Some people may feel guilty about taking money for serving as the executor of a will. This is understandable, as the people you’ll be working with will undoubtedly be grieving. (Indeed, you may be grieving as well.) However, being an executor can be a time-consuming job that can take weeks or even months. That’s why most executors are entitled to receive some sort of payment for their services, either through the terms of the will or by state law.
What Is an Executor Fee?
An executor fee is the portion of a deceased individual’s estate that is paid to the will’s executor. The executor is in charge of locating the assets that make up the estate, notifying beneficiaries that the deceased has died, paying off the deceased’s debts and transferring the assets that remain to the estate’s beneficiaries. In exchange for these services, executors typically receive some sort of compensation. The specific amount can vary considerably, as we’ll explore below.
How Much Does an Executor Make?
The exact fee paid to an executor will vary depending on the will and the state where the deceased lived. Some people will specify a flat fee in their will, while others will simply say the executor shall receive “reasonable compensation.” The latter is more common, but many wills won’t mention executor compensation at all.
In these instances where the will doesn’t mention compensation, different states have different ways of determining what constitutes reasonable compensation. Some states, like California and New York, have fee schedules written into state probate code that dictate what percentage of the estate’s assets to pay an executor. In New York, for instance, executors earn 5% of the estate if it’s below $100,000, 4% of estates between $100,000 and $300,000, 3% on estates between $300,000 and $1,000,000, 2.5% for estates valued between $1,000,000 and $5,000,000 and 2% for estates in excess of $5,000,000.
Other states allow the specific probate court to come up with a reasonable fee for the executor. They might do this by coming up with an hourly rate and having the executor keep track of how many hours she works. They may also come up with their own percentage of the estate that they find to be reasonable compensation.
When Should an Executor Work For No Fee?
There is one notable example where it’s actually in the executor’s best interest to work without accepting a fee. This is when the executor is also a beneficiary and taking a fee would reduce the amount she is due to receive as a beneficiary. While it may seem like that wouldn’t make a difference, the two amounts of money are distinct when it comes to taxation. A fee paid to an executor is taxed as ordinary income, but a bequest given to a beneficiary isn’t taxable.
The exception is if the estate is large enough to be subject to federal estate tax ($11.4 million in 2019). If this is the case, the income tax rate of the executor may be smaller than the estate tax rate. This would mean that the executor is better off accepting compensation.
Executor fees can vary significantly, and are dependent on both state law and the decisions of the probate court. Many states agree that the executor of a will is entitled to reasonable compensation for her services. However, even the definition of reasonable compensation differs between states.
If you’re creating a will, you have the option of dictating exactly how you’d like to compensate your executor. If you choose not to do this, make sure to look into your probate court’s process of determining reasonable compensation. That way, you can have a crystal clear idea of how much of your estate will go to your executor. This allows you to plan your bequests accordingly.
Tips For Planning Your Estate
- It’s a good idea to take steps to minimize estate taxes if the estate is larger than the federal (and, if applicable, state) estate tax exemption. To do this, you can allocate portions of your estate to beneficiaries before you pass away. You could also set up a trust.
- Estate planning can be complex, particularly if your estate is large. That’s why it’s smart to work with a financial advisor to get your affairs in order and account for tax issues. SmartAsset’s financial advisor matching tool can match you with a local advisor that meets your needs. It will match you with up to three advisors in your area, whom you can then review and interview to determine which one best meets your needs.
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