| Dear Mr. Premack: In Texas, is the
Executor of a Will automatically paid a fee (percentage or otherwise) out
of the estate for his/her services? If not, is it a good idea to list the
executor as a beneficiary to make sure payment is received for the
services? And then what about the alternate executor, who may never need
to perform any services at all? MKB There are two ideas running through
Texas law about Executor’s fees. First, the legislature has given a very
specific set of rules to determine what fees are appropriate. Second, the
courts have recognized that the statutory scheme can be disregarded if the
Will itself sets different rules for handling the fees.
Under the statutory scheme, the Executor is "entitled to receive a
commission of five per cent." That begs the question, "per cent of what?"
Calculating the Executor’s fee under the statutory scheme can be very
involved.
For instance, the statutory scheme forbids any fee "for receiving funds
… which were on hand or were held … in a financial institution or a
brokerage firm." That means that the Executor cannot legally charge
anything for just going to the bank or brokerage to get and distribute the
estate’s money. On the other hand, the Executor can charge 5% for selling
real estate, for collecting debts owed to the estate and for paying debts
owed by the estate.
The statutory scheme can be easily changed by setting different rules
in the Will. For instance, in the Texas case LEE v. LEE, the Will said the
Executor should be paid a "reasonable fee." The Executor sold real
property belonging to the estate for about $27.5 million, and took a fee
of about $2.8 million. One heir sued the Executor, claiming that fee
(about 10%) was too high. The court decided that the terms of the Will
overrode the statutory scheme; that the 10% fee was allowable because it
was within the Will’s "reasonable fee" limit.
So the answer to your question "is the Executor of a Will automatically
paid a fee?" is this: If the Will says nothing about a fee, the Executor
can automatically charge a 5% fee for certain transactions. If the Will
says something else about fees, then the terms of the Will must be
followed (even if the resulting fee is less, or is more, than the
statutory 5% fee).
Is it a good idea to list the Executor as an heir, to be sure he/she
gets paid? That depends. If the Executor is someone you would ordinarily
include as an heir, then that inheritance is adequate; no additional fee
need be allowed unless you really want to give additional funds.
On the other hand, if the Executor is someone you would not ordinarily
include as an heir, you might reduce the Executor’s future income taxes by
deciding to give an inheritance in lieu of a fee. One snag: if that person
declines to act as Executor, he/she may get the inheritance without doing
any work. The alternate Executor may do all the work without pay.
As a consequence, the best approach is to either 1) say in your Will
that there is to be no fee at all, or 2) say in your Will that there is to
be a specific percentage of the gross estate as a fee or a specific dollar
amount as a fee. Doing so ensures that the Executor or the Alternate
(whoever actually serves) will be the one who gets paid, and that
calculating the fee will be much easier than it would be under the
statutory scheme. |
