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Sunday, January 29, 2017

Do I still have to pay an executor's fee if I donate my inheritance?

Why does an executor get paid for being an executor? Is it the work he puts in? The time? It's not always clear. I recently received a note from a reader asking a question about executor fees from a beneficiary's perspective. Read on to see the note and my response:

"I am the beneficiary but I have grown tired of dealing with the executor. I am wondering if I donated property and two vehicles, everything I inherited, would I still have to pay the executor a fee."

At first, this question left me completely baffled. I simply don't see any connection between an executor's fee and what you do with your inheritance after you get it. Or the connection between his fee and you growing tired of dealing with him. Finally I chalked it up to the fact that sometimes beneficiaries really don't understand the executor's fee at all. And why should they, if they have never had to deal with it before? I decided to talk a little bit about the fees in the hope of clarifying why the executor is getting paid, regardless of what the beneficiary does with the property he inherits.

Most beneficiaries realize that an executor is entitled to claim a fee. Yet I often hear them criticize the amount claimed by the executor by saying that it really wasn't that complex an estate so the fee shouldn't be so high. While complexity of assets is definitely a factor in calculating the fee, it is not the only consideration. Here are some of the factors that go into deciding on an executor's fee:

1. The executor carries risk when he has the responsibility for an estate. One day he is handed a piece of paper that says he has to deal with thousands of dollars in assets and must cope with everything from bank accounts to legal documents to tax returns, none of which he has ever had to do before. And if he messes up any of that, he could be held personally liable. Part of the reason the executor is compensated is that he takes on that risk of personal liability in order to handle the estate. The higher the value of the estate, the greater the personal risk assumed by the executor.

2. There is a ridiculous amount of legwork involved in most estates. Trips to the bank, the investment advisor, the lawyer, the land registry, the accountant, the realtor, the courthouse, the funeral home, the notary. There are dozens of phone calls and emails, and piles of read, understand, sign, mail, notarize, or deliver. Sometimes an executor gets conflicting information and has to make the rounds again to figure out who is right and who is not. It takes a big chunk out of an executor's day, which can be extremely stressful for someone who is already balancing a job and a family. Part of the compensation is for the time spent and for the inconvenience of taking on all of this extra work for a period of several months (or in some cases, years).

3. Though the estate may seem straightforward to those who are not responsible for administering it, there are often large and small legal and procedural issues to iron out along the way. Sometimes it's a big one, such as a dispute over whether a given individual is a beneficiary or not, or a phrase in the will that can be read two ways. Other times it's something small such as trouble locating a beneficiary's address. If the estate involves questions of law that the executor has to take to court to iron out, his fees should be higher than usual.

4. Beneficiaries often complicate, slow down, or even halt the estate administration. You said you've grown tired of dealing with the executor; I can guarantee you that executors get pretty tired of the beneficiaries sometimes too. The average beneficiary is mistrusting of the executor, which results in additional calls and emails to the executor and to the estate lawyer over and above what are actually necessary, especially  if there are several beneficiaries. There is sometimes a beneficiary who refuses to participate, to sign anything, to provide information, or perhaps even to engage with the matter at all. This increases the time spent by the executor, the time spent by the estate lawyer, the stress for everyone, and sometimes it means that the executor needs to ask the courts for help. Again, additional time and effort should result in a higher fee.

In answer to your question, yes, the estate (not you personally) will still have to pay the executor his fee, if he claims one. I hope this post helps to clarify why this is so. I hope it also explains that donating your inheritance to charity simply has nothing to do with anything. The executor has done the work and carried the responsibility of the estate regardless of whether you actually want to keep your inheritance.

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