Wednesday, June 22, 2016

Why Many Feel They Are Overbilled By Trusts And Estates Lawyers

FROM FORBES.COM

Traditionally, legal fees are predominantly based on time. Many trusts and estates lawyers bill in terms of time and expenses. However, wealthy clients are becoming increasingly critical of legal billing practices. One perennial criticism is that legal fees are too high. Another is that billing by the hour has an implicit conflict of interest. In a survey of 168 wealthy clients (net worth = U.S. $10 million or more) who had a trusts and estates lawyer construct their estate plans, these and other criticisms were evaluated.
All wealthy clients in the study were queried about the fairness of the bills they received from their trusts and estates lawyers. Only one in 10 thought the billing was fair; the remainder felt they were over billed to some extent. A third felt severely over billed, about 30% said they were moderately over billed, and slightly more than a quarter said they were slightly over billed.
This sentiment was much more pronounced among the affluent clients with more complex financial situations. It is probable that the “high complexity” group paid higher legal fees. Their situations probably required more time to resolve, and the fees were more significant as a result. A contributing factor may also be the lack of adequate explanations of the bill and the fees.
According to Daniel Geltrude, Managing Partner of Geltrude & Company and Director of the firm’sFamily Office Practice, “There is clearly an issue with the perception of wealthy clients that they are not getting the value they paid for. They believe that they are paying too much for the value they are receiving in their estate planning. However, the issue is not one of the costs of the legal expertise, but it is about the cost in relation to the perceived value delivered.”
This realization is reinforced as only a sixth of the affluent clients reported that the trusts and estates lawyers’ rates were too high. The wealthy know the rates when they engage the trusts and estates lawyer (and had they felt that the rates were out of line, they would have opted for a less expensive professional).
The difficulties do not arise from the rates themselves. They occur when the rates are multiplied by the hours to create the final fee as 85% of the wealthy said that their lawyer spent too much time on their estate plan. Another major source of dissatisfaction for nine out of 10 affluent clients is that on the bills they see additional charges for expenses and people that make no sense to them.
What is essential and often missing is that the trusts and estates lawyers need to more effectively communicate the value they are providing to their wealthy clients. Moreover, these conversations should be solidly on the benefits of the planning and not an explanation of the expenses.