Executor compensation
An executor may generally be paid for the work. The payment is taxable income; an inheritance usually is not.
What it means
Administering an estate is work — months of it, often a year or more — and the law of every state allows the person doing it to be paid from the estate. Nothing in the appointment says so, and the assumption usually runs the other way.
How much is set differently from state to state: a percentage of the estate on a sliding scale, a flat percentage, or simply what is reasonable, judged against the time spent and the complexity. The will can set its own figure, and where it does, that generally governs. Extraordinary work — selling a business, running litigation — is sometimes compensated on top.
The tax treatment is what makes this a decision rather than a formality. A fee is income to the executor and is taxed as such. An inheritance generally is not. An executor who is also the main beneficiary is usually better off taking the inheritance and waiving the fee, and one who inherits nothing is usually better off taking it.
Waiving it is allowed and is common between family members, but the waiver is worth putting in writing at the start rather than being assumed — because the alternative is a sibling asking, two years later, what the money was for.
Why it matters
It is money the executor is entitled to and frequently does not claim, having never been told.
It is also money that surprises beneficiaries when it is claimed, which makes saying so early cheaper than saying so late.
When you are likely to meet it
- When taking on the role and working out what it will cost you.
- When the accounting is prepared and the fee has to appear in it.
- When a beneficiary asks why the estate is smaller than they expected.
How this varies by state
Whether the fee is a statutory percentage, a reasonable amount, or whatever the will says is set by state law, and the percentages differ widely.