Many states award executors a percentage of estate assets, often breaking it down into two separate categories – income and corpus, or principal. In New Jersey, your executor is entitled to compensation of 6 percent of any income your estate takes in, such as interest earned on certain assets. Virginia allows 5 percent. Although you can direct in your will that your executor should receive her percentage monthly, this portion of her fee may not add up to a great deal, so forcing her to go through frequent calculations might prove to be more trouble than it's worth.
Your probate assets comprise the corpus, or principal, of your estate. This is not necessarily everything you own. Your probate estate consists only of those assets that require the probate process to legally transfer to beneficiaries. If your life insurance proceeds go to a designated beneficiary named on the policy, this isn't a probate asset and the value doesn't count toward your probate estate. Many states give executors a percentage of the total value of your probate assets in addition to a share of the estate's income. For example, as of 2014 in New Jersey, an executor receives 5 percent of an estate's value up to $200,000 and 3.5 percent of its value from $200,000 to $1 million. Therefore, if your estate is worth $500,000, your executor would receive $20,500 – $10,000 on the first $200,000 and $10,500 or 3.5 percent of the next $300,000. These calculations are typically not possible until well into the probate process when your executor has had all assets appraised.
Some states provide compensation for executors a little differently. They base their percentages on what comes into the estate during probate – its income – and what goes out of the estate. This works out to much the same equation, however, because your assets are what you leave in your estate to transfer to your beneficiaries. Other states have no statutory formulas at all. For example, Pennsylvania's probate code states only that an executor is entitled to reasonable and just compensation. She can bill the estate by the hour if she likes, so she could be paid monthly. She also has the option of billing one flat fee. How much she actually receives is subject to review by the court, however, so this might make monthly billings time-consuming and bothersome. She might ask for an exorbitant amount, but this doesn't necessarily mean she will receive it if the court doesn't feel it's reasonable or just.
Reimbursement for Fees and Expenses
Executors are entitled to reimbursement for any out-of-pocket expenses they incur, including probate court filing fees. If an executor must mail notices to 25 of your beneficiaries and creditors, she doesn't have to personally pay for the postage. This expense also comes out of your estate. Generally, she would pay herself back when she settles the estate and makes distributions, and this is in addition to any compensation she receives for her work.
Any commission an executor takes through probate is earned income for tax purposes, so she'd have to declare it on her personal return. Not all states tax inheritances, so if you leave her a gift instead, this might be tax free. Accepting a $20,000 bequest often amounts to more money than a commission of $20,500, which, as executor, she must pay taxes on. If you name her as a beneficiary and leave her a percentage of your estate, she can waive compensation and her fee would revert to your estate, adding to its value, so she and your other beneficiaries might receive slightly more.