The Executor Adviser from Executor.org
By: Executor for Legacy
2 years ago
The Executor Adviser is an advice column created by Executor.org for Legacy. Executor.org's experts aim to help readers with questions about executorship and provide comprehensive, free online resources to guide executors through this complex process.
"I've been chosen as executor for an estate. Should I accept compensation for the role?"
This is a question that I struggled with personally when I was selected to serve as executor of my father's estate. In fact, it's an early challenge that many executors face. As with most elements of this process, financial as well as personal considerations need to be taken into account.
Rules covering whether and how executors can be paid for performing their duties vary from state to state and situation to situation. In the case where the will writer names a professional to serve in the executor role, compensation is a given. But in the situation where a family member or friend is named, the decision can get more complicated.
There are a number of possible approaches to executor compensation. In some states, executors may be paid a "reasonable" fee for work done in the role. In other states, a set amount is determined by law for executor work. Or, a will writer may indicate in the will what the executor should be paid for his or her work in the role.
Now that you understand methods of compensation, the bigger question arises — how do I determine whether I should accept executor compensation? There are several factors to consider:
How would accepting executor compensation make you feel? Some view their role in serving as executor as an act of service for someone they loved and could not imagine taking money in return for completing the executor tasks. Others know the will writer would have wanted them to be compensated for doing good work.
How would accepting executor compensation make others feel? Just because you think the will writer would have wanted you to be compensated for your work does not mean the beneficiaries will agree with that sentiment. After all, executor compensation is paid out of the money in the estate, so every dollar you accept is a dollar the beneficiaries will not receive. Your compensation will be disclosed to the beneficiaries, so you need to decide whether you are OK with any potential reaction to the disclosure that you're being paid in the role. Even if the beneficiaries do not care about the money, they may be of the opinion that you should serve as a tribute to the will writer and should not receive anything in return. They may believe the will writer gave so much in life that service as executor is the least you could do in return. The opinions of others, especially the beneficiaries, should not be the only factor you consider, but it is something you need to contemplate as you decide whether to accept executor compensation.
Can you afford NOT to be paid for the work you do as executor? If taking on the executor role means you will need to give up work hours to complete some tasks — whether it is an hour or two here and there, or a few days spent traveling to oversee property distribution — you may lose valuable pay from your current job. Even if your work as executor is a labor of love, many people cannot afford to forgo income to complete executor tasks.
Can you afford TO be paid for the work you do as executor? Other factors to consider are the tax implications of accepting executor compensation. You may know that, generally, when beneficiaries inherit money from average-sized estates, that money is not subject to taxes. However, the money you receive as executor compensation is taxable income. Consider whether it is worth it to you to accept taxable executor compensation, or whether the personal tax implications make it a less attractive choice for you.
How time-consuming will the work be? When considering how much time it will take to close the estate, you must consider the complexity of the estate as well as your physical location relative to the estate's legal location. For an average estate, there are 100 to 150 steps in the process of settling an estate, and the role of executor typically takes about a year to complete. But if the estate is more complex — for example, if it involves complicated trusts, dependent children or hunting down beneficiaries — it may take even longer. Also, consider how much travel might be involved in settling the estate. If you live in the same area as the deceased, you can complete executor tasks more easily than if you must travel across the country multiple times to settle the estate. So think about the amount of time you may need to sacrifice to serve in the role. It may have an impact on your decision to accept executor compensation.
If you do accept executor compensation, you may be required to keep detailed records to show the time you spent serving in the executor role. The better records you keep, the better off you will be when it comes time to receive payment for the role.
The decision to accept executor compensation is typically a very personal decision, but you should now have a better idea of the things to think about when making the choice. Good luck in your decision-making process.
Patrick O'Brien is CEO and co-founder of Executor.org, a free, comprehensive online resource that helps executors manage their responsibilities and duties in this complex role. The free tools include a helpful step-by-step interactive guide for executors and invaluable tips on everything from planning a funeral and keeping beneficiaries happy to dealing with grief and managing estate assets.