An Executor of an Estate (or of Will) is a person who was chosen to administer another person’s estate and affairs upon their passing.
The Executor of Will is different from the Administrator of Will. The Administrator of Will can be anyone who administers/manages the affairs of a deceased person. The Executor is a specific individual who was named to manage a person’s estate upon death.
The Executor should not be confused with the Trustee. A trustee is a person who administers a trust.
If you're thinking about naming an executor for your will it is important to remember the executor is entitled to compensation. And if you are considering becoming one, you should know an executor should be paid according to state laws.
Elayne’s mission is to support and deliver counsel in the process of loss. In this article we will learn about the basis of an executor's compensation, their responsibilities, and liabilities.
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The Basis of Executor’s Pay
Understanding how executor’s compensation is determined
It’s very important to remember that the executor’s compensation, fees, and rates may change depending on the state you live in.
The executor’s compensation is calculated according to the value of the probate estate.
Depending on the state, the executor’s fees may start at 2% and go up to 10% of the estate value.
There are some states, like Alaska, Colorado, Delaware (among others) where there are no stipulated percentages and the executor's compensation is based on services provided, hourly rate, or determined by the court.
Other states, like California and Pennsylvania, may also apply an “Extraordinary Compensation” which is an an additional amount at the discretion of the court for non exclusive services provided by the executor.
Examples of non exclusive services are:
- Selling, leasing, foreclosing, etc. of real and personal property,
- Preparing tax returns,
- Securing loans to pay for estate debts,
- Extraordinary efforts to locate estate assets, and more.
Check the California Rules of Court for more details.
The role of the will and state laws in defining compensation.
The Will is very important when defining executor’s compensation because the testator may have specified the executor’s fees on the Will. However, state laws can define how the executor will get paid.
Executor Responsibilities
Insight into the complexity and time commitment of managing an estate.
The duties of an executor are very important but also very complicated and time consuming.
Besides carrying out the wishes of the testator, an executor should locate all possible copies of the will, establishing bank accounts, convert assets to cash, close accounts, filing inventories, identify beneficiaries, collect any amounts owned to the testator, contact insurance companies, collect any insurance policies, complete and submit any documents and/or forms required to collect any pensions, saving plans, retirement incomes, and tax free savings account owned by the testator, asserting debts, and in some cases - make the funeral and burial arrangements of the deceased.
One of the most crucial responsibilities of an executor is the settlement of the estate. The responsibilities of the settlement of the estate includes:
- Identifying, valuing, and collecting assets of the estate,
- Filing a petition with probate court,
- Maintaining the deceased property until it can be sold or distributed,
- Securing and investment of the assets,
- Payment off debts,
- Filing the corresponding estate tax returns,
- Settling claims,
- Complete a thorough title search of all real property owned by the deceased concerning any possible mortgages, and/or agreements,
- Confirming if there are any debts owed to or from the testator,
- And closing the estate.
If the executor is not a legal professional they should seek legal advice before distributing assets and/or paying any debts.
Be sure to read our article about What to Expect From a Probate Attorney.
You must know that some of these processes may require pocket expenses. In these cases and in accordance with state laws, an executor may be reimbursed for expenses.
- Highlighting the 'second job' nature of an executor's duties.
Being an executor of estate is not easy at all and it comes with legal implications. Not only are there many responsibilities, but they are also complicated, especially for someone who is not a legal professional.
When it comes to probate estate, bank or insurance accounts, and money you have to be extremely careful and pay a lot of attention to details. Before agreeing to be an executor you must be certain that you have the time to fulfill the required responsibilities.
An executor is not personally responsible for paying off the debts of a deceased but he/she can be held responsible for any mistakes during the estate settlement process. Be sure to follow the procedures according to the state’s probate court and the state laws.
Timing and Process of Executor Payment
Exploring when and how executors are compensated during the probate process
The state is who determines when the executor receives his/her compensation. In some states, the executor may receive periodic payments during the estate settlement process.
It must be taken into account that the executor's compensation comes out of the probate estate. Usually the executor’s compensation, commissions, and reimbursements are paid at the end of the estate settlement process.
The Financial Realities of Executorship
Discussing the taxable nature of executor compensation.
Any compensation, fees, and/or hourly rate you receive as an executor of estate is considered taxable income and must be reported when filing your income taxes.
Most out of pocket expenses like, accountant’s fees, attorney’s fees, or any cost for the use of a service are deductible in the estate’s tax returns.
An executor may be reimbursed for travel expenses such as mileage, flights and/or car rentals. It is important to mention that there is a mileage limit and evidence of the reason for the travel expenses must be provided.
Final thoughts
An executor of the estate is in charge of managing and finishing the affairs of someone who passed away, usually a loved one.
Being an executor is time consuming, complicated, and may incur personal expenses. And it can be even more challenging if you are also grieving.
Even though the executor is entitled to compensation and many expenses can be reimbursed. You have to remember that any mistakes made or filing/providing incorrect or false information will make the executor financially and legally liable.
We should never wait to put our affairs in order. Be sure to read our article What Is Estate Planning? Your Complete Guide.
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FAQs
Do executors get paid?
Yes, the executors are entitled to payment. Either by services provided, hourly rate, or most commonly by specific percentages according to state laws.
Does an executor get paid before beneficiaries?
Once the estate settlement process is complete the executor is usually paid before the beneficiaries.
Should I take an executor fee?
Considering that an executor’s fee comes from the probate estate (meaning the inheritance) taking an executor’s fee will probably reduce the amount bequeathed to the other beneficiaries.
Another thing to remember if you are an executor and a beneficiary is that the executor’s compensation is taxable, while any bequest left in the Will is tax free.
An executor may feel pressured to waive his/her compensation to avoid tension amongst family members. Still, it is important to remember that being an executor is a significant and very challenging job. And while it's always good to try to "keep the peace," the executor doesn't have to agree to take on this enormous responsibility for free.
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