The executor of a Last Will and Testament – the person you appoint to oversee your estate – is entitled to be paid for his or her time and services. How much do they get paid? Can they receive compensation even if they are a beneficiary? Let’s take a closer look.
When you prepare your online Will, you are creating a roadmap of who should get what from your estate. You decide who gets things like your house, money, and, or sentimental objects. Also, you direct someone to pay all of your debts and funeral expenses and to administer your Will. This person is called the “executor.”
Reasons for no Compensation
Perhaps you know someone who served as the executor for an estate and did not get paid. The refusal to accept payment is likely that person’s individual decision.
For example, in a small family situation, where the husband is the executor of the wife’s estate, he may not take a fee since the Will bequeaths him the remaining assets.
Who Can Be the Executor?
Regardless of your state, a person who is 18 years or older can be the executor of your Will as long as they do not reject the condition of serving as executor. The person must be of sound mind, meaning that he or she is not judged incapacitated by a court. The person may be a beneficiary of the will and still serve as the executor. However, in some states, the court will not appoint someone as the executor if they have ever been convicted of a felony or if you are divorced from the person that executed the Will.
Some people select an alternate executor in case their first choice is unable to carry out their duties.
Basic Functions of an Executor
As noted, the purpose of the executor is to administer the distribution of assets and payment of liabilities from the estate and to fulfill your last wishes. The executor’s responsibilities include:
- Making an inventory of the estate
- Contacting creditors and beneficiaries
- Paying the estate’s bills
- Dispersing assets to the beneficiaries
- Filing the estate’s tax returns
- Selling property
- Collecting monies owed on notes, and more.
Closing out the Estate
In a basic estate situation, it could take the executor several months to complete the administration of the Will. Large or complex estates could take from six months to a few years to complete. For example, a particular estate that had businesses and properties, along with basic distributions, took over five years to administer and resolve. The bottom line is that it takes time and effort to properly handle the responsibilities of being an executor.
Tax Liabilities
There are also tax benefits that may be at play when deciding whether to accept a fee as the executor. If you are inheriting most or all of the estate yourself, you may want to waive the fee because the executor’s pay is taxable income, whereas inherited money is not taxable in many situations.
How Much Does the Executor Get Paid?
The amount that the executor can be paid is based on two factors: your state’s rules and the Will. In most standard Wills, there is a provision where you appoint the executor and say that he or she will be paid a reasonable fee. Of course, what is considered reasonable is often open for interpretation. In large estates, disputes involving the executor’s fee often results in litigation.
In some states, some statues set a predetermined amount that an executor can recover. For example, in California, as of 2018, an executor can charge 4% of the first $100,000 of an estate’s value, then 3% of the next $100,000 and then 2% of the next $800,000. So, for a $1 million estate, the fee would be $23,000.
California calculates the value of the estate based on the gross appraised value. If the estate includes a house appraised at $1 million, but the home has a $400,000 mortgage, the fee is based on the $1 million figure, not the actual value in the estate.
In states where there is no statutory payment structure, executors often get paid by a percentage of the total estate or an hourly rate. With the hourly rate structure, the executor keeps track of his or her time spent handling the estate and bills out the time at a reasonable hourly rate. If the executor is charging under the percentage plan, the executor takes a fair percentage of the entire estate.
In states where statutes control an executor’s fee, there is arguably less room for disputes by beneficiaries. Conversely, when there is no statute and executors are permitted to charge hourly rates or a percentage of the estate, there can be a more considerable amount of litigation if beneficiaries believe that the executor received more than a reasonable fee.
Check your Local Statutes
The executor is entitled to be compensated for his or her work relative to the estate. Even with simple estates, the executor has a fair amount of work to do to close out the estate and typically justifies a fee. To determine the executor’s compensation, you should check your state’s regulations.
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This article is for informational purposes only and should not be considered legal advice. Consult with a qualified attorney or estate planning professional for personalized guidance.
