What Law Governs Executor's Fees?

by Anna Assad

An executor manages a person's estate and is entitled to receive compensation for his services. State law may determine how much an executor receives, but various factors influence the calculation, including the estate size and any restrictions the law places on executor payment.

Will

A testator -- the person making a will -- typically names the executor in his will. The testator may also include terms for the executor's compensation. State laws may not apply if the testator provided for the executor's payment. For example, Texas, Washington and Virginia laws regarding executor payment only apply if the will doesn't mention it.

Calculation

State law provides the method of calculation for the executor's fees. While typical fees are usually a percentage of the estate's total value, state laws vary. State laws may limit the payment and give the executor a percentage of the income he gained for the estate as well. For example, an executor in Virginia is entitled to 5 percent of the first $400,000 of the estate, but only 4 percent of the next $300,000. He's also entitled to 5 percent of the estate's income. An executor in Texas is entitled to 5 percent of all sums he may receive in cash, and the same percent on all sums he may actually pay out in cash in the administration of the estate, subject to state exemptions. Some states, including Pennsylvania and Washington, don't have set percentages in executor compensation laws. These states direct the court to give the executor what the court determines "fair and reasonable." The judge usually fixes the executor's compensation based on prior court practices, the size of the estate and the amount of the work the executor has.

Waiver

Since an executor is sometimes a relative, family member or friend of the deceased, he has the right to waive compensation, even if the deceased provided for it in the will. He usually must file a formal waiver of the money he's entitled to receive in the court handling the estate proceedings. An executor may decline money for his services for various reasons, such as keeping the peace within the family or to avoid tax consequences.

Exemptions and Taxes

State laws may not allow an executor to receive a commission for some services, such as handling money from the deceased's checking or savings accounts and collecting money from the deceased's life insurance policy. Some states, such as Texas, don't allow an executor to receive money for giving inheritances to will beneficiaries. An executor has to report money he received as payment for his services to the IRS and state tax department. However, the federal self-employment tax shouldn't apply unless he is a professional executor or actively took part in a business that was part of the estate's assets.