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Wednesday, October 2, 2013

Is 3% too much for an administrator of an estate to charge?

A reader wrote to me to ask some questions about how much an administrator can charge an estate, and what needs to be provided. That letter and my response appear below:

"I just wanted to  no if our brother can pay himself 3% of the estate , my brother died  intestate, and the older one filed for certificate  of administrator, we did not no this at the time he gave us our interim payment ,we did not receive any paper work on the estate with it  nor any info of what was being held back for taxes this was done through his accountant, paper just said we release him of any other money or interest on the estate. He says taxes were done and what he owed  and he was taking 3% of what  he held back as payment for himself .he also inheritate the same amount that the rest of us received.I also no he had filed a bankruptcy on his gst he owed on his business does he have to claim his inheritance as well as what he takes for paying himself. and is he a load to take this money without the rest of the family agreeing on it."

Your family appears to be operating with absolutely no information or guidance on this, but I think I can give you some information that will help.

The amount of 3% is definitely within the range of fees that can be claimed by someone acting as an executor or administrator of an estate. In a case like yours where the administrator is also a beneficiary, his fee is deducted from the estate before the beneficiaries split the inheritance. Yes, it means he gets more than the others, but the fee is earned by him taking on the work, stress and responsibility of the estate. Believe me, the amount of work needed to be done on an estate is way more than anyone who hasn't experienced it would ever know.

You've mentioned that he is going to take 3% of the held back amount. But he should be taking 3% of the entire estate. It appears that your brother is using professional help, including an accountant and a lawyer, and that is good news for you beneficiaries. There is nothing worse than an executor or administrator who has no idea what to do and won't ask for help.

If I understand you correctly, your brother made an interim distribution of the estate but didn't tell you at that time what he was going to claim as his fee. I don't find that particularly worrisome, as he might not have known at that point how much more work was to be done. Most of the time, there is only going to be one interim distribution and that takes care of the bulk of the estate. At that time, most executors/administrators will try to estimate their fees and expenses so that they can be included in the financial statements, but it's not necessary in every case that this be done at the time of the interim distribution. He obviously has provided further information since then.

The paper you signed should have been a Release. Obviously I haven't seen what you signed, but the purpose of a Release is not to deal only with money or interest, but to deal with all assets and debts of the estate that have been dealt with up to that point. The fact that the beneficiaries signed papers and accepted the payments is evidence that they agreed with the executor to that point.

If your brother is in personal bankruptcy, he will have to inform the bankruptcy trustee of the amount he is earning and the amount he will inherit. However, it sounds as if it may actually be his business that is in bankruptcy and not him personally. In any event, this will not affect how much the rest of you will inherit, and that's his issue to deal with.

You asked whether he can take "this money", by which I believe you mean his fee, and not his inheritance. You asked whether "the rest of the family" has to agree on it. The agreement that he needs is not from the family, as every person out there has a different definition of who "family" includes. He should be looking for the consent of the residuary beneficiaries, that is, every person who is receiving a share of the estate.

The usual procedure is for the executor or administrator to present an accounting of what he has done with the estate, and what he plans to do with the bit he has held back. This should include his fee. I think he has done this, as you have said he has reported taxes filed and his requested fee. If there is a good reason to object to his fee, such as him looking after the estate in a way that caused loss or damage, then you don't have to agree to his fee, and he can go to the court to ask for the fee.

However, if there is no real reason to object to the fee, then you should understand that he is charging within the normal range and is entitled to receive it.

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