Anyone who is thinking about estate planning thinks (or should be thinking) about probate. Probate is the term that generally describes the administration of an estate of a deceased person. Probate is also the process for administrating the estate of a deceased person that is established in the State Probate Act. That process is handled through the court system.
Probate is not the only way to handle an estate. It is the default process – the process that will apply unless you take steps to avoid probate. Avoiding probate is often a primary goal in doing estate planning. In this blog post, we will look at probate by the numbers and explore why probate might be better off avoided.
I always tell my clients that the process takes at least nine months: one (1) month to get the probate estate open; one (1) month to send out the required notices (including publication in a newspaper for three successive weeks); six (6)months for the claims window to pass; and one (1) month to close the estate. That is nine (9) months.
In reality, though, probate usually takes longer than nine months. I have never done any analysis of the probate estates that we have handled to determine the average or median length of probate, so the findings summarized on estateexec.com are a bit eye-opening.
Some estates can be processed and closed in less than a year, but other estates may take as many as five (5) years or more. According to the market research, however, the average time to settle all estates is 16 months.
The Length of Probate
Of course, the average time to settle estates of $5,000,000 or more is about two-and-a-half or three times longer than smaller estates (42 months). Still, the average time to settle smaller estates ranges from 11 months (for estates under $10,000) up to 18 months (for estates between 500,000 and $1,000,000). The median length of time to settle an estate up to $5,000,000 is about 15 months.
Interestingly, the average cost to settle estates over $10,000 and under $50,000 is about 17.4 months. The reason for the length may be that small estates tend not to be very well planned, and estates for which there was no (or very poor) planning can be problematic.
Estates between $50,000 and $500,000, on average, take 13.5 to 14 months to settle, while estates from $500,000 to $5,000,000, on average, take 16 to 18 months to settle.
Another common question that people have is, how much will the estate administration cost? The cost is a function of professional fees (legal and accounting), court costs and other administrative costs, and the cost of the executor.
The Cost of Legal Fees
The median cost of legal fees for estates under $5,000,000 is about $12,500. This includes legal and accounting fees. (This is a nationwide average. The median cost for legal fees in your state and your local court system may not align with the national median.)
Interestingly, the average cost of settling an estate under $10,000 is over $15,000. How can that be? (You might be wondering). Likely, small estates like that also have debt and many issues that were not addressed during life. I can attest to the fact that a tremendous amount of time can be spent trying to handle all the issues in a small and very poorly planned estate.
Not surprisingly, then, estates between $10,000 and $500,000 typically incur fewer professional fees than estates over $500,000. The average cost of professional fees for those estates is $9,500 to $11,000.
This comports with what I often tell my clients: there is a certain minimum amount of work that has to be done, regardless of the value of the estate. The professional fees do not deviate much between small estates and estates up to $500,000, but estates over $500,000, on average, incur slightly more fees ($12,500). Estates over $1,000,000 average $17,000 in legal fees, and estates over $5,000,000 average $33,000 in legal fees.
The Cost of Executor Fees
Another common question is: what is reasonable compensation for an executor? Different states have different rules for executor compensation. In Illinois, executor compensation is purely a function of the value of the work that is provided. Factors that apply in determining value include the amount of time involved, the complexity of the issues, the skill, training and expertise of the executor, and a number of other factors. Again however, there is a certain minimum amount of work that needs to be done for any estate.
The national figures for executor compensation range from about $13,000 up to about $23,500. (In Illinois, I believe the figures would run lower than that.)
Again, there is an inverse correlation to the size of the estate (on the low end) and the amount of time it on average to handle the estate. Small estates often have many problems and many issues, including lots of debt and loose ends that were never tied up during life. I believe this is what accounts for the fact that executors tend to spend a lot more time on those small estates.
The sweet spot is the range or estates between $50,000 and $1,000,000. These are estates that tend to be better planned, thus leaving less work for the executor to do. In these estates, executor fees range from $13,000 to $17,000. Estates over $1,000,000 average $21,000 in executor fees, and estates over $5,000,000 average $37,500 in Executor fees.
Note that these are national averages. Differences vary widely from state to state. In Illinois, for instance, and in the collar counties (suburban Chicago area), the cost for professional fees and for executors’ fees tends to run less than the national averages. This is because the state and local court system has streamlined the probate process so that the cost of probate has been reduced accordingly.
The Time Involved in Probate
The average number of hours an executor spends on the administration of an estate nationwide is 570 hours (the 16-month average). The range is about 390 hours up to 1,200 hours. In most estates, an executor will spend between 500 and 700 hours to settle the affairs of the estate. The significant amount of time it takes to handle the administration of an estate justifies the compensation.
Probate by the numbers highlights why many people desire to plan their estates to avoid the probate process. Even without probate, time and cost is a factor, but time and cost to handle an estate that doesn’t require probate is significantly reduced.
The cost of setting up an estate to avoid probate may be greater than the cost of doing a simple Will, but the cost of probate is far greater than the cost of estate planning to avoid probate. The cost of not doing any planning, or planning poorly, is greater still. For these reasons, you should do the planning with a reputable estate planning attorney necessary for avoiding probate. Your loved ones will thank you for it!