Can Your Client Get Out of a Contingent Fee Heir Finder Contract?
Asked to sign a contingent fee heir contract to be taken to the pot of gold, some clients will sign without competent legal advice. If your client does that, is it too late to cancel the contract or negotiate a more reasonable fee?
Robert E. Kass, JD, LLM, is a Detroit-based estate planning and administration attorney, Fellow of the American College of Trust & Estate Counsel, who has written about this situation in his recent book, “The Executor’s Companion: A Practical Guide to Estate Administration.”
Getting Into – and Out Of – Contingent Fee Heir Finder Agreements
By Robert E. Kass, JD, LLM
The Personal Representative of an estate, or Trustee of a trust, has an obligation to locate the rightful beneficiaries. What happens if no one is administering an estate, and as a result the decedent’s property reverts to the state after a period of time, after which it is listed on the state’s rolls of “unclaimed property”? Your client may be contacted by an “heir finder” whose business it is to find the heirs to these otherwise lost or abandoned fortunes.
For example, your client’s long lost relative may have had bank accounts, either in joint name with another relative or perhaps payable on death to that other relative. Both may have died, as a result the bank accounts may have become the sole property of the last of them to die. When that person died, he or she may not even have known of the existence of that property.
After a period of years, under the applicable state unclaimed property statute, the account would have been paid over to the state unclaimed property fund. It doesn’t belong to the state. It is just waiting for the rightful heir to claim it. Your client may be an heir at law of the last of them to die. Your client would be entitled to the property, and might not even know that it exists.
Your client may have absolutely no idea she had these relatives, or that her relatives left an estate to which she is entitled. Your client may receive a letter or a phone call from an attorney or investigator, maybe even from another state, telling her that the money is there, and all she has to do is sign up and the heir finder will take it from there. Your client is told she won’t have to pay a thing. All the expenses will come out of the inheritance, and the heir finder will guarantee the results. Your client will pay nothing up front, and the heir finder will be entitled to only a contingent percentage fee when the money is payable to your client.
What should your client do? See the excellent article on this topic by C. Tim Rodenbush, President and CEO of HeirSearch™ on their website, at the following article: Contacted by Heir Hunter.
On the one hand, this may be “found money” which your client never imagined she would ever get. On the other hand, a large contingent fee may be unreasonable.
Our advice is to proceed with caution, and try to learn as much as you can about the alleged inheritance so you or your client can check it out independently. If your client ultimately feels it’s worth paying someone, consider either a flat fee or an hourly fee based on the actual amount of time spent, not a percentage fee which could be unreasonable if a large inheritance is involved. In any case, if your client decides to work through the heir finder, she should not pay anything until she receives the inheritance.
Is a Percentage Contingent Fee Heir Finder Agreement Voidable?
What if your client has already had substantial contact with the heir finder before coming to you, perhaps even agreed to a contingent fee heir finder agreement for a high percentage, say 40%. Can you help her get out of it?
Generally a contract is legally binding, and your client will be obligated to pay the fee to which she agreed. However, in some limited cases it may be possible to either cancel the contract, or if she refuses to pay and is sued on the contract, have the court void the contract.
You (the attorney) should thoroughly analyze the facts and the law to see if there is some basis for either negotiating a different fee basis or avoiding the contract completely. Among other things, consider the following:
- If the agreement is oral (there is nothing in writing, or there is a written proposal but the client has not signed it or agreed to it in writing, such as by email), it may not be enforceable under applicable state law. Some states view oral contracts with disfavor. If the heir finder is an attorney, check the Rules of Professional Conduct applicable to attorneys in the state in which he is licensed to practice law. Some states require that contingent fee agreements be in writing.
Also, check your state law and the law of the state which is holding the funds to see if either state regulates heir finders by statute and/or regulation. If so, the law may require that the contract be in writing to be enforceable. Even if the law of the state which is holding the funds does not regulate heir finders, if your state does and requires that their contracts be in writing, then consider invoking your state’s strong public policy to defend against the claim under an oral contract.
- If the client has already signed an agreement, check the law in your state and the state holding the funds. Some states which regulate heir finders require that they register with the state, that their agreements contain certain specific provisions, and that the contingent fee not exceed a certain percentage. The heir finder might not be in compliance. If your state has such a law, but the fund is being held by another state which does not regulate heir finders, you could still invoke the strong public policy of your state in defending a suit by the heir finder to collect his fee.
- Check your state’s consumer protection laws. Some states allow consumers to cancel certain contracts, including those signed at home, for a certain number of days after they are signed. Others permit cancellation of agreements which are unconscionable.
- If the percentage fee is very high, or if the value of the assets to be recovered is very high and the proposed percentage, when translated into dollar terms, would appear to be unreasonable, consider petitioning the Probate Court in the state where the decedent died to have the contract deemed unenforceable because it is unreasonable.
- Consider also how much work the heir finder has had to do to determine that your client is entitled to the funds. Is this a case where the state’s website indicated your client’s name as the owner of the account, and all the heir finder had to do was track down your client? Or is this a complex situation of an intestate estate, or several intestate estate, where a substantial amount of sleuthing was required to determine that your client is entitled to the assets? In the latter case, a higher fee might be more reasonable.
Michigan Ethics Opinion RI-193 (March 2, 1994), dealt with a lawyer who located potential heirs, and addressed whether the lawyer could charge a contingent fee. The panel found no per se limitation on what could be charged (the case involved a proposed 40% contingent fee), but reviewed various generally applicable factors to determine whether the contingent fee was reasonable.
It held that the lawyer may only obtain a modest fee: “Since the lawyer knows the prospective client is entitled to the escheated funds, there is no ‘contingency’ or risk that the lawyer will ‘lose’ the case. Therefore, the lawyer may charge a modest hourly or flat fee for the services, which fee may be paid from the escheated funds.
The lawyer had already done the research, at his own risk and expense, to find the heir, and the only thing that remained to be done was to submit the papers to claim the funds
Michigan Ethics Opinion RI-359 (January 29, 2013) modified the earlier opinion, and basically held that a contingent fee agreement to obtain escheated funds is not per se unreasonable, but the fee still needs to be reasonable, given the time involved, the simplicity of the matter, and the degree of risk of not obtaining a positive result.
Even if your case does not deal with a Michigan attorney, there could be similar rulings in the state where the attorney is licensed, or the Michigan ethics opinions could be used for their reasoning, if not as authority, even in a case which does not involve an heir finder who is an attorney.
This is a developing area of the law, and you should also research court cases to see if any have held contingent fees of heir finders unreasonable. Even cases in other states could provide some precedent to help a court in making its decision, or to help you or your client negotiate a lower fee with the heir finder.
This article is based on a discussion in “The Executor’s Companion: A Practical Guide to Estate Administration.” Robert E. Kass is a Detroit, Michigan estate planning and administration attorney who has also co-authored “Who Will Care When You’re Not There? Estate Planning for Pet Owners.” Both books are available through www.carobtreepress.com
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