Virtually every last will and testament names an executor of the estate. The executor's responsibilities can be daunting. Responsibilities can include the following:
- Dealing with all of the frozen financial accounts and creditors of the deceased;
- Handling all of the inquiries from heirs and interested parties;
- Working closely with the attorney to make sure all court pleadings are accurate and timely; and
- Overseeing all aspects of the estate settlement process.
In many estate settlements involving probate, a question that often arises is whether the executor will accept or waive the compensation that an executor is entitled to. Statutory compensation can and does vary from state to state. However, most states define reasonable compensation as 2-4% of the estate value.
For example, a father may pass away and name his oldest child as the executor of his estate. The state's probate laws where the father resided provide that the executor is entitled to executor compensation equal to 2.5% of the value of the estate assets. So, if the father died with assets totaling $2 million in value, then the executor's compensation to the oldest child would be $50,000.
An executor can decide whether to accept full compensation or waive all of the compensation they are entitled to. Below we've outlined reasons we have seen executors elect to accept or waive compensation.
Reasons executors may choose to waive their compensation include the following:
- They feel honored. Some executors feel that it is an honor to be named executor, and they are happy to perform their executor duties without accepting the compensation.
- They are a beneficiary. The executor is often an estate beneficiary, so that executor is satisfied receiving their portion of the estate without additional compensation.
- Taxes. Some executors realize that compensation earned as executor is taxable income, so they prefer that the heirs inherit assets from the estate without incurring additional income tax.
Reasons executors may choose to accept compensation include the following:
- There is a lot of work to do. The tasks outlined above are tedious, and some executors feel it is fair to receive compensation.
- The deceased expected it. Some people who write a Will and name an executor fully expect and desire for the executor to accept the executor's compensation.
- The estate beneficiaries support executor compensation. Estate beneficiaries may be grateful that the executor performs all of these necessary estate settlement tasks. The estate beneficiaries often encourage the executor to accept the executor's compensation.
If you are named an executor of a Will, make sure you understand all of the consequences surrounding accepting or waiving your executor compensation, including the tax consequences to you and the estate, the amount of work involved, and how your compensation may affect the estate beneficiaries.