Executor Compensation and FeesShow Table of Contents
An executor is entitled to compensation for his or her services (see state-specific fee calculator at page bottom), as well as reimbursement for reasonable expenses:
Executor Compensation/Fee Overview
How much should an executor be paid? If the will specifies executor compensation, those specified terms generally prevail. If there is no will, or the will is silent or unspecific on the matter of executor compensation, then state-specific rules come into play (see below). Some executors choose to forego compensation for various reasons, but any compensation is paid from estate proceeds, and has priority over distributions to heirs.
Communication: You may wish to discuss your compensation with the other heirs early during the process, so they don't end up surprised and unhappy when they notice their shares are somewhat less than expected. You may also want to leave the door open to modify your planned compensation as the process unfolds and you determine how much or how little work will actually be required on your part.
Tax Optimization: Keep in mind that there may be some situations in which it is financially beneficial to the executor to forgo any fees. Since executor compensation is taxable, and inheritances are generally not taxable, if the entire estate (or a large portion of it) is going to be inherited by the executor, you may end up with more after-tax value if you forgo explicit executor compensation.
Timing: Generally, any executor compensation is paid during the final stages of estate distribution, as one of the last things the executor does. Be careful in situations in which there is not enough to pay yourself and all other outstanding debts, as this may expose you to legal issues. However, in most states, executor compensation has precedence over almost all other debts (for example, in NY, only funeral expenses have a higher precedence).
Reimbursement: An executor is also entitled to reimbursement from estate proceeds for legitimate and reasonable estate administration costs, such as death certificate copies, notarization of documents, the EstateExec licensing fee, and even travel costs strictly associated with managing the estate. Once you have established an estate banking account, you can often pay for these costs directly from that account, so that no reimbursement is necessary, but you should keep good records in case you later have to justify your expenditures to the IRS or to estate heirs. Executor expenses can be reimbursed when desired, although certain probate proceedings may require prior approval.
Trusts: Note that trustee compensation for managing a trust is handled differently than that of executor compensation for settling an estate (see Trustee Compensation).
General Calculation Approaches
A will can specify almost any approach imaginable to calculating executor compensation, but if the will doesn't specify the approach, then compensation must be calculated according to state-specific laws, which can sometimes be vague, and sometimes quite complex. Common calculation approaches include:
- Fixed Amount
(e.g., $10,000 specified in the will)
- Percentage of Overall Estate Value
(e.g., 4% of CA estates <$100K, as per California Probate Code, §§ 10800-10805)
- Cash Flow an Executor Manages
(e.g., 5% of amounts received or paid out in cash for TX estates, as per Texas Estates Code § 352.002)
- Charges for Services Rendered
(e.g., hourly service billing for IL estates, as per Illinois Compiled Statutes Chapter 755 §5-27-1)
- Other Considerations
(e.g., an executor for an Ohio estate is also entitled to 1% of the value of any unsold real estate, as per Ohio Revised Code § 2113.35)
Even if the will does specify a fee calculation approach, in some states the executor can renounce this fee and instead collect a fee based on default state statutes. However, there can be time limits on this decision, so be sure to see the state-specific rules linked below.
When dealing with state-specific laws, also note that individual states have varying definitions of "estate value", and that the cost impact of any professional help hired by the executor can vary widely, so be sure to pay careful attention to the state-specific details linked below. Also, when calculating fees based on estate value, in some states an executor may also be entitled to an additional fee for services above and beyond the ordinary (such as overseeing the sale of the decedent's real estate; conducting litigation, managing the decedent's business, etc.).
If a "services-rendered" approach is taken, fees may take into account the nature of the work involved, the effort involved, the professional background of the executor, and the results and benefits of that work for the heirs. In such cases, it's important to keep records of the time you spend on estate business: what, where, and how long. You should keep these records as you perform the activities: neglecting to do so could easily result in your compensation claims being denied by the court.