Who is the personal representative named in your Will?

Why should you know this? Because the personal representative in Florida is entitled by law to be paid for these services.Furthermore, if more than one personal representative is named, then the estate pays additional fees.

In addition, the personal representative’s powers under the Will affects how your personal possessions are left to your heirs. The Personal Representative also has the power to sell your assets to pay the debts and expenses of the estate. Including their own fee.

The fee paid to the personal representative is based upon the value of the estate at probate. This is an important! You may not want the same person who is tasked with minimizing your probate estate to be the same person who will benefit from the value of the assets that go through probate.

Do you doubt this? Read on…

A Cautionary Tale:

The Estate Plan

A long married, high net worth couple retained a Florida barred attorney of high repute and credentials to prepare their estate plan. Together with their financial advisor, the attorney drafted the couple’s estate plan. The couple trusted the members of their team.

This attorney conferred mostly with the couple’s financial advisor in drafting the plan and documents. His billing proved the attorney only conferred with the client for 15 minutes out of 60 hours spent on the file. Thirty hours were spent conferring with the financial advisor. Another 30 hours were spent drafting a simple pour over will and simple spendthrift trusts.

The Final Results

The couple was pleased. To the extent the team explained the estate plan to them, the couple believed their final wishes would be protected. This is, after all, the ultimate goal of an estate plan.

The financial advisor even told the couple that the plan was so unique and ingenious that the team was presenting the plan at seminars.

There was no reason to question the value of the plan. I actually do not think that the couple ever read the documents.

Until The RED FLAG!

Except

Except that one day the couple’s financial advisor made a curious statement to the wife. While standing in the couple’s home before one of the couple’s treasured pieces of artwork (of little actual value but valuable to the couple), the financial advisor stated that the couple’s children “ought to be nice to me since I determine who gets what.” Previously the financial advisor had expressed his fondness for this piece of art. The wife was stunned. So stunned she did not respond.

The Couple Takes Action

Based upon this statement alone, the couple sought independent review of the estate plan. That’s where I come into the story. The couple presented me with hundreds of pages of documents, including trusts and financial statements, and a list of questions.

What I Found

After listening to the couple and making a list of their goals, I reviewed the estate plan. My review of the estate plan was nothing short of horrifying. While the details of what was wrong with the plan are beyond the scope of this post, the most horrifying find of all was that the financial advisor and the attorney had put themselves into the estate plan in multiple locations without informing the couple.

The Financial Manager and The Attorney Named Themselves as Personal Representatives

There are at least 6 reasons this was alarming to the couple.

First, under Florida law the personal representative earns a fee for their service. The amount of the fee starts at 3% of the value of the assets that go through probate up to the first $1 Million. Then, the fee drops to 2.5% of the assets up to $5 Million. The fee continues to be reduced on a sliding scale based upon the amount of assets in the estate.

Second, under Florida law the personal representative is entitled to an increase in this fee for certain other services (court approval may be needed). This increases the amount of the fee to the Personal Representative. I’m not saying that the Personal Representative is not entitled to a fee, but this makes probate very expensive.

Third, if there is more than one named Personal Representative, then Florida law provides that everyone gets paid. See subsection 5.

Fourth, if the Personal Representative is also an attorney in Florida, that individual is entitled to reasonable attorney’s fees in addition to the Personal Representative fees. The attorney also has to render legal services. See subsection 6.

Fifth, under Florida law, the first class to be paid from the assets of the estate includes the Personal Representative. Read that again. The first to be paid from the assets of the estate is the Personal Representative.

Sixth, under Florida law, after all claims, debts, and taxes of the estate are paid, the remaining assets are paid over to the named heirs. The Personal Representative has the power to sell property in the estate to pay any and all claims against the estate, including the fees of the Personal Representative.

The Conflict of Interest

Again, the Personal Representatives were the financial advisor and the attorney. Their future fee is based upon the amount of the assets that are in the estate at the time of death.

The Lawyer’s Conflict of Interest

By naming himself twice in the couple’s Wills, the attorney stood to earn two fees from the probate administration – one from each spouse. This was on top of the fee he charged the couple for drafting the plan. If the couple had consented to this, this would have been allowable. But the couple was never informed, thus never gave consent.

This is because the attorney did not explain it to them! And before you think “I’m too smart for that,” that’s what this couple thought. But, then presented with hundreds of pages of documents, various drafts of each, and the emotional stress that went along with the process – well, its not so easy to make sure each T is crossed and each I is dotted. Especially when you just do not know what questions to ask.

The Financial Advisor’s Conflict of Interest

The couple hired the financial advisor to help them plan for the future. They had TWO distinct goals. First, they wanted to make sure that they would have enough money to fund the rest of their lives. Second, they wanted to provide as much as they could to their children and grandchildren outside of probate. The couple explained that they intended to do this by using the lifetime gift exemption and unified gift tax to the fullest.

The financial advisor was charged with setting this up.

Together with the attorney, the financial advisor established and funded trusts. Trusts [LINK TO PAST BLOG] go hand in hand with a good estate plan. The couple thought they were pleased with the plan. After all, the financial advisor told them that the plan was so good it was being used as a teaching tool!

Do you see the conflict yet?

As the Personal Representative, the financial advisor benefits from having more assets pass through probate! But, this is in direct conflict with the couple’s goal of preserving the assets by passing them outside of probate. The lifetime gift tax exemption and the annual gift tax exemption remove assets from the couple’s estate that would otherwise be subject to probate!

In this particular case, it was clear that the financial advisor had put his own interests before his clients’ interests. Once the couple had this information, they took the necessary steps to fix their estate plan.

The Moral of This Story

Know what is in your estate plan! Ask questions! Read the documents! Do not sign anything until you KNOW what it says. Make sure that your estate plan IS what you want it to be because by the time it is implemented, you will not be here to fix it.

Demand your attorney review the contents of the estate plan before you sign the estate plan if the attorney does not offer to do so.

Here, the couple chose their lawyer based on his affiliation with a large, reputable, international law firm. It turned out to be a bad choice. Do not let a fancy letter head be a criteria for your legal work. All too often the only thing that ensures is a hefty legal bill.

You should review your estate plan every few years to make certain that it is not badly affected by the change in the tax laws or probate laws. You should review your estate plan every time you have a major life change.

Stratford Law Group will review your estate plan and suggest only necessary changes. Click here for an appointment.