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.
A financial advisor can help you create an estate plan for your and your family’s needs and goals.
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 Get Paid?
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.
How to Calculate Executor Fees By State
Each state has its own laws about executor compensation or fees that can b charged for their services. Around 70% of all states use the “reasonable compensation” method to determine what fees can be charged for executor fees. The remaining 30% is broken up following either a “tiered percentage formula” or a “flat percentage” when determining the fees in their state.
Reasonable compensation varies from state to state and a number of factors can be considered when it is calculated. Some of these factors can include the size of the estate, the complexity of the estate’s assets, the number of hours an executor spends on the estate and the number of beneficiaries involved. 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.
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 the federal estate tax. For 2022, the federal estate tax exemption is $12.06 million for individuals and $24.12 million for couples. If your estate is larger than this exemption, 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.
The Bottom Line
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
- Estate planning can be complex, particularly if your estate is large. That’s why it can be helpful to work with a financial advisor to get your affairs in order and account for tax issues. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- 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.
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