If you are an executor or a beneficiary under a Will or you have ever baulked at both the cost and the length of time it takes lawyers to wind up an estate , read on…
In the latter half of 2003, I read a judgement in a case involving the level of a solicitor’s probate charges. The case (Jemma Trust Co Ltd v Liptrott and others) arose because a beneficiary of an English estate decided to complain about the probate charges. In essence, the solicitors charged two executry fees – one based on a percentage of the value of the deceased’s estate and another fee based on the firm’s time costs. In the lower court, the costs judge found in favour of the beneficiary saying that the solicitor could choose one method of charging, but not both. However, in the Court of Appeal the judges overruled this decision saying that provided the overall charges were “fair and reasonable” the dual charges were acceptable. As a result of this extraordinary judgement, and my own personal experience of the conduct and cost of executries, I decided to research this subject in some detail. If you are a lawyer or a banker you may not like what you read.
For many professionals, a nice “fat” executry is the chance to charge excessively with impunity. The story is told of a young apprentice lawyer charged with winding up his first estate. He has everything ready in record time and is looking forward to a pat on the back. He is somewhat surprised instead, to receive a scolding for not taking more time; “time is money” says his principal “and the financial interests of the beneficiaries are but a mere trifle as compared to ours”. Lawyers, who like to think that they have a professional monopoly on winding up estates, love to exaggerate the difficulties of executry law. Of course some cases can be complicated but from my own experience, most executries are reasonably straightforward.
The Duties of an Executor
The duties of an executor are twofold – firstly to collect up and distribute the deceased’s assets in accordance with the terms of the will and secondly to account to the Inland Revenue for the appropriate Inheritance Tax (IHT). (All wills written exclusively in favour of the surviving spouse are exempt from IHT anyway, so very rarely does the resulting executry prove to be a problem). There are two returns to complete and to obtain Probate (or Confirmation in Scotland) both of these must be submitted and agreed by the local court and the Inland Revenue.
Appointing an Executor
The trouble can start when you decide to make a will. Naturally, you will wish to speak to a lawyer and hopefully he or she will give you sensible advice to take account of your circumstances and wishes; e.g.
(1) to ensure that your spouse is protected (2) to provide for your children and any other favoured relations and friends and (3) to minimise IHT. No arguments so far. The lawyer will then turn to the matter of executors. Some lawyers will recommend their own professional firm to become your executor. In my opinion, this is a poor piece of advice because if you appoint a professional firm of lawyers to act as your executor, you are in effect giving them an immediate (and often unquantifiable) interest in your estate.
Obtaining Executry Fee Quotes
The will will almost always specify how executors are to be paid. Here is a typical clause:¬
“My executors shall have the power to appoint one or more of their own number or any person or persons to be solicitors or agents for carrying into effect the powers and purposes of this will or to allow such solicitors or agents their usual charges”.
I cannot imagine many customers accepting a tradesmen’s quote based on such an imprecise form of words as ………. “usual charges”! As an unpaid executor, you need to be absolutely clear from the outset exactly what these words mean; for example, do they mean fixed fees based on a percentage of the value of the estate, time costs, or, as in the case of Jemma Trust Company Limited, both? If you are at all unhappy with the answer you get, you should insist on obtaining at least one other professional firm’s quote.
It is customary nowadays for professional firms to get their clients to sign engagement letters requesting agreement to, amongst other things, their charges. My advice to executors is to only sign an engagement letter which gives you a clear idea of completion time and cost; don’t sign one which refers to a firm’s charge out rates without giving you an idea of total cost.
Traditionally, banks have also had a share of the executry “market”. Typically, however, they employ lawyers to run their executry departments. These used to be “in-house” but more and more the work is outsourced. For example, the Royal Bank of Scotland employ a national firm of lawyers called Irwin Mitchell. The Royal Bank’s brochure on “Wills and Executor Service” sounds very reassuring but, in reality, is a licence to print money. It advises you to appoint them as your executor because they are “strictly impartial”. On the question of fees, you need to be Albert Einstein to understand exactly how they charge but the gist of it is a fee of 1% of the gross estate plus “time costs”. This is outrageous! Not only are banks very expensive but they move with the speed of a vintage Rolls Royce driving through sand.
Does the legal profession really have a monopoly?
