The role of an estate planning attorney and the cost of a comprehensive estate plan are perennial concerns for individuals and families from across the wealth spectrum. Often, wealthy individuals don’t see the benefits of paying for the various documents that make up an estate plan, when those documents don’t appear to bring them any immediate value.
While I agree that it’s important to manage your wealth and estate effectively, the fact is that certain expenses are perceived as “better” because the benefits are more immediate. Individuals may quibble less about the cost of a cruise or hiring a contractor to refinish a deck because the effects are more immediately apparent in the form of a relaxing vacation or a nicer outdoor space.
Here, then, is the crux of the issue: Future rewards or the avoidance of harms are hard to assess. In fact, it is well-documented that humans have a psychological tendency to discount the future; we prefer rewards in the here-and-now.
But estate planning is about long-term risk management. It doesn’t necessarily make you money; it helps you avoid losing money through taxes, disputes, arbitration, and litigation. For various reasons, though, calculating the return on that investment is difficult.
So, what is the true value in loss avoidance and risk management? Let’s take a look at the costs, fees, and harms from which a well-written, comprehensive estate plan protects you and your family. My hope is that by looking at these it will become clear that arbitration or litigation will cost much more in the long run than proactive planning.
Just the Tip of the Iceberg
Without a comprehensive estate plan in place, even a relatively small dispute between heirs could be an enormous disaster for your estate (this has happened to numerous celebrities over the years). If heirs cannot settle a dispute, lawyers and courts will get involved. The two paths available to resolve the dispute are arbitration and litigation, both of which can be very expensive.
All told, arbitration for a complex estate dispute could easily run you $70,000–$90,000. Moreover, since the 1990s arbitration has become an increasingly popular way to resolve an estate dispute. The increased reliance on arbitration is due in no small part to the belief that arbitration is cheaper than litigation.
This may be technically true, but it’s true in the same way that the moon is smaller than Earth—yes, it is, but both are still massive objects! So, even though $60,000 is cheaper than the six-figure price tag of litigation, I certainly wouldn’t call that “cheap.”
Why are these costs so high?
National groups like the American Arbitration Association (AAA) have been steadily raising the rates to file for arbitration. Depending on the complexity and size of the estate, the number of assets in dispute, and the number of arbitrators the filing fees could range from $3,000 to $12,000.
Arbitrator’s and Attorneys’ Fees
Arbitrators charge by the hour, and you may need more than one. The disputing parties may also want to have independent legal counsel. Both the arbitrator and attorney could have fees anywhere from $300–$600 an hour. Assuming a multi-day arbitration, there could easily be an additional $12,000–$15,000 in fees per person.
The parties will need to have written versions of all depositions as well as the arbitration proceedings themselves. For this they’ll have to hire a court reporter, whose hourly rates could be $50 or more. Also note that this rate probably will not include the final transcription process or hard copies of the transcriptions.
“Administrative” et al.
There are a slew of additional fees and costs to consider. The AAA tacks on an administrative fee of $75 per hour. The parties may also have to rent room space (e.g. one room available through the AAA currently rents for $250 a day).
Not all costs are economic. First, assets may be unavailable to your heirs while the dispute is ongoing. More importantly, drawn out disputes can become particularly nasty and strain or break familial relationships.
Litigation is the worst-case scenario for an estate dispute because it is the most time-consuming and the most expensive. Seeing an estate or probate dispute all the way through a full jury or bench trial could take months and easily cost over $100,000 in attorneys’ fees alone.
Estimating the total costs of complex estate litigation is difficult because, well, it’s complex. Many factors determine the number of hours that will be spent on legal tasks including estate size, number of heirs, and even the attorneys’ relationships with opposing counsel. And, given the increase in electronic records, the requirements for pretrial preparations, electronic discovery, and depositions are becoming more extensive.
Substantial costs will come from the fees paid to attorneys. Depending on what firms are hired, how complex the estate is, the number and sophistication of the documents, the number of witnesses, etc., your estate could be on the hook for a $75k–$100k bill from attorneys.
Field experts may be called to give evidence or testimony on complex issues. These expert witnesses do not work for free. Typically, they charge hourly rates of $200–$400. Costs can quickly stack up if more expert witnesses are needed.
The attorneys will conduct depositions of witnesses. They charge for the preparation time as well as the time spent in the deposition. A court reporter will be present too and will charge by the hour. With three or four hours of prep time for each attorney, the court reporter fees, and other incidentals, a five-hour deposition can easily cost $3,500 or more. Multiply that by the number of witnesses and you have a sizeable sum of money.
Like with arbitration, litigating an estate dispute exacts a financial toll on your estate and an emotional toll on your family. Litigation is a slow process that is more likely to deepen the rifts between feuding family members than close them. Moreover, if the case goes to appeal, it could stretch on even further.
Pro Tip: Never forget that your estate itself will bear the bulk of these costs, not the individual parties. If three or four heirs enter into litigation over your estate, its value could disappear quickly.
Why Doesn’t Everyone Have an Estate Plan?
The term “estate plan” refers to a collection of interconnected documents and instruments that help protect your wealth and provide for an effective, efficient, and dispute-free transfer of assets to your heirs and beneficiaries.
Obviously, hiring a lawyer to prepare a comprehensive array of documents costs money—money that some individuals are unwilling to pay. If I’m getting along just fine, so the flawed reasoning goes, why should I pay another couple thousand dollars for an estate plan?
Well, family members may be on the best of terms in April but at each other’s throats by July. Lawsuits, especially for high-liability professions, can come at any time. Then, there’s always the specter of an unexpected accident or death. That’s the point—you just don’t know.
Wealthy individuals must proactively protect themselves and their estates against these situations. As I said above, an estate plan mitigates future risk and protects the value of your estate. Much like a seatbelt, you won’t realize the estate plan is there until it has to do its job and save your estate’s life.
Speak to an Estate Planning Attorney
If you want to talk more about how a comprehensive estate plan could benefit you, call us right now for a complimentary Financial Legacy Review. We will review your estate, assets, and future goals and develop a unique Financial Legacy Blueprint™ just for you.