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An executor fee is meant to compensate the individual appointed to manage and distribute the assets of a deceased individual’s estate. At