One of the benefits to hiring an attorney or law firm on a contingency fee basis is payment of the out-of-pocket costs. A contingency fee agreement is one where the attorneys agree to represent the client in return for receiving a percentage of the amount recovered for the client. For example, if the attorney recovers $100,000 and the contingency fee is set at 40%, then the attorney will be paid $40,000 and the other $60,000 is paid to the client.
Contingency fee agreements are advantageous for clients who do not have sufficient funds to pay for an attorney on an hourly basis. They’re also used by clients who do not want to undertake the risk of paying for a lawsuit and potentially losing. A contingency fee agreement is a shared risk between the lawyer and the client because if the lawyer is not successful, then the lawyer is not paid. Compare that to an hourly fee arrangement where you pay the lawyer for their time working on your case regardless of whether you win, lose, or draw.
Not only that, most contingency agreements (at least all the ones we have with our clients) obligate the lawyer to pay the out-of-pocket costs on the case. And if the lawyer is not successful in recovering money for the client, then the lawyer is not repaid for the costs.
There are quite a few hard costs that must be paid to third parties during a lawsuit. For example, the court requires filing fees, you must pay court reporters and videographers when conducting depositions, and it costs money to issue subpoenas and receive documents from financial and medical organizations.
The big out-of-pocket cost, however, is paying for expert witnesses. Every lack of capacity and/or undue influence case requires an expert witness. The medical expert (usually a neurologist or psychiatrist) must review the medical records and then give a detailed opinion on the mental state of the decedent.
Most experts will cost between $10,000 to $15,000 just for the initial medical records review and a preliminary opinion on what facts they found in those records. The costs increase from there because most experts charge between $400 to over $1,000 per hour for their time in depositions, writing reports (if one is requested), reviewing other expert depositions, and giving testimony at trial. All told, an expert witness can cost $25,000 to $75,000 or more—per expert. And most cases require multiple experts—meaning you must multiply the $25,000 to $75,000 by the number of experts you retain.
Here’s the good news, if your lawyer pays for all these costs, and does not recover any money for you, then the lawyer is stuck with the bill—you pay nothing. That can be a big benefit to entering into a contingency fee agreement. That’s also a reason why people who can pay for legal services often choose a contingency fee arrangement because it shifts the risk of losing money onto the lawyer rather than the client.
If you win your case, however, and the lawyer successfully recovers money for you, then the costs are typically reimbursed to the lawyer out of your share of the recovery. Using the $100,000 example from above, you are entitled to $60,000, but if your lawyer paid hard costs of $10,000, then your share would be reduced to $50,000. That means the lawyer receives $40,000 in fees (that the money paid for the lawyer’s time and efforts), the lawyer also receives a cost reimbursement of $10,000, and then you (the client) receive the remaining $50,000. There’s no such thing as a free lunch, as the saying goes.
Well at least the cost reimbursement only kicks in under most contingency fee agreements after your lawyer recovers money for you. That’s the benefit. If you don’t obtain a recovery, you don’t pay the costs—typically. Be sure to check your contingency fee agreement for this cost structure as it can vary at times.
Something to consider, when decided how you would like to hire your lawyer or law firm to represent you in a Trust or Will litigation case.