Excellent question.
The answer actually depends a lot on how crazy-messed up the estate is ... and where you live when you die.
Enter our friends at the Wall Street Journal as they consider the most recent rumbling in the Leona Helmsley estate.
The article, titled "Battle Involving Leona Helmsley Estate Spotlights Issue of Executor Pay," tells tale of a recent challenge to the proposed fee sought by executors of the late real estate mogul's estate.
The proposed fee? $100 million.
In response, two of Helmsley's grandchildren have decried said fee as "astronomical" and believe it should be reduced by 90%.
The New York attorney general agrees and has brought a court action challenging the fee.
Problem: the Helmsley will does not specify how the executor fees should be calculated, while ruling out the use of a fee schedule under state law.
This is not unusual.
Many wills do not mention executor fees at all.
Consequently, state law then determines the fee.
Some states, like Missouri, base the fee (also called a "commission" in some states) on a sliding percentage of the assets of the estate. In New York, the commission starts at 5% of the first $100,000 and declines to 2% on amounts above $5 million.
Running the numbers then, the total fee on a $1 million New York estate would be $34,000, or 3.4%.
While there are variations in every state, the average executor's fee on an estate of that size is typically about $30,000, or 3%.
In addition, many states allow for "extraordinary" fees for especially complex estates or estates involved in litigation. States also are different when it comes to which assets are included in calculating the executor fee.
Other states, like Kansas, say only that executor fees must be reasonable, subject to court review. In those states, consider detailing fee arrangements to help avoid legal misunderstandings later.
In states with fee scales, individuals may cap the fee in their wills at an amount below the amount allowed by statute. Others will provide for payment to an estate planning attorney as executor based on their hourly rate, if they think the cost will be lower than the state's asset-based scale.
In the Helmsley case, the executor fee calculated using the state schedule would have been a $200 million.
Nevertheless, the $100 million requested by the executors was equivalent to $6,437 an hour based on records kept by the executors working on the estate.
Compensation for executors who are friends or family usually is not a big deal when the families are not overly wealthy and the executors are also beneficiaries.
Typically the executors will waive a fee.
Why?
Because paying taxes on the fee at ordinary-income rates might not be as tax-savvy as inheriting the money as a tax-free bequest.
Nonetheless, in some situations, people who are asked to be executors may want to inquire about fees.
Ask anyone who has ever served as an executor.
The job can be time-consuming and complicated, even if the estate is not that large.
Not only is the executor responsible for collecting and valuing assets, paying debts and taxes, but also dealing with family in-fighting.
An experienced estate planning attorney can help you safely navigate the issue of executor fees and other hidden estate planning land mines.
So, how do you find an "experienced" estate planning attorney?
First, ask around. Friends, family and other professional advisors are trustworthy sources.
Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").
Third, either way, verify. Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.
How?
There are two helpful resources just a mouse click away to assist with your due diligence: Avvo.com and Lawyers.com.
Check any Avvo ratings, client ratings/testimonials and attorney endorsements on Avvo.com and any "peer ratings" by judges/other attorneys and any client ratings/testimonials on Lawyers.com.
In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
Reference: The Wall Street Journal (January 29, 2016) "Battle Involving Leona Helmsley Estate Spotlights Issue of Executor Pay"
Comments