Decide on executor compensation
Whether or not to accept compensation for work done for your executor duties is a complicated question. In some cases, an hourly rate or flat fee will be spelled out in the will. However, in many cases, it will not. In most states, it is acceptable for an estate executor to be paid a “reasonable” fee for work done in the role. In other states, there is a statutory (legal) formula for calculating estate executor compensation, which is often a percentage of the probate assets.
A number of questions you might ask yourself in determining if you will take a fee for fulfilling your executor responsibilities might include:
– Why are you accepting the role? Are you doing it to make money or to honor the last wishes of a loved one? If you are doing it to honor a loved one, you might ultimately not feel good about accepting payment for work done in the role.
– What is your opportunity cost for taking on the executor role? If you have a job where you are paid by the hour and will need to forgo income to complete this assigned task, that sacrifice should be a consideration in your decision. If you give up 100+ billable hours, and you use those hours to earn money to feed your family, a fee seems appropriate for your missed opportunity to perform your normal job.
– How complicated is the estate? If the estate is very small, the job might not be that time-consuming. If the estate is complex and/or the will writer has done a poor job of preparing you for success in the role, it is very reasonable to receive compensation for the significant time commitment you will make to complete this job effectively.
– How much travel is involved? If you’ll need to travel repeatedly to manage the estate, the process will become much more time consuming to you. The estate will cover reasonable travel expenses, but you will not be compensated in any way for your time if you do not take a fee for your services as executor.
– How will other heirs react to your request for a fee, and how much do you care? Other heirs likely will not understand the complexity of the executor duties and the amount of time it will take to complete them. This doesn’t mean you should not be paid for your work, but you should be sensitive to this fact. Your future relationships with those heirs might be of tremendous importance to you – or not. This also might factor into your decision.
– What are the tax implications of your acceptance of a fee? Money earned in your role as an executor is taxable income. In most cases, the money you will inherit will not be subject to taxes. If you will inherit a large portion of the estate, you might be better off on an after-tax basis to waive the fee. Consult a tax expert on this subject, as factors such as whether or not the estate will be subject to estate tax and what percentage of the estate you will inherit will impact the financial ramifications of your decision.
After considering all of these factors, you’ll need to make a choice as to whether or not to accept compensation in the role. If you choose to do so, assigning a reasonable hourly rate and then keeping very detailed records to support the amount of time you spent in the role will likely be the best way to minimize concerns from other heirs.
And, if you haven’t yet created a free step-by-step custom executor plan here on executor.org, click here to get started. It’s free and takes only a few minutes.