If you’re in the process of drafting a will or trust, you should think very carefully about who will personally represent you after your death and about the fees he/she may take while administering your estate.
Executor earnings in Iowa for services rendered are fairly reasonable (as long as the estate faces no will challenges); however, your legacy may encounter excessive probate fees if you mistakenly appoint a personal representative who places his/her own interests above the interests of your heirs.
Remember also that executor candidates nominated in testamentary documents become fiduciaries immediately after the courts appoint them as a personal representative, meaning the only way your estate may recover excessive fees charged is by bringing expensive fiduciary litigation during or after probate.
Understanding Iowa’s probate fee limits and how the law protects estates from excessive fee charges could make your fiduciary choice less intimidating and confusing.
Let’s discover when probate fees become unreasonable and find out how your estate can lessen the risk of bringing fiduciary litigation for taking back what an executor has intentionally overcharged.
Who pays probate fees?
Your personal representative will not pay estate administration fees and expenses out of pocket—he/she will deduct these costs from the estate account. This is important to know because any excessive fee abuse would therefore vicariously reduce your heirs’ inheritance.
What are common probate charges to the estate account?
Estate administration fees and expenses vary depending on value, size, and complexity. You may however expect to find the following billings on your final estate accounting:
Executor Fees. Set per Iowa Code section 633.197, but probate courts may increase these statutory fee limits when asset administration becomes complex.
Probate Appraisal Fees. Before settling your debts, your executor will retain an appraiser to value your probate assets and real property for tax and accounting purposes.
Estate Attorney Fees. If you appoint a lawyer as your personal representative, he/she must follow the state’s probate fee limits. A non-attorney executor may also hire an estate and trust dispute lawyer to help deal with legal issues that arise during probate.
Estate Accounting Fees. Your personal representative will likewise hire a third-party professional to produce a final estate accounting of revenues, expenses and asset distribution for court presentation when winding down the estate or when formally demanded by heirs or beneficiaries.
Executor Expenses. Items such as travel expenses, office supplies, postage notaries and the like of which your personal representative uses to administer your estate.
Probate Court Fees. Your estate must also pay court fees to cover probate introduction costs, motions, personal representative assignment and costs for hearing controversies in dispute.
Probate Fees vs. Legal Expenses
What does it mean when an executor attorney advises you that he/she will charge “expenses” in addition to the fee earned for administering the estate?
Your personal representative candidate is disclosing that your estate will have to pay all miscellaneous costs that arise during probate.
Such expenses can reach considerable sums depending on the circumstances. But even so, estate account charges—i.e. probate and caveat filings, mailings, publication of legal notices, appraisals, and real estate transaction fees—must still be reasonable under a prudent person standard.
Iowa’s Probate Fee Statute in a Nutshell
The Iowa Schedule of Probate Fees limits how much your executor can charge your estate for probate administration services:
Six percent on the first one thousand dollars;
Four percent on the overage between one and five thousand dollars, and
Two percent for any value over five thousand dollars.
Otherwise known as the “two percent rule,” personal representatives must accordingly charge the estate’s gross value and not its net value when accounting for fees or paying taxes.
Let’s for example say that your late father’s farm is worth $300K, but it held a mortgage of $200K owed to the bank. The executor of your dad’s estate could lawfully take $6K in probate fees on the property ($300K x 2%) instead of charging only $2K ($100K x 2%, or the asset’s actual equity).
Probates fees may therefore seem “unreasonable” at face, but are only just “expensive” when applying Iowa’s statutory policy.
One option for bypassing the “two percent rule” would be to negotiate a fixed rate with your personal representative for his/her estate settlement services—making certain of course that you put such fee agreement in writing and attached it to your testamentary documents.
When do probate fees become unreasonable?
Thirty-five years ago, after hearing Committee on Professional Ethics v. Coddington (Iowa 1985), the Iowa Supreme Court affirmed that fiduciaries “violate several ethical and disciplinary rules of conduct” when they charge excessive probate fees or unreasonable extraordinary expenses during estate administration performance.
The court further ruled that the defendant’s act must not have been a “negligent performance” or a result of “careless accounting,” but rather, an “intentional or willful act” established by a convincing preponderance of the evidence” as found in the Kraschel Doctrine of 1967.
Therefore, before fiduciary litigators can bring an excessive fee lawsuit into probate proceedings, they must first find evidence showing the defendant executor WILLINGLY engaged in one or more of the following acts:
- Charged miscellaneous expenses that do not correspond with present market rate costs.
- Assessed more administration fees than Iowa probate statutes allow.
- Billed fees and expenses to the estate account that conflict with similar tasks previously paid.
- Entered billings that an independent third-party auditor would find both outrageous and unreasonable.
- Charged the estate more than a prudent person would have billed for the same performance.
- Expensed items on the estate’s account ledger that exceed legal norms.
Other Considerations
Executors can take more than the statutory rate. When winding down probate becomes complicated, the courts will allow your personal representative to bill the estate account for any “extraordinary” services rendered during their performance (i.e. locating and notifying lost heirs, resolving disputes, selling real estate).
Attorneys hired to help with probate legal issues may not bill the estate for performing the personal representative’s duties. Executor performance and legal services retained to help settle the estate are two separate tasks that cannot be merged. This rule protects the estate from duplicative billing by not allowing independent attorneys to collect probate fees for administrative work already covered under the “two percent rule.”
Probate courts often compel executors to pay back the excessive fees wrongfully taken from the estate, even after probate ends. The Kraschel Doctrine empowers the courts to impose restitution on fiduciaries who charge probate fees that exceed what other personal representatives of ordinary prudence would have charged under the same circumstances. Heirs may further seek this remedy after probate ends by bringing a tortious interference with inheritance clam with restitution remedies.
