Do I Receive Payment for Serving as Executor?

Being a conscientious executor takes a lot of time and effort. Should you get paid for taking on the job? State law typically provides for payment of the executor.

Most executors are entitled to payment for their work, either by the terms of the will or under state law. Typically, a will either names a flat fee or states that the executor can claim “reasonable compensation.” If a will doesn’t mention compensation, state law usually gives executors the right to reasonable compensation, and it may provide a formula for arriving at a fee.

Deciding Whether or Not to Accept a Fee

Many people feel uncomfortable accepting payment for helping out family members during a tough time. And there’s nothing wrong with serving as an executor without pay.

But if you’re weighing this decision, remember that being an executor requires a commitment to working on behalf of the estate beneficiaries for months or even years. It’s a big responsibility to deal with other people’s money - and there may be a lot of work required.

Perhaps you were chosen as executor because you bring valuable skills to the job—maybe you are the right person to manage the deceased person’s business until it can be sold, or you’re the only one who can get along well with fractious relatives. Maybe your background in business, financial matters, or the legal world makes you a good candidate. If that’s the case, it makes perfect sense for you to collect a fee for your work.

There’s one situation in which it rarely makes sense to collect a fee, and that’s when you’re inheriting most or all of the estate yourself. An executor’s fee is taxable income. If you’re inheriting everything anyway, you’re better waiving the fee and instead inheriting the money, because inherited money isn’t taxable income.

If the estate is so large that it owes federal estate tax, and your personal tax rate is lower than the estate’s, however, taking compensation may be a good tax move. If the estate is large enough to owe estate tax (99.5% of estates do NOT owe tax), then you should be consulting a probate attorney anyway. Ask about the executor’s fee.

Determining the Fee

If you decide to collect a reasonable fee, it’s up to you to determine what’s reasonable under the circumstances. The probate court will eventually decide what is reasonable, but is unlikely to argue with your bill unless a beneficiary of the estate objects.

There are a few different ways to arrive at a reasonable figure:

Your state’s rules. Some states have statutory rules for how much an executor can claim, and you probably won’t get objections from beneficiaries if you follow your state’s formula. State rules vary widely.

  • Percentage of the estate. California, for example, lets an executor charge 4% of the first $100,000 of an estate’s value; for a $1 million estate, the fee is $23,000. The value of the estate is its gross appraised value—for purposes of calculating the fee, debts are not subtracted. So if the estate includes a house appraised at $1 million, but the house has a $400,000 mortgage, the fee is based on the $1 million figure, not the actual value in the estate.
  • Percentage of transactions. In Texas, for example, executors are entitled to a commission of five per cent on sums the estate receives in cash and on all sums they pay out in cash. (Tex. Probate Code section 241.) There are lots of exceptions in the statute, however. “Sums received” does not include funds that were on deposit in a financial institution, life insurance proceeds, certificates of deposit or similar items. “Sums paid out” does not include distributions to beneficiaries. In other words, it can be complicated.

An hourly rate. Keep track of the time you spend on settling the estate, and then charge the estate a reasonable hourly fee. The rate should be appropriate for the kind of work you’re doing. If you’re a professional and you’re using your professional expertise on behalf of the estate, it would be reasonable to charge the rate that you typically charge clients—but only for the hours in which you’re acting as a professional.

A percentage of the estate. Even if your state’s law doesn’t have a statutory rate schedule, you may be able to charge a percentage of the value of the estate. For example, if you sold real estate, you might claim a percentage of the sales price of the property. If the beneficiaries don’t object, there won’t be a problem.

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