Estate Planning 101

Executor Fees in the US

This is a comprehensive guide on executor fees in Executor Fees in the United States, detailing how they are calculated, the concept of reasonable expenses, tax implications, and the payout process.
October 17, 2023

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Understanding executor fees is crucial whether you are drafting a will or appointed as an executor. Executor fees are the compensation an executor receives for executing a will, but these fees aren't guaranteed and vary significantly between states. Some states have laws in place that set maximum limits on executor fees, while others leave it to the discretion of the court or the terms laid out in the will. This divergence in regulations creates a diverse landscape of executor fees across the U.S. 

In this article, we'll provide a comprehensive overview of executor fees in all 50 states. Our aim is to provide clarity on the often complex subject of executor fees, helping you navigate the process with confidence.

Executor Fees in the United States

Across the United States, executor fees are either explicitly defined by law or deemed "reasonable" depending on several factors such as the complexity of the estate and the amount of work required by the executor. This flexible approach can be both advantageous and challenging, depending on the particulars of the situation.

Often, the will itself may dictate the executor's compensation. If the will provides a fee or a method for determining the compensation, that provision typically governs. However, if the will does not address this issue, the probate court will decide what constitutes a 'reasonable' fee.

Executor fees are generally paid from the estate's assets, meaning the executor is compensated before the remainder of the estate is distributed to the heirs. Given the subjectivity of what is 'reasonable,' it is advisable for executors to keep detailed records of all the time and effort they spend on estate-related tasks.

Below is a table that outlines the specific rules and regulations regarding executor fees in each state:

State Executor Fee Range (%) Fees are Statutory (Yes/No) Fees Taxable (Yes/No) Can Claim Reasonable Expenses (Yes/No)
Alabama 2-5% No Yes Yes
Alaska 2-5% No Yes Yes
Arizona 2-4% No Yes Yes
Arkansas 5-10% Yes Yes Yes
California 4% Yes Yes Yes
Colorado 2-5% No Yes Yes
Connecticut 2-5% No Yes Yes
Delaware 2-5% No Yes Yes
Florida 3% Yes Yes Yes
Georgia 2-4% No Yes Yes
Hawaii 2-5% No Yes Yes
Idaho 2-5% No Yes Yes
Illinois 2-5% No Yes Yes
Indiana 2-4% No Yes Yes
Iowa 2% Yes Yes Yes
Kansas 2-4% No Yes Yes
Kentucky 2-5% No Yes Yes
Louisiana 2.5-5% Yes Yes Yes
Maine 2-4% No Yes Yes
Maryland 3.5% Yes Yes Yes
Massachusetts 2-5% No Yes Yes
Michigan 2-4% No Yes Yes
Minnesota 2-4% No Yes Yes
Mississippi 2-5% No Yes Yes
Missouri 2-5% No Yes Yes
Montana 2-5% No Yes Yes
Nebraska 2-4% No Yes Yes
Nevada 2-4% No Yes Yes
New Hampshire 2-5% No Yes Yes
New Jersey 5% Yes Yes Yes
New Mexico 2-5% No Yes Yes
New York 2-5% Yes Yes Yes
North Carolina 2-5% No Yes Yes
North Dakota 2-5% No Yes Yes
Ohio 2-4% No Yes Yes
Oklahoma 3% Yes Yes Yes
Oregon 2-4% No Yes Yes
Pennsylvania 2-5% No Yes Yes
Rhode Island 2-5% No Yes Yes
South Carolina 2-5% No Yes Yes
South Dakota 2-4% No Yes Yes
Tennessee 2-5% No Yes Yes
Texas 2-5% No Yes Yes
Utah 2-5% No Yes Yes
Vermont 2-5% No Yes Yes
Virginia 2-5% No Yes Yes
Washington 2-4% No Yes Yes
West Virginia 2-5% No Yes Yes
Wisconsin 2-4% No Yes Yes
Wyoming 2-5% No Yes Yes

Claiming Reasonable Expenses as an Executor

In situations where no executor fee is specified, many state laws allow executors to claim "reasonable expenses" incurred during the administration of the estate. These are costs that the executor has paid out-of-pocket while fulfilling their duties.

These reasonable expenses can cover a wide range of costs, including administrative expenses like postage for mailing documents, travel costs for meetings or court appearances, and professional fees for attorneys, accountants, or appraisers. If the executor has to maintain a property as part of the estate such as paying for necessary repairs, utilities, or insurance, these costs can also be considered reasonable expenses.

For an expense to be deemed 'reasonable,' it must be necessary for the administration of the estate. Extravagant or unnecessary costs may not be approved by the court and could be challenged by beneficiaries. The process for claiming these expenses typically involves the executor keeping detailed records and receipts, which are then submitted to the probate court for approval. In some cases, the executor may need to justify the expenses, particularly if a beneficiary disputes them.

Tax Implications of Executor Fees

One important factor to consider when dealing with executor fees and reasonable expenses is their tax implications. In general, executor fees are considered taxable income, and they must be reported on the executor's personal income tax return. They are reported as income, not self-employment, so executors do not have to pay self-employment tax on them.

On the other hand, reimbursed expenses are typically not taxable as long as they are necessary costs incurred while administering the estate and are reimbursed directly by the estate. These expenses should be kept separate from fees for tax purposes.

The executor will receive a Form 1099-MISC from the estate reporting the amount of compensation received during the tax year. This form should be included when filing personal taxes.

When Do Executors Get Paid?

The process of settling an estate can be lengthy, and executors may wonder when they will receive compensation for their work. Executors are typically paid before beneficiaries receive their inheritances, but the timing can vary.

Generally, executors receive their fees once they have completed most of their duties, which often includes tasks like settling debts, paying taxes, maintaining properties, and distributing assets to beneficiaries.

However, before the executor's fee is paid, it must be approved by the probate court. This involves the executor submitting a detailed account of their time and expenses, which the court reviews to determine if the requested fee is 'reasonable.' Once the court approves the fee, the executor can then pay themselves from the estate's assets.

Remember, the probate process can take several months to over a year, depending on the complexity of the estate. Therefore, executors should be prepared for the possibility that their compensation may not be immediate. Always consult with an estate planning attorney to understand the specific timeline and processes involved in your situation.