While working on your will, you probably spent time considering who was best suited to settle your estate. You asked the close friend or family member if he or she would act as an executor of your estate. But did you discuss executor fees?
This issue received some media attention last month after the executors of Leona Helmsley’s estate submitted their bill for $100 million. Her executors included several grandchildren. Based on the amount of time the executors reported spending on estate matters, the equivalent hourly rate was $6,437. The office of the New York Attorney General called the bill “astronomical” and is seeking a 90 percent reduction.
While your estate may not be the same size as Helmsley’s, you should still think about how you want to compensate your executor as part of the estate planning process.
Colorado law is the default
Because most wills are silent on the issue of executor fees, state law determines the fee. Some states base the fee on a sliding scale depending on the assets of the estate.
In Colorado, however, the law only specifies that executor fees need to be reasonable. What is reasonable varies on interpretation. For that reason, it is important to detail a fee arrangement. A provision that explains your wishes can even avoid future legal battles.
If you are asked to be an executor, discuss fees and consider taxes. A family member or friend, who is also a beneficiary, may not want any fees. This individual would have to pay tax on the fees collected in the role of an executor (considered ordinary income), while a bequest through the will might be tax-free.
Being an executor can be time-consuming and involve complicated legal issues. Some of the general duties include:
- Collecting and valuing assets
- Communicating with beneficiaries
- Transferring property
- Paying appropriate debts and taxes.
Not everyone is equipped to take on the responsibilities required of an executor. And often executors earn their fee. Whether you have questions about appointing an executor or what you need to do as named executor on a loved one’s will, speak with a knowledgeable attorney.
Source: Dow Jones Business News, “Battle Involving Leona Helmsley Estate Spotlights Issue of Executor Pay – Getting Personal,” Veronica Dagher, Jan. 28, 2016