What is the true cost of probate? 6% to 10% is thrown around but let me explain why this is often much lower than the true cost.
Hi, I’m Gary DeWitt. I do estate planning.
The true cost of probate can be MUCH higher than the 6% number that is thrown around.
Let’s look at an estate with a $200,000 house with a $150,000 mortgage. The house is to be sold.
The attorney fees are based on the GROSS value of the estate. That is the $200,000. The allowable fee is $6,050 or 3% of the GROSS value. The fees to file and advertise add $395. The required appraisal will be about $600.
The total cost is up to $7,045.00 which is about 3.5%. Still not too bad, right?
But the true cost is MUCH higher.
First, when the house sells, the mortgage will be paid off, leaving $50,000. Don’t forget that the realtors will get their 6% commission on the GROSS sales price. If it sells for $200,000, the realtors get $12,000. And the title company will charge another, roughly, 2% for $4,000.
That leaves $34,000 net.
The executor is entitled to $1,170 leaving $32,830.
Take off the attorney fees and costs and it leaves $26,955.00.
If you use the $32,830 as the base, the attorney fees and costs are about 21.5% of the net.
And this assumes that the funeral was paid for some other way. If not, take off another conservative $7,500 for the funeral. Now the cost is 27.8% of the net.
And if other debts are owed, those must be paid too before the family gets anything.
And that is the true cost of what probate can cost just in money.
Just imagine what it would cost if the mortgage were higher. And if there isn’t any equity, the family may pay out of pocket.
I’m Gary and I do estate planning.
If you want to make sure your family gets as much as possible, setup a time to come see me.