Executor/Trustee Fee Compensation: A State by State Case

Not many of us find ourselves in the position of being an executor or trustee of an estate – it may only happen once or twice during our lifetimes (if at all). Many people consider it an honor to be named an executor or trustee. However, there are several elements and responsibilities that go along with the title. Estates can range in size and complexity – which may or may not call for the trustee to do a lot of work.  In exchange for their time and work, executors/trustees are entitled to compensation from the estate.  How much compensation? What is reasonable?  Are there any guidelines? Let’s take a closer look at these questions:

Fees: A state by state case.

Many, but not all, states have a published court-approved fee schedule for executors and trustees to follow.  Although the fee schedules may not be easy to understand, at the very least an executor has a guideline to follow when deciding what constitutes appropriate compensation.  Unfortunately, the great Commonwealth of Pennsylvania – is not one of those states. Pennsylvania requires the amount that an executor charges to be “reasonable and just under the circumstances.”  That definition is comically vague. However, there is some helpful guidance for executors in Pennsylvania.  Based on a court ruling in 1983 (specifically: Johnson Estate, 4 Fid. Rep. 2d 6) executors and fiduciaries have relied on a fee schedule adopted by Judge Wood in the above mentioned Orphan Court case.  Below is the fee schedule from that case:

                                                   Exhibit A
          Johnson Estate, 4 Fid.Rep.2d 6, 8 (O.C. Chester 1983)

                                          Commissions
                                 Executor or Administrator
Per Col. Per Total
$0.01   to $100,000 5% 5,000.00 5,000.00
$100,000.01   to $200,000 4% 4,000.00 9,000.00
$200,000.01   to $1,000,000 3% 24,000.00 33,000.00
$1,000,000.01   to $2,000,000 2% 20,000.00 53,000.00
$2,000,000.01   to $3,000,000 1.50% 15,000.00 68,000.00
$3,000,000.01   to $4,000,000 1% 10,000.00 78,000.00
$4,000,000.01   to $5,000,000 0.50% 5,000.00 83,000.00

 

 

Let’s be clear about one thing: This fee schedule serves as a loose guide line for executors in the state of Pennsylvania.  It is not a binding fee schedule in court. It has gained popularity because many judges have referenced the Johnson case when determining whether an executor’s fee is unreasonable.  There have also been cases in which judges will not use the Johnson fee schedule as a guideline.

Also important, if an executor hires an investment manager to help manage the estate’s portfolio, then the executor should take into account the investment advisory fee along with any executor fee. In the end, it is the responsibility of the executor/trustee to make sure that their total compensation coming from the estate is reasonable given the needs of the estate.

Conclusion

As the saying goes, “Heavy lies the crown.”  Executors/trustees are in a position that demands a great deal of responsibility. Executors often come under fire from the estate’s beneficiaries for receiving fees that seem unreasonable—i.e. money out of the beneficiaries’ pockets. Pennsylvania does not make it as easy as many other states do for executors to determine a reasonable fee for their duties. Therefore, it is critical for executors and trustees to keep detailed and accurate notes of their work, their time and the expenses accrued in order to perform their duties.  Like so many things in life, nothing is easy. Being named an executor or trustee is an honor, but it’s a title that carries many responsibilities.

About Patrick Melvin Jr.

Patrick D. Melvin Jr., is a Wealth Manager at Independence Advisors, LLC. Pat models client’s financial plans and works with the firm’s clients on financial planning areas such as retirement planning, investment planning and estate planning. CLICK HERE TO ASK PAT.

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