Why Some Executors Refuse the Fee While Others Take Executor’s Fees
In some situations an executor will receive money for the administrative work they have performed for an estate. Executors normally will receive a percentage fee as compensation. Click here to see the fee guidelines often used in Pennsylvania Estates. And, the reason that executors are permitted to take a fee is that the job can be quite time consuming.
Some examples of an executor’s duties are: retrieving the decedent’s latest will, filing a petition to start the probate process, collecting assets including bank accounts and safety deposit boxes, filing income tax, locating all real estate, and paying specific bequests. Of course, in many estates the list can be quite extensive and number hundreds or even thousands of action items.
Moreover, the larger the estate, the more duties the executor will need to complete. Since, the executor will spend a significant of time with lawyers, accountants, and financial advisors you can see why executors deserve to be compensated.
However, if you are an executor, but are also listed as a primary beneficiary in the Will, it may be in your best interest to refuse to accept the compensation.
One major reason an executor/beneficiary may waive the fee is for tax savings. For example, if you, as an executor, accept a fee from an estate you will be personally taxed on that fee as ordinary income. But, if you as the executor/beneficiary waive your fee, meaning those funds stay with the estate, the estate may be taxed for inheritance purposes at a much lower rate.
As a result, you, the executor/ beneficiary, will then receive the assets from the estate without being personally taxed at a higher rate for income tax purposes.
There are, of course, situations where an executor may want to accept the fee. For example, you are appointed as an executor, but not listed as a beneficiary and are not the recipient of any specific bequests, you will likely accept your executor’s fee.
For example, a Will designated cousins Joan and Laurie as co-executors. Laurie is the daughter of the decedent. Laurie was not going to be receiving compensation because she will be receiving a bulk of her mother’s estate. However, Joan was not going to be the recipient of any assets of the estate. Her purpose as an executor was to ensure that Laurie’s brother was included in the allocation of the assets, as Laurie and her brother did not have a good relationship. Therefore, Joan felt that she should be compensated for the work she had done on the estate. As a result, Joan received a one percent executor’s fee which would, of course, be taxed as income to her.
(Fiduciary Review, September 2012)
As you can see, there are different solutions to different situations when dealing with accepting fee allocations for the work done by executors. Be sure to consult your attorney and tax advisor before making any decisions.
David M. Frees, III, JD