Last week’s post pointed out that being the executor of an estate is often a time-consuming and complex task. Is it a role someone should be paid for?
There are professionals, such as trust companies, that do this for a living. State laws provide for compensation for executors. It would appear that society thinks executors deserve to be paid. Given the challenges of the job, of course this makes logical sense.
But in many wills, the named executor is also an heir, often an adult child. In those circumstances, it rarely occurs to someone to ask or even think about being paid for their work. The risk of offending parents, causing family conflict, and appearing greedy or selfish is just too great. There is commonly an assumption by everyone involved that of course the child will do this as an act of love and service for the parents and the family.
I see this assumption as a societal as well as family money script. If you had a family with a pattern of transparency and honesty in talking about money, it could be possible to discuss the idea of paying an executor. The result might be a clear understanding among all the heirs that the executor—whether a family member of a professional—would be paid. Unfortunately, this level of financial authenticity and communication is anything but common.
Some families might consider naming more than one heir as co-executors. The problem with this idea is that it doesn’t reduce possible conflict so much as shift it. The emotional landmines are still there, just in different locations. How do co-executors divide up the work? What if someone does the bulk of it while someone else does little? Is cleaning out the attic worth the same hourly rate as organizing financial records for the accountant? The logistics and legal requirements, complicated by grief and family dynamics, do not argue for a comfortable and stress-free process.
The bottom line is that, no matter how the estate is managed or by whom, there are going to be emotional issues. The “best” solution is to try to assess which approach offers the least potential conflict and stress. Any solution, ideally, will include clear and honest communication up front about the provisions of the estate, including who is named as executor and whether and how much they will be paid.
The “how much” is at least somewhat predictable, since state laws generally provide guidelines and limits on the amount an executor can be compensated. In South Dakota, for example, it is set as a percentage of the estate’s value. An estate valued at $500,000 could pay up to $12,585. On $1 million, the compensation could be $25,000; on $4 million it could be $100,000. These amounts are not at all excessive, given that an executor can put in hundreds of hours of time. (The averages, according to estateexec.com, are 570 hours of work and $18,000, which would amount to a wage of just of $31.50 an hour.) This, of course, is in addition to legal and accounting fees.
Since all the fees come off the top, if one sibling is paid to be the executor, other siblings get less. Which is exactly how many siblings would see it—how selfish, that my sister got an extra $20,000 for just doing something that is a family duty. So clarity up front about not just paying the executor, but also how much that payment might be, is essential.
It is also worth pointing out that a capable family member who is familiar with the property and other aspects of the estate can, as the executor, save the estate money. Paying that person an executor’s fee can substantially reduce the amount charged by an estate attorney, which would benefit all the heirs.
Another factor to consider is that payment to an executor, unlike an inheritance, is taxable income. If a named executor is, say, a spouse who is the primary heir, then being paid an executor’s fee may not be the best financial choice. Given the grief and other emotions that everyone in a family deals with after a death, being financially transparent up front is no guarantee against conflict or hard feelings. Yet good communication can substantially reduce them. If you are making a will, it’s wise to consider the option of paying your executor, to discuss that payment with them and other heirs, and to give them the space to say no. If you are asked to be an executor, it’s wise to consider your own time and capability. Yes, the request carries a sense of honor and obligation. That alone is not necessarily sufficient reason to accept the responsibility.
Check out The Financial Therapy Podcast by Rick Kahler concerning this topic.