August 16, 2010

Living Trust Cost

Once I have finished talking to a prospective client who is interested in drafting a trust, invariably I am asked "what is the cost of a revocable (living) trust." 

Stated honestly (yes I said that), I reply "it depends." I know that sounds like a cop-out but it is actually the best answer an attorney can give you because each client has a unique circumstance. For an attorney to quote the same fee to every client indicates incompetence and a lack of care for the client because the attorney is not evaluating the client's case but rather seeing the client as a cookie and themselves as the cookie-cutter.

There are a number of factors that dictate an attorney's fee quote. The following are some of the factors I and other attorneys I have spoken to use: 

1. Size of the Estate 

If your estate is substantial, there might be an estate tax issue starting in 2011 (and possibly 2010 depending on Congressional action) and also a situation ripe for litigation. First, in regards to the estate tax issue, if your estate will exceed the applicable exemption amount, $1M for 2011 (subject to change), then it is often 
suggested to create some type of trust to cushion the blow of the estate tax in addition to drafting a revocable trust. This might take the form of an irrevocable life insurance trust or a charitable trust. Thus, there is more work involved for the estate planning attorney which increases the fee.

Second, if you have a substantial estate then there is a probability of a family squabble upon your passing when your estate is distributed. 

I have heard of countless court battles because the decedent (the dead person) left money to one set of heirs to the exclusion of another. This is not a problem worth litigating over when your estate consists of a $20,000 bank account and a 1992 Honda Civic. However, when your estate is comprised of a $2M home, a 1991 Rolls Royce Phantom IV and other valuable assets, then there will probably be a battle between the heirs. I say this because from experience, no matter how you structure your estate, some person will feel slighted. For example, assume that John was disinherited by his widower father Bill as Bill left everything, $1M total in trust, to John's sister Desdemona. Since John received nothing he has an incentive, albeit unethical, to try to invalidate his father's estate since if his father's trust is invalidated, John would receive half of Bill's estate through California's inheritance law (intestacy). Prob C § 6402. Hence, there is more risk involved for the estate planning attorney because of the threat of litigation thereby the fee is increased accordingly.

2. Blended Family

It is not uncommon for a client to have been re-married today. The legal ramification of this is that line between community and separate assets is muddled. This is relevant because a married client can distribute 100% of his separate property but only 50% of his or her share of the community property upon their passing. 

For example, the client purchased a home with a prior spouse in Oregon while the two were living there and then re-married in California while a resident here. Consequently, the client is often unclear as to which part of the house is considered community and which is separate. Hence, the estate planning attorney will have  to utilize the various methods for distinguishing between community and separate property and the value of each. Due to the added work load, a client should expect a higher fee in such case.

3. Multiple trusts

A client will often wish to benefit not only their kids but also their grandchildren. By desiring for such, the client has implicitly agreed to the drafting of multiple trusts, in that one trust will govern the terms of their kids' trusts and another trust will govern the terms of their grandkids' trust. Due to the drafting of these multiple trusts, the attorney's fee will be enhanced.

4. Out of state property

Many Californians are either first or second generation. As a result, many came to California already having owned property in another state or were eligible to inherit property from their out of state relatives. Even though many states have similar estate planning laws, each state is nonetheless unique. 

For example, California law presumes that a trust is revocable (it can be amended), whereas most states presume that a trust is irrevocable. Probate C §154000. Thus, despite the fact that California law mirrors the laws of other jurisdictions in many instances, a California attorney is ill-equipped to comment on the estate planning laws of another state. Likewise, an out of state attorney is equally uninformed to comment on California estate planning law. If a California resident then has property in another state, the appropriate (and ethical) step that should be taken by a California attorney is to refer the client to a competent out of state attorney to handle the client's out of state property.

Recently, I had a client who owned property in a Midwestern state. I drafted the necessary estate planning documents for their property here in California. I then associated with an attorney from that Midwestern state to handle the client's Midwestern state property. Accordingly, the fee for the client increased because their estate required the assistance of attorneys from two states.

5. Special assets

Many clients have assets that are deemed "special." Examples of special assets include family-owned businesses, farms, ranches, vineyards, intellectual property, companion animals and compensatory stock options. Each of these items presents unique challenges to effectuating the client's wishes.

For example, I had clients who owned a closely-held business. In order to meet the estate planning goals of the client, a buy-sell agreement was drafted. Furthermore, I am currently working with clients who have many pets and would like to provide for these pets should they predecease their pets. The solution to the problem is to create a pet trust. Of note, California has a very thorough probate code section for pet trusts. Prob Code § 15212. Since each special asset requires an attorney's added attention, the fee will be increased accordingly.