Julie Jason: How much to pay executor of estate?

Published July 25, 2014 4:01 pm

This is an archived article that was published on sltrib.com in 2014, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

When someone dies, the executor, whose job is to probate the decedent's estate, is entitled to a fee for his or her services. The question is, how much?

The answer depends on where the decedent's estate is probated and who serves as executor. Family members may decide not to take a fee, while banks, accountants and attorneys do get paid for serving as executors. The executor pays the decedent's debts and distributes his or her assets under the terms of the will.

Since New York has a set fee schedule ("commission"), let's start there.

Section 2307 of the New York Surrogate's Court Procedure sets out the rule. The executor's commission is:

"(a) For receiving and paying out all sums of money not exceeding $100,000 at the rate of 5 percent.

(b) For receiving and paying out any additional sums not exceeding $200,000 at the rate of 4 percent.

(c) For receiving and paying out any additional sums not exceeding $700,000 at the rate of 3 percent.

(d) For receiving and paying out any additional sums not exceeding $4,000,000 at the rate of 2 ½ percent.

(e) For receiving and paying out all sums above $5,000,000 at the rate of 2 percent."

Notice the use of the term "for receiving and paying out." This term, which has been in use in New York since 1817, is critical.

New York attorney Rudolf Karvay provides some insight:

"In New York, executor and administrator commissions are based upon the acts of receiving funds and paying out funds. Thus, the fiduciary cannot take commissions on property that he or she does not receive (assets passing outside of the estate). The same rule applies to unsold real property because the fiduciary has not received funds until the property is sold. On the other hand, rents received are commissionable because they are 'received.'"

As a result, New York executors don't charge fees on assets that pass to heirs and beneficiaries outside of the will. That is not the case in some states, where the practice is to count even nonprobate transfers, yielding a larger commission for the executor.

Quoting from the New York City Bar website (http://www2.nycbar.org/Publications/executor.htm): "Executors get paid commissions which are calculated as a percentage of the value of the 'probate estate,' less any specific bequests, legacies or devises (i.e., items of real or personal property left by the testator to a specific individual). The probate estate is defined as all property held in the decedent's name. It does not include jointly held real property (such as a house which passes to a spouse), or any bank account or other property held jointly with another individual such as a spouse or child. Such amounts do not pass under the Will. Bank accounts which are held in trust for another individual, pension plans, life insurance, IRAs and any other accounts or policies which are paid directly to a beneficiary and not to the estate itself also do not pass under the Will."

Let's take two examples.

The executor's commission on an estate of $250,000 would be $11,000. But, if $150,000 of that amount was a bank account "in trust for" the decedent's spouse, a nonprobate asset, the commission would be $5,000.

Take a larger estate worth $8 million, $5 million of which was an IRA whose beneficiary was the decedent's son — a nonprobate asset. The commissionable probate estate would be $3 million, not $8 million. The commission would be $84,000. If the entire $8 million were commissionable, the executor's fee would be $194,000.

That's a big difference.

You'll find a calculator to run New York executor commissions at http://www.nycprobate.com/executor_fee.html.

It is important to know how your state's executor's fees are calculated to avoid misunderstandings at vulnerable times.

Agreeing on how an executor's fees will be charged for your estate in advance is a good idea, preferably during the estate-planning process, when everyone's thinking is clear. If you don't want your executor to charge for nonprobate assets, no matter what state you live in, have that put in writing. Also clarify whether the executor should charge on an hourly basis, a percentage of assets or some other reasonable basis.

Let me know if you would like to discuss how executor fees are calculated in your state by emailing me at readers@juliejason.com.

Julie Jason welcomes your questions/comments (readers@juliejason.com).