An individual who has been named as the executor or personal representative is permitted, in many states, to be paid an executor fee for the work they do to handle all of the tasks of settling an estate. Depending upon the size of the estate, the number of assets and heirs, the task can become a full-time job.
The fee could be based upon a variety of factors, which may be dependent upon the law in your state, says nj.com’s recent article, “Both of my parents died. How do I calculate the executor fee?”
In most states, the executor fee is set by statute. For example, in New Jersey, it is 5% of the first $200,000 of assets taken in by the executor, 3.5% of the next $800,000 of assets, and 2% on anything in excess of $1 million. Likewise, California has a sliding scale based on the amount of the estate.
However, in Minnesota and Nebraska, the law states that the fee should be “reasonable.”
The amount of work involved is determined by the specific estate. The executor is generally responsible for collecting the estate assets, paying the debts and taxes (if any) and then giving what’s remaining to the heirs.
If you elect to take the commission, it’s taxable income which must be shown on your personal income tax return.
In New Jersey, if there are co-executors, the statute says that an additional 1% can be included to the commission. However, any one executor cannot receive more than the amount to which a sole executor is entitled.
Note that the executor only receives a commission on what he or she takes control of as executor.
This means that the executor doesn’t get a commission on assets that have beneficiary designations on death or that are jointly owned with right of survivorship. These assets pass outside of the will and the executor doesn’t take possession of these assets.
If the probate estate of the first spouse to die is less than the second (because many assets were owned JWROS (Joint With Right Of Survivorship), they are not subject to probate and, therefore, are not subject to commission. The commission on the first spouses’ estate would be less than the commission on the second estate. This may sound counterintuitive, but it is correct.
An estate planning attorney may be able to help the executor determine what is a fair amount for an executor fee, and also help speak with family members, if there are any disagreements about the fee.
Reference: nj.com (October 10, 2019) “Both of my parents died. How do I calculate the executor fee?”