Most people will come in contact with an executor or even be an executor at some time. When composing a will, a person may wonder who she should appoint as executor. If a person is named as an executor, he may wonder what the position entails. To answer these questions, it is helpful to have a basic understanding of who the executor is, what the executor does and how the executor is paid.
Who Is the Executor?
An executor is the personal representative of a deceased person’s estate. The deceased person is known as the decedent. The executor may be a person, more than one person, a bank or a trust company. As the estate’s personal representative, the executor is the fiduciary of the estate. A fiduciary is a person who has the power or the duty to act for another and must do so in good faith. A fiduciary is held to a high standard and must ensure her actions are in the estate’s best interests. The executor may be personally liable to the estate and the beneficiaries if she fails to meet her fiduciary duties.
Generally, the executor will be named in the decedent’s will. However, if the executor renounces the position or the court finds the executor is not fit for the position, another will be appointed. The executor, even if named in the will, does not have any power until he is appointed by the court and receives “letters testamentary,” which is a document issued by the court stating that the person identified therein is the executor. Courts will try to honor the decedent’s wishes in appointing an executor, unless the executor is found to be unfit. As explained more fully below, the executor has a large amount of financial duties. If the person named by the decedent is unable to perform those duties, the court will name another executor. Likewise, the executor must be a trustworthy person. If the court finds that the executor is not trustworthy, it will replace him with another.
What Does the Executor Do?
The executor’s job is to settle the decedent’s estate. This job requires attention to detail and can be time consuming. The job duties include finding, collecting and valuing the decedent’s assets, managing the assets, paying the decedent’s debts, taxes, and estate administration expenses, handling daily issues, and ensuring the assets are properly distributed among the beneficiaries. These duties can last a few months to a number of years, depending on the complexity of the estate.
To pay taxes, debts and administration expenses the executor should open an estate checking account. The liquid estate assets should be passed through the account and the taxes, debts and administration expenses should be paid from the account. This will provide the executor with a record to prove how the estate’s money was spent and that the bills were properly paid. The executor must ensure that the decedent’s income taxes are paid, and if the estate is above the exclusion amount, that the estate taxes are paid. Administration expenses may include lawyer’s fees, accountant’s fees and any other expenses necessary to manage the property and settle the estate. The executor must also notify the decedent’s creditor’s of her appointment. This should be done in writing to the known creditors and by publication in the newspapers for all others. Thereafter, the creditors should be paid.
Finding, collecting and valuing the decedent’s assets can be difficult, especially if the decedent did not keep good records or if the assets are not easily valued. After the assets are valued, the executor must manage the assets until they are distributed. Management includes deciding whether to sell or retain an asset. The executor also must determine whether the estate needs to be probated. If the assets are jointly held or pass by contract, there is no reason to probate the estate. However, if the decedent held assets in his name alone, the will must be probated to put the title into the names of the beneficiary.
The daily issues that an executor may have to handle include notifying utility and credit card companies, the Social Security Administration, the post office, and the like of the decedent’s death. The executor is also responsible to determine who should inherit, either through the terms of the will or according to intestate statutes, and then ensure those individuals receive the property.
How Does the Executor Get Paid?
All executors are entitled to compensation. The work an executor does is time consuming and he is liable, to the estate and the beneficiaries, for any mistakes he makes. Therefore, compensation is a necessity. This compensation is subject to income taxes, like any other earned income.
The estate executor is paid by the estate, meaning that her compensation is drawn from the estate’s assets. The amount of compensation due to the executor is determined pursuant to the law of the state where the will is probated or pursuant to the terms of the will.
In setting executor compensation, some states use sliding scales, some use percentages, and some states merely require a “reasonable” fee. Kentucky law uses a flat percentage for compensation of the executor. As of 2015, an executor’s compensation in Kentucky, “shall not exceed five percent (5%) of the value of the personal estate of the decedent, plus five percent (5%) of the income collected by the executor, administrator or curator for the estate,” as set forth in Kentucky Revised Statutes 395.150. California’s fee schedule provides that the executor receives four percent of the first $100,000, three percent of the next $100,000, two percent on the next $800,000, and so on, according to California Probate Code Sec. 10800. New York has a similar fee schedule, which is set forth in the Surrogate’s Court and Procedure Act sec. 2307. In Pennsylvania and Illinois, the compensation merely must be “reasonable,” according to 20 Pa.C.S. sec. 3537 and 755 IlCS 5.