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Executor Fees: What Is The Default In Utah?

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While working on your will, you probably spent time considering who was best suited to settle your estate. You asked the close friend or family member if he or she would act as an executor of your estate. But did you discuss executor fees?  Because most wills are silent on the issue of executor fees, state law determines the fee. Some states base the fee on a sliding scale depending on the assets of the estate. In Utah, however, the law only specifies that executor fees need to be reasonable. What is reasonable varies on interpretation. For that reason, it is important to detail a fee arrangement. A provision that explains your wishes can even avoid future legal battles. If you are asked to be an executor, discuss fees and consider taxes. A family member or friend, who is also a beneficiary, may not want any fees. This individual would have to pay tax on the fees collected in the role of an executor (considered ordinary income), while a bequest through the will might be tax-free.

Being an executor can be time-consuming and involve complicated legal issues. Some of the general duties include:

  • Collecting and valuing assets
  • Communicating with beneficiaries
  • Transferring property
  • Paying appropriate debts and taxes.

Most executors are entitled to payment for their work, either by the terms of the will or under state law. Typically, a will either names a flat fee or states that the executor can claim “reasonable compensation.” If a will doesn’t mention compensation, state law usually gives executors the right to reasonable compensation, and it may provide a formula for arriving at the executor’s fee.

 

Deciding Whether or Not to Accept a Fee

Many people wonder, “Should I take an executor’s fee?” They might feel uncomfortable accepting payment for helping out family members during a tough time. And there’s nothing wrong with serving as an executor without pay. But if you’re weighing this decision, remember that being an executor requires a commitment to working on behalf of the estate beneficiaries for months or even years. It’s a big responsibility to deal with other people’s money—and there may be a lot of work required. Perhaps you were chosen as executor because you bring valuable skills to the job—maybe you are the right person to manage the deceased person’s business until it can be sold, or you’re the only one who can get along well with fractious relatives. Maybe your background in business, financial matters, or the legal world makes you a good candidate. If that’s the case, it makes perfect sense for you to collect a fee for your work. There’s one situation in which it rarely makes sense to collect a fee, and that’s when you’re inheriting most or all of the estate yourself. An executor’s fee is taxable income. If you’re inheriting everything anyway, you’re better waiving the fee and instead inheriting the money, because inherited money generally isn’t taxable income. However, if the estate is so large that it owes federal estate (which is very rare, as more than 99% of estates will not owe the tax), and your personal tax rate is lower than the estate’s, taking compensation may be a good tax move. If the estate is large enough to owe estate tax, you should be consulting a probate attorney anyway. Ask about the executor’s fee.

 

Determining the Executor Fee

If the will does not set out a fee and you decide to collect a reasonable fee, it’s up to you to determine what’s reasonable under the circumstances. The probate court is unlikely to argue with your bill unless a beneficiary of the estate objects.

 

There are a few different ways to arrive at a reasonable figure:

  • Your state’s rules. Some states have statutory rules for how much an executor can claim, and you probably won’t get objections from beneficiaries if you follow your state’s formula. State rules vary widely.
  • Percentage of the estate. Some states set the executor’s fee as a percentage of the estate’s value. What percent of an estate does an executor get? Utah, as one example, allows 4% of the first $100,000 of the estate, 3% of the next $100,000, 2% of the next $800,000, and so on. For a $1 million estate, this means an executor can charge $23,000. The value of the estate is its gross appraised value—for purposes of calculating the fee, debts are not subtracted. So if the estate includes a house appraised at $1 million, but the house has a $400,000 mortgage, the fee is based on the $1 million figure, not the actual value in the estate.
  • An hourly rate. Keep track of the time you spend on settling the estate, and then charge the estate a reasonable hourly fee. The rate should be appropriate for the kind of work you’re doing. If you’re a professional and you’re using your professional expertise on behalf of the estate, it would be reasonable to charge the rate that you typically charge clients—but only for the hours in which you’re acting as a professional. A percentage of the estate. Even if your state’s law doesn’t have a statutory rate schedule, you may be able to charge a percentage of the value of the estate. For example, if you sold real estate, you might claim a percentage of the sales price of the property. If the beneficiaries don’t object, there won’t be a problem.