Courts (County Courts in England and Sheriff Courts in Scotland) are of course reserved for lawyers! So court employees are instructed not to talk to anyone who is neither an executor nor a solicitor. But this doesn’t stop other professionals helping executors (who aren’t lawyers) from doing absolutely everything a lawyer does in terms of completing the forms and agreeing the IHT payable. If you are an executor, you should perhaps think of seeking the help and advice of a Chartered Accountant – you will be agreeably surprised by how pragmatic they are; and they certainly understand IHT, executry accounts, the notion of a fixed fee quote and a deadline! (Chartered Accountants are able to give advice to executors and beneficiaries but the actual business of obtaining probate or Confirmation is still – for the moment – the preserve of executors named in the will and lawyers).
Can you Sack an Executor?
Properly drawn up wills, normally stipulate who the executors are. They will sometimes include a lawyer or the lawyer’s firm. If you find that you are an executor of a will (and not a “professional”), you owe it to the beneficiaries to ask the “professional” for advance notice of (1) their estimated fee and (2) their estimate of how long it will take.
If you are unsatisfied on one or other counts, you should seek an alternative quote. If this is more acceptable, you can ask the professional executor named in the will to “decline to act” in favour of another firm (they won’t want to act for nothing, so a reputable professional will normally sign such a letter).
Recommendations
What can you do in practice to avoid being traduced by professionals? Here is a checklist:¬
1. Consider very carefully who you choose as Executors. They can include members of the family and trusted friends. Review your executors regularly – we all get older and relationships change! Avoid choosing professionals to be your executor. Leave it to your trusted executors to choose a professional to handle the executry after you have “gone!” You do this by including in your will a clause giving your executors:-“Power to appoint one or more of their own number or any person or persons to be solicitors or agents for carrying into effect the powers and purposes of this will and to allow such solicitors or agents their fees, subject to my executors receiving in advance and in writing:¬
(i) a fee quote and
(ii) an estimate of how long the executry will take to conclude.
2. If you are an executor, don’t overrule the possibility of completing a simple executry yourself. The Capital Taxes Office of the Inland Revenue is helpful and you can phone them on 0845 3020 900. Alternatively, if there are complications (e.g. trusts) or the estate is large, obtain quotations from at least two different professional firms.
3. If you find yourself as co-executor with a professional, ask him or her to quote in advance and in writing for the work and to commit an agreed time scale (e.g. 6 months). Ask another professional firm to quote as well.
4. Only sign an engagement letter which gives you a clear idea of completion time and cost; don’t sign one which refers to a firm’s charge out rates without giving you an idea of total cost.
Conclusion
Professional executors can be remarkably pompous about their responsibilities. They often excuse the length of time it takes them to wind up estates on the grounds that they must wait and see if there are any unknown estate creditors that might appear “out of the woodwork”. They can behave patronisingly to their clients and all too frequently adopt the attitude that only they know what’s right for their client. (Lawyers and banks don’t much like accountants advising executors because they know that much of the “mystery” that surrounds an executry is to cover up lawyers’ exorbitant charges). By complete contrast, the relatives, beneficiaries and executors of the deceased can feel extremely isolated and vulnerable – it is all too easy to leave the lawyer just “to get on with it” but as an executor, you owe the beneficiaries and the deceased a duty of care. You discharge this duty by holding professionals accountable from the outset; if you don’t, you could end up suffering the same fate as a friend of mine; her husband’s executry should have cost less than £5,000 and taken less than six months to complete – three years later, she ended up by paying her lawyers £55,000 plus VAT.
Finally, another true story. As co-executor with a lawyer, I made a plea to him to try and moderate his firm’s fees as the grieving widow was spectacularly poor. I suggested, not entirely tongue in cheek, that he temporarily swap his lawyers hat for a compassionate one. He wrote to the widow thus ……… “of course, I have compassion for your situation but I am sure, having known you all these years, that you would not want this to be put forward to me as a reason for my firm carrying out professional work at less than a proper charge”.
Andrew Hamilton FCA CTA Cert PFS
December 2010
(The views and opinions of the author are entirely his own and do not represent the views and opinions of either the Institute of Chartered Accountants of England and Wales or the Institute of Taxation, both of which Mr Hamilton is a member)
