All about executor compensation

Things to remember when you’re the executor

• It can be a time-consuming job—and you should expect to be paid for your time.

• Executor pay is always paid out of the probate estate.

• The will is the first place to look for guidance on compensation because your loved one may have outlined executor pay there.

• If not, state laws specify how executors are to be paid—and the amount varies widely state by state.

When someone passes away, a representative is assigned to take care of their estate, either an executor named in their will, or an administrator appointed by the courts. This person is in charge of tying up the loose ends and finalizing the affairs of the person who has passed. It’s not a simple task, and it can be even more difficult if you’re dealing with it while also grieving.

Because being an executor is challenging and time-consuming—for larger or more complex estates, it can be like taking on a second full-time job—an executor is generally entitled to some form of compensation, no matter what their relationship to the person who passed was.

How much compensation an executor will receive is different in various situations and arrangements. Some states allow the person who passed away to determine how much their executor will be paid by outlining it in the will as a percentage of the estate, an hourly rate, or a flat fee. If there is no will, or if state law does not leave this up to the will, state laws and the probate court will determine how much the executor is paid.

No matter how the compensation is calculated, it is always paid out of the probate estate.

State law and executor compensation

State laws that determine the amount of executor compensation can vary quite a lot. For example, in Washington, the executor is entitled to “reasonable” compensation, as decided by the probate court. The executor provides information about what they did, how long it took, and whether or not there were complicated issues that required outside professional help, and the judge decides on fair compensation.

On the other end of the spectrum, there are states like California, where the exact amount is laid out in state law very specifically. If the will does not state how much the executor will be paid, or if there is no will, the executor or administrator’s fee in California is 4% of the first $100,000 of the value of the estate, 3% of the next $100,000, and 2% of the next $800,000. If the estate is worth more than a million dollars, the executor gets 1% of the next $9 million dollars, and 0.5% of the $15 million after that. And for estates over $25 million, the probate judge will determine what is a reasonable compensation.

As each state has its own complex rules for how fees are calculated, it’s a good idea to research the laws in the jurisdiction where your loved one lived, and consult a lawyer if you are in doubt about anything.

It’s also important to note that the executor’s fee is taxable, as it’s considered income.

When will the executor get paid?

State laws also determine when the executor receives their compensation. In some states, the executor can be paid periodically throughout the probate process. In others, executors don’t receive their compensation until all bills and creditors have been taken care of, and the executor presents proof of this to the court. Then the executor will be compensated from the estate, before the distribution of assets to the beneficiaries.

These determinations can be made more complex if the estate does not have enough funds to cover its debts. In many states, executor compensation is a priority debt that is paid before other obligations of the estate, but be sure to consult a lawyer to understand whether this can affect the timing or the amount of the executor's compensation.

In addition, any out-of-pocket expenses that the executor incurs while performing their responsibilities are reimbursed by the estate as one of the estate’s priority debts. These include bills that the executor had to pay before they were able to access its funds, such as funeral costs or mortgage payments, as well as normal expenses the executor incurred in the process of administering the estate, such as travel expenses, postage, and office supplies.

Waiving compensation

An executor doesn’t have to accept compensation, and some choose to waive their right to it. If the executor is also a primary beneficiary in the will, it often makes no sense to take compensation, as the compensation is taxable while a will bequest is usually tax-free. Some wills make this explicit by stating that the executor receives a bequest in the will in lieu of executor compensation.

Even when the executor is also a beneficiary, however, it may make financial sense for them to take the compensation and pay taxes on it. As this lessens the amount that the other beneficiaries receive, they will sometimes put pressure on the executor to waive compensation, a situation that can create turmoil within a family, especially if the estate is small. In situations like this, it is important to remember that being an executor is a significant undertaking that requires a lot of work and many hours, and while it is a good idea to speak to the other beneficiaries about what is fair and reasonable, the executor does not have to agree to do this huge job for free.

Ultimately, the will, state laws, family politics, and the value of the estate can all play a role in the amount and timing of executor compensation. As always, it is a good idea to consult an attorney before making any decisions about the estate ●