What Are Legal Fees for Settling an Estate?Creating an estate plan is an important step in ensuring that settling and distributing our estates can be easier for our loved ones after we’re gone.
There are various factors that determine what, if any, legal fees will be required when settling an estate.
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In this article, we’ll break down the legal fees associated with settling an estate such as average probate fees, executor fees and the costs of executing a will, and other estate administration expenses.
Introduction to Estate Settlement
Here’s a quick snapshot of the typical estate settlement process:
- Organizing funeral and burial wishes
- Paying off estate debts
- Notifying and finding creditors to collect any debts owed
- Distributing assets to beneficiaries
- Selling property and/or businesses (if necessary)
- Filing final tax returns
- Communicating with heirs and beneficiaries
In this process, there are certain steps which will incur costs. One of them is the probate process (which is not always required), and the other is the filing process.
Breakdown of Legal Fees
When settling an estate in Canada, legal fees can vary based on the complexity of the estate, the services required, and the specific tasks performed by legal professionals. Here’s a breakdown of different types of legal fees that may come up during estate settlement:
Lawyer Fees (Optional)
If whoever is settling the estate, be it an executor or an administrator, chooses to bring on a lawyer to assist, they will probably be charged a consultation fee for the initial meeting to discuss the estate, assess its complexity, and provide general advice on the legal process.
Following that, lawyers charge fees based on an hourly rate or a fixed fee, depending on the lawyer's experience, expertise, and location. Complex estates that require more research or expertise will, most likely, result in higher rates as well.
Based on the Canadian Lawyer’s 2021 Legal Fees Survey, the average estate lawyer in Canada with one to four years of experience charges $4,428 for administering an estate. Lawyers with five or more years charge on average $4,875.
Probate Fees (If Required)
If probate is required, each province in Canada has its own rules regarding fees, and they can range from a fraction of a percent to a few percent of the estate's value. If a lawyer assists with the probate application, they typically charge a flat fee and disbursements.
We’ll dig more into probate and its associated costs in the next section.
Disbursements
These can include expenses such as photocopying, postage, courier services, and long-distance phone calls. If you’re working with a lawyer, they will likely cover these costs and add them to your bill when the settlement is complete.
Factors Affecting Estate Settlement Costs
The expenses associated with estate settlement can vary. Here’s a breakdown of how estate size, complexity, and location can influence the costs someone pays to settle an estate.
- Estate Size: Generally, larger estates tend to incur higher legal fees due to the increased volume and value of assets involved. High-value assets such as real estate, investment portfolios, and business interests might lead to additional expertise in managing them, which can add to more costs when settling. Smaller estates, on the other hand, have fewer assets and may incur lower legal costs, as the process tends to be less complicated and time-consuming.
- Complexity of the Estate: Complex estates involve juggling more considerations, such as disputes among heirs if the deceased had a complicated family structure, tax challenges, ambiguous ownership of assets, outstanding debts, diverse investments, or business succession plans.
- Location: Legal fees can vary based on provincial regulations, tax laws, and what legal professionals in that region charge. In some jurisdictions, probate and administrative processes may be more streamlined, resulting in lower legal fees. But in other areas, the costs may be even higher.
How are legal fees determined?
If the estate requires probate, probate tax (also known as estate administration tax) is calculated based on the value of the estate, and it is paid when the application gets filed.
Usually, there’s a flat fee for estates valued under a certain amount and then a percentage fee for estates valued higher than that amount.
For a probate tax breakdown for each province, check out our article on probate fees across Canada.
In addition to probate tax, there are also legal fees and disbursements.
Comparing Probate and Non-Probate Expenses
Probate and non-probate expenses refer to the costs associated with the administration and distribution of a deceased person's estate at different times of the process.
Probate expenses happen during the probate process and typically include court fees, probate tax, lawyer fees, executor fees, appraisal costs, and other administrative expenses. Should court fees and legal representation consume a good portion of the estate's value, it will lead to a potential reduction in the assets passed on to heirs.
On the other hand, non-probate expenses are associated with processes that have nothing to do with probate. These can include things such as funeral and burial costs and communication costs for keeping in touch with heirs and beneficiaries. For reference, funeral costs in Canada can range anywhere from around $1,000 to $20,000.
Tips for Minimizing Legal Fees
Here are two tips that may help you reduce estate settlement costs:
Tip 1: Handle Things Independently
Working with a lawyer can cost a lot of money, especially if the estate you’re settling is large or complex. While lawyers bring years of expertise to the table, that expertise comes with its own costs. If you’re trying to minimize your costs, handle as many settlement tasks as you can on your own.
Tip 2: Communicate openly with beneficiaries
Executors and administrators of estates are responsible for communicating with beneficiaries. The degree and frequency with which you keep them updated can directly affect how comfortable they are with you settling the estate.
Why does this matter? You want to avoid any disputes that could lead to court proceedings, as these will stall the settlement process and add legal fees to the estate.
Understanding Executor Fees
Executors generally get paid a percentage of the estate as payment for the work. An executor’s compensation can depend on multiple factors, such as the province you’re in, your relationship with the deceased, and the size of the estate. A will could also state the executor should not receive any compensation, or that compensation should be only a specific amount.
In Ontario, for example, executors are entitled to receive up to 5% of an estate’s value. This value is based on a split of 2.5% for all capital receipts and disbursements, with the other 2.5% being for all revenue receipts and disbursements.
Often when executors are beneficiaries of the estate, they will decline their executor’s fee so that they do not deplete assets and can also avoid the income tax associated with the fee.
What is the normal fee for an executor of a will in Canada?
Estate executor fees vary from province to province, with the law generally suggesting between 3% and 5% of the estate or a reasonable amount based on the estate. In British Columbia, for example, a 5% compensation for an estate worth $500,000 would provide an executor’s fee of $25,000.
Navigating Tax Implications
An important part of settling an estate is submitting the deceased’s final return alongside any other necessary tax documents.
Depending on the deceased’s situation, you may need to file one or more of the following tax return documents to the Canada Revenue Agency (CRA):
- T1 Income Tax and Benefit Returns: includes the Final Return form for income earned up to the date of death, plus any additional T1 returns for income that would otherwise be reported on the Final Return
- T3 Trust Income Tax and Information Return: forms that report any income earned by the deceased after their date of death that hasn't been paid to beneficiaries
- Any outstanding tax returns for previous years
- Provincial and territorial tax
To learn more about which of these forms you may need to fill out to settle an estate, visit the government website on filing final tax returns.
Make the settlement process easier with a will
No matter the size of the estate and or how complex or simple your wishes may be, all estates need a settlement process, which costs money.
This is why making the process easier is a gift to both your loved ones and your executor. Help them by getting your own estate plan documents in place today.
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