July 3, 2014

Attorney Fees - Hourly, Flat and Contingency

When a client hires an attorney, one question that always arises is the fee arrangement. The client is obviously interested in knowing how the attorney will be paid. The three generally understood fee arrangements are (1) hourly rate, (2) flat fee and (3) contingency fee. There can be a combination of the two, e.g. an attorney will charge an hourly rate but agrees to cap their fee at a certain threshold such as $10,000. Still, the fee arrangements mentioned comprise the vast majority of cases. Each of these fee arrangements is typically associated with various estate planning arrangements.

In the case of litigation, e.g. a will or trust contest, an hourly rate can be expected because the attorney will not know the amount of time that has to be invested in the case. The case could take only take a few days or could take months depending on the circumstances. Furthermore, litigants are entitled to appeal which can only lengthen the amount of time the case takes. In these cases, the attorney will ask for an up-front retainer, $2,500 or $5,000 for example. 

A flat fee arrangement can be found in the case of estate planning. Many attorneys have a general sense of how long an estate plan will take to draft, review and execute (trust, will, power of attorney, etc.). For example, if the attorney bills at $250 per hour and has a thorough in-person consultation with the prospective clients, they should be able to reasonably estimate the time it will take to complete the estate plan. So if they estimate that it will take 10 hours to complete the project, they could bill $2,500. From experience, clients invariably insist that they have an "easy estate plan" and hence the fee should not be much. This is simply not true. Even if the client has a nuclear family and wishes for the distribution to go to the surviving spouse and then to the kids, such requires at least a couple hours of work to get the process started. The clients have to provide the attorney with various asset information, the attorney has to incorporate those assets into the estate plan, the clients have to review the estate plan with the attorney to make sure that what is written reflects their true intentions and only after this can the documents be executed. While not hyper technical, it is not something that can be slapped together in an hour as some people erroneously believe.

A contingency fee arrangement can often be found where a client has a disputed or unknown interest in a will, trust or estate but lacks the funds to pay the attorney. For example, the client might have originally been a trust beneficiary but right before the settlor's death, the item specifically devised to the client was sold for some reason. Many clients mistakenly assume that attorneys are generally receptive to contingency fee cases. The problem is that many clients are often overly optimistic in terms of describing their case. The client has, in all probability, never brought a case before so they have no experience to make a judgment. Attorneys, conversely, when deciding on whether to take a contingency fee case look to both the underlying facts and the possibility of recovery. A judgment without a recovery is essentially worthless. So if an abusive trustee is penniless, it is doubtful there is much to recover for the prevailing client.