatory for attorneys to charge. For farm estates, billing on an hourly basis often leads to substantially lower legal fees compared to using the county rates. Therefore, when engaging an attorney for estate assistance, inquire about their estimated fees based on both the county rates and an hourly basis. If the hourly rate proves to be less expensive than the county rates, simply proceed with hiring the attorney based on their hourly rate. It's crucial to recognize that you always retain the option to request an attorney to bill on an hourly basis instead of using the county rates.
The second option is to avoid probate. The same $5 million dollars of land that can cost $50,000 to probate can be transferred for a few hundred dollars using a transfer on death affidavit. It is relatively easy to transfer any titled asset outside of probate. Bank accounts, investments, vehicles and business entities can all be transferred using transfer on death or payable on death designations. Especially for financial accounts, an attorney may not even be needed to transfer the asset to the beneficiaries. Let’s consider this point using an example:
Farmer owns $5 million of land and $2 million of equipment and crops in Brown County, Ohio. As already provided above, county probate rates would allow legal fees for probating the estate to be up to $97,500. Before death, Farmer executes a transfer on death affidavit transferring his land at death to his children. Farmer also sets up a single-member LLC for his farming operation and transfers his equipment and crops into the LLC. He then makes his LLC ownership transfer on death to his children. Now, when Farmer dies, his $7 million of assets can be transferred outside of probate with only a minimal amount of paperwork needed.
By spending perhaps a few thousand dollars on a transfer on death affidavit, an LLC and minor paperwork at death, Farmer can save his heirs up to $97,500. Avoiding probate is a great way to minimize legal fees for an estate. For more information on avoiding probate, see the Legal Tools for Avoiding Probate bulletin available at farmoffice.osu.edu.
Farm estates are not obligated to adhere to the county probate rates. In fact, it's possible to title many, if not all, assets in a manner that bypasses probate altogether. For assets that do undergo probate, it's advisable to inquire with the estate attorney about the fees based on both the county rates and an hourly rate. While some extensive and intricate farm estates may still incur substantial legal fees even if probate is avoided and hourly rates are applied, for many farm estates, the legal fees could be significantly lower than those dictated by the county rates.
