When people die leaving debts, other obligations and property and funds to be distributed to the rightful beneficiaries, the default mechanism for handling those things is called probate. Probate is the process of handling the estate of someone who has died. This includes paying all of the debts and final bills, satisfying any lingering obligations, and identifying the property and other assets of the decedent so that the net assets can be distributed to the rightful beneficiaries. The rightful beneficiaries are the heirs of the decedent (if there is no will) or the legatees of the decedent (if there is a will).
The person who handles these things is called the executor (if there is a will) or the administrator (if there is no will). The probate process is fairly long and involved. The executor must identify and locate all of the assets, determine all of the debts, liabilities and obligations and identify the rightful beneficiaries of the estate. The executor must mail out notices and publish notice in the newspaper, file documentation with the court, secure, preserve and maintain the property of the estate, liquidate assets that need to be liquidated and prepare an inventory and an accounting of everything that the executor does. The handling of a probate administration can take nine months or more.
The law recognizes that the work of an executor or administrator is significant, and the law in Illinois establishes that an executor or administrator should be paid a “reasonable” fee for doing the work. The question I get asked all the time is: What is a reasonable fee?
If only it were that simple. Many states have laws that establish fees for executors and administrators based upon a percentage of the value of the estate. For some, it is a sliding scale, taking into account complexities and unique circumstances. In Illinois, we don’t have the luxury of using a percentage as a guideline.
The Illinois Probate Act is very vague. It says only that the fee must be “reasonable” without providing any additional guidance. Illinois courts have determined that charging fees based upon a percentage is not legally authorized by the statute. Reasonableness isn’t simply a function of the value of the estate. Small estates can present very complex and unusual circumstances that require a great deal of effort and time. Likewise, large estates, especially estates that are well planned, can sometimes be more efficient and simpler to handle than smaller estates. Therefore, Illinois courts have said that reasonableness cannot be determined by applying a percentage.
So where does that leave us? Illinois courts have indicated that fees should be determined based on a number of factors. Those factors can include the amount of time spent by the executor or administrator, the complexity of the issues involved, and the circumstances of the estate, among other things. Traditionally, the single most useful factor in determining a reasonable fee is the time spent by the executor or administrator.
For this reason, it’s important for executors or administrators to keep track of time spent in the handling of the administration of a probate estate. The time by itself, absent any other considerations, cannot be considered alone. Some people may be very efficient, and some may be very inefficient, but time is probably the best measure of value, together with the degree of complexity and particular circumstances of the estate.
Of course, we also need to consider the hourly rate. Again, there are no hard and fast rules of thumb. The reasonableness of the hourly rate will depend upon the relevant factors, including the education, experience, skill and expertise of the executor or administrator, the complexity of the issues that were handled and other factors.
Theoretically, cleaning out a house involves a different kind of skill and expertise than negotiating the sale of property and overseeing the transaction. For the most part, however, a single hourly rate is usually determined that is thought to be commensurate with the value of the work that is done. Rates might vary from $10 an hour up to $50 an hour or more. I am aware of at least one court case in which a $50 an hour fee was approved by the court.
Ultimately, the reasonableness of the fee must be determined by the court. As a practical matter, however, its always best to try to reach agreement with the beneficiaries of the estate. If a proposal for a fee is presented to the beneficiaries of the estate together with any backup detail that was used in determining the fee, and if the beneficiaries are all agreeable, most courts will find the fee reasonable. In that way, obtaining agreement from the beneficiaries of the estate is a good litmus test for reasonableness.
As with many things in the law, the answer to the question is not simple or straight forward. On the downside, it is more difficult determining the fee and getting it approved. On the upside, there is some assurance that the fees that are charged in probate estates are, at least, reasonable in light of the actual value of the work that is done.