Understanding Executor Compensation
When a loved one passes away, their estate must be settled through a legal process known as probate. This involves identifying and gathering the deceased’s assets, paying off any debts, and distributing the remaining assets to the beneficiaries as outlined in the will. The person responsible for overseeing this process is called the executor.
Serving as an executor is a significant responsibility, requiring time, effort, and attention to detail. It’s only natural to wonder how much an executor gets paid for their service. This guide will delve into the factors that determine executor compensation, including state laws, will provisions, and the complexity of the estate.
Factors Influencing Executor Compensation
1. State Laws:
Each state has its own laws governing executor compensation. Some states, like New Jersey, have a statutory commission structure that dictates a percentage-based fee on the estate’s value. In New Jersey, for instance, the executor receives a 6% commission on the estate’s income and a graduated commission on the principal, ranging from 5% for the first $200,000 to 2% for amounts exceeding $1 million.
Other states may have different approaches. Some may set a flat fee or an hourly rate, while others may leave the determination of compensation to the probate court’s discretion based on the estate’s size and complexity.
2. Will Provisions:
The will itself can also influence executor compensation. The testator (the person who created the will) has the authority to specify how much the executor should be paid. This could be a fixed amount, a percentage of the estate, or even a non-monetary bequest. If the will is silent on compensation, the state laws will dictate the payment.
3. Complexity of the Estate:
The complexity of the estate plays a crucial role in determining executor compensation. Estates with numerous assets, intricate financial holdings, or potential legal challenges will require more time and effort from the executor, justifying a higher compensation. In some cases, the court may authorize an “extraordinary” fee if the work involved was particularly demanding.
4. Multiple Executors:
If the will appoints multiple executors, the compensation might be divided among them according to the state law or the will’s provisions. Some states mandate equal sharing, while others allow each executor to receive the full compensation.
5. Executor as an Institution or Attorney:
When an institution like a bank or trust company is designated as the executor, they likely have a predetermined fee schedule based on the estate’s value. Similarly, if the deceased’s attorney also serves as the executor, state law or a prior agreement will determine their compensation.
Compensation Timing and Reimbursement:
The timing of executor compensation varies by state. In some states, the executor receives payment after settling all estate debts but before distributing assets to beneficiaries. In others, they can be paid throughout the probate process, though beneficiaries can request withholding the fees until the end to ensure sufficient funds for debts and taxes.
Executors are also entitled to reimbursement for out-of-pocket expenses incurred while managing the estate, even if they waive their compensation. These expenses can include funeral costs, travel expenses, legal fees, and other necessary expenditures.
Rejecting Compensation:
Executors have the right to decline compensation, though it’s crucial to consider the significant time commitment and potential liability involved before doing so.
Determining executor compensation involves a multifaceted analysis of state laws, will provisions, estate complexity, and other factors. Understanding these factors can help beneficiaries and potential executors navigate the compensation process effectively.
That commission, though, might or might not be a bad deal. That would mostly rely on how much real work you have to do as the executor, which varies from estate to estate. The one thing about estate administration that never changes is how unique each one is.
Using my $400,000 estate as an example, practically speaking, my fictitious executor would be entitled to a commission of $17,000. She would be entitled to $10,000 on the first $200,000 of the estate ($200,000 * %205% = $10,000), and $7,000 on the remaining $200,000 ($200,000 * %203 of the estate). 5% = $7,000).
Even if everything goes according to plan, the executor still needs to dedicate a substantial amount of her time to making sure that the tasks are completed. Of course, there’s also the very real chance that a beneficiary will sue the executor for neglecting to carry out her responsibilities in the most effective way possible. Oh, the joys of being an executor.
The executor is also entitled to a “corpus commission” in addition to the income commission. ” Corpus is a Latin word. The corpus of the estate is the principal of the estate, for those of you (few as they may be) who do not speak Latin. In my case, the $400,000 is the estate’s principal.
An executor is entitled to a six percent commission on any revenue the estate generates. Thus, let’s say, for example, that the estate is valued at $400,000. The executor has closed the brokerage account, sold the house, and probated the will, among other estate assets. ), created an estate bank account, and funded the account with the $400,000 Assume that the estate has earned $6,000 in interest income prior to distributing the assets to the beneficiaries. The estate is entitled to any income that its assets generate following the decedent’s death but prior to the beneficiaries receiving their share.
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Although states concur that executors, also known as personal representatives or fiduciaries, should be paid for their services, there is no universally accepted standard for what constitutes a fair fee. Understanding the laws in your state can help you make thoughtful plans for your own will or, if you’ll probably be an executor in the future, talk to loved ones about financial arrangements.
An executor manages an estate upon death, adhering to the testator’s wishes and the court’s directives. As an executor, you can designate an attorney or, more often than not, a family member will handle the duties. Taking on executor responsibilities can be a taxing mental and emotional burden, particularly if the executor is someone you love, and it can be awkward to bring up the fact that the work is still being done.
Executor of Will Checklist
What percentage of an estate does an executor get?
Percentage of the estate. Some states set the executor’s fee as a percentage of the estate’s value. What percent of an estate does an executor get? California, as one example, allows 4% of the first $100,000 of the estate, 3% of the next $100,000, 2% of the next $800,000, and so on. (Cal. Prob. Code § 10800.)
How much does an executor get paid?
States determine how much an executor gets paid in a variety of different ways. For instance, some states set payment at a percentage of the estate. In those states, the compensation percentage usually diminishes as the value of estate increases—5% compensation for the first $100,000, 4% for the next $200,000, etc.
Does a will require an executor fee?
Serving as the executor of an estate is an enormous responsibility that requires time and energy. So much so that if the will of the decedent does not provide for an executor fee, state law provides for an executor to be reasonably compensated from the estate for their service. What Are Executor of Estate Fees?
How much does an executor charge in California?
California has one of the most detailed schemes, which provides that the executor fee is four percent of the first $100,000 of the estate, three percent of the next $100,000, two percent of the next $800,000, one percent on the next $9 million, one-half of one percent on the next $15 million, and a “reasonable amount” for estates above $25 million.