 

How do Estate Executors Get Paid?

In addition to being reimbursed (after approval) for all of the expenses that they’ve incurred during the settlement process, an executor has the right to be compensated by the estate. Utah is one of many places in the United States where there is a statutory fee that is directly related to the size of the probate estate.

 

When do Estate Executors Get Paid?

From the moment they’re initially appointed, the estate executor has a big job ahead of them. In most cases, it can take around a year to pay all outstanding taxes and bills, administer an estate’s assets and property, and locate heirs. An estate can remain open for years if its finances are particularly complicated or if beneficiaries contest the will. Because of this lengthy process, estate executors can find themselves waiting for payment for quite a while. The fees which the estate executors are paid come from the estate itself, and are usually paid out at the end of the estate settlement process. Being an executor is time consuming and complicated, and as such, an executor is entitled to compensation for their work. In some cases, the deceased will set an amount in their will, earmarked as compensation for their executor. But even where the will does not mention executor’s compensation, an executor is entitled to a proportion of the estate value as payment in exchange for her time and services. An executor’s fees are paid out of the residue of the estate, which is the remaining estate assets following payment of debts and bequests. Fees are considered taxable income.

 

How Are An Executor’s Fees Calculated?

As discussed, some individuals will earmark a portion of their estate as compensation for the executor, which makes matters relatively straightforward. In situations where no compensation has been set, an executor is usually entitled to, “fair and appropriate,” payment in exchange for discharging their duties and obligations. Although not always an accurate basis for determining appropriate compensation, a percentage approach is often adopted. In Utah, as a starting point, executor’s compensation may be roughly 2.5% of capital receipts and disbursement, and 2.5% of income receipts and disbursements. An additional amount may be added if an executor spent any significant time managing the estate.

Some of the other factors that are relevant in determining a fair and reasonable executor’s fee are:

  • the size and complexity of the estate;
  • the time spent managing the estate prior to distribution;
  • the qualifications and skills of the executor; and,
  • any especially positive outcomes achieved by the executor.

If an executor pays any fees for professional services that are necessary to the proper administration of the estate, these fees are considered estate expenses and do not come out of an executor’s fees.

 

What Does an Executor Do?

Being asked or named to serve as the “executor” of someone’s last will and testament is a position of great trust. You have a responsibility to make sure:

  • The person’s last wishes are carried out
  • The people they loved receive the benefits intended for them

At a time of grief and uncertainty, the executor steps in to handle the details, bringing order and perhaps even prosperity to heirs and beneficiaries. When a person dies, all of the deceased’s possessions become a part of their estate. This must then be administered according to the will of the deceased person. The person nominated in a will to handle the administration of the estate is the “executor.”

Some more specific examples of what an executor can be tasked with doing include:

  • Obtaining a death certificate
  • Initiating the probate process
  • Filing paperwork in probate court
  • Contacting the beneficiaries of the estate

The executor is required to perform their tasks in accordance with the will and in compliance with the probate laws of each state. The executor is also required to perform their duties diligently and in good faith.

Choosing Your Executor

There are very few restrictions on who can be an executor. Generally, the executor can’t be a person under the age of 18 and can’t be a felon. In some states, there could also be restrictions on a person who lives out-of-state serving as an executor. Usually, legal or financial knowledge isn’t necessary to serve as an executor because wills are usually straightforward. And, if the will is complicated or difficult to understand, the executor can consult with an attorney.

 

Who Typically Serves as Executor?

Since there aren’t many restrictions or requirements for being an executor, usually people appoint a spouse, child, or sibling as the executor of their will. It’s important to choose a person who is honest, responsible, and organized. If you’re selecting a family member to serve as the executor it’s also a good idea to consider what impact the selection will have on your family.

For example, if the youngest of three children is named as the executor, the two older children might feel that they were not trusted or worthy enough to serve as the executor. This can lead to problems between siblings, and maybe even a will contest.

Another factor to consider when selecting an executor is where the executor lives. It’s much easier for an executor to perform their duties if they are close to the majority of the estate’s assets. Finally, it’s a good idea to name an alternative executor in case the originally named executor can’t or doesn’t want to serve as the executor. Whoever you name as your executor, it’s important to let the person know that you want them to serve as your executor. Letting the person know allows the person to accept or decline to serve as the executor. You should also tell the person where your records are kept and probably give them a copy of your will.

 

The Executor of a Will Has a Fiduciary Duty

The executor of an estate is typically a family member or a close friend. They are usually not a lawyer or a financial expert and they don’t need to possess specialized knowledge or skills. But they do have a special duty a fiduciary duty to act in the best interest of the deceased person’s estate and his/her beneficiaries.

 

This fiduciary duty includes:

  • A duty of loyalty: The executor puts the interests of the estate and its beneficiaries before their own interest. They don’t engage in self-dealing.
  • A duty of good faith: The executor acts with honesty and fairness.
  • A duty of care: The executor avoids harming the interests of the beneficiaries. They are diligent in their duties. They keep private information private. They do not take unnecessary risks with estate assets. They act with prudence.
  • A duty of obedience: The executor does as instructed by the will and the court, within the scope of their authority.

Because the named executor has a fiduciary duty to the estate and heirs, they can be held legally liable if they fail in that duty. It is not a role to be taken lightly. But it is also not a job to be feared. The probate process is well established and overseen by the probate court. An estate executor will receive instruction from the court and can seek legal advice and professional help from a probate lawyer. There are many duties that the executor of a will may have to fulfill, depending on the complexity of the will and the property to be distributed. The following is a high-level description of the executor’s duties.

  • Probating the last will and testament in court, if necessary. Probate is a court-supervised process that validates a will and oversees the process of distributing assets. Depending on the laws of your state and the value of the property, some wills may not be required to go through probate, but the will must still be filed with the probate court.
  • Wrapping up financial affairs. The executor will need to notify creditors, credit card companies, life insurance companies, government agencies, and others of the person’s date of death. The executor may need to provide copies of a death certificate to stop financial obligations or to secure the benefits of insurance policies or Social Security Administration death benefits. If the deceased person was already collecting Social Security benefits, the Social Security Administration should be contacted to stop future payments.
  • Finding the deceased person’s assets. The executor is responsible for finding, gathering, securing, maintaining, and selling or distributing the assets of the estate. If the decedent was owed money, the executor needs to collect it. If the decedent had valuable personal property stored in a safety deposit box or at some other location, the executor must get access to them.
  • Valuing of real estate and personal property. In the process of estate administration, the executor may need to get help understanding the value of the decedent’s property in order to ensure a fair distribution.
  • Setting up a bank account for the estate. Executors must keep estate funds separate. They will need to set up a bank account on behalf of the estate in order to receive funds owed and to pay estate debts. The funds in the estate’s bank account can be used for ongoing expenses such as mortgage payments, utilities, and home insurance. These payments protect the value of the estate.
  • Paying off creditors. In general, the deceased person’s debts and liabilities must be paid before any beneficiary can receive their inheritance. The “estate” to be distributed is what remains after all the bills have been paid.
  • Paying taxes. The executor of a will is responsible for making sure that the deceased person’s final income tax return is filed for the last year they were alive. They must file an estate tax return. The executor ensures any taxes are paid.
  • Finding Beneficiaries. The executor is in charge of making sure the property that is named in the will goes to the rightful beneficiary. They will need to find and contact the beneficiaries named in the will. The executor may choose to work with a tax accountant to accomplish this task.

Distributing the deceased’s property. Once debts and taxes have been paid, then assets and property should be distributed according to the terms of the will. If there is property whose distribution is not covered in the will, it should be distributed according to state law.

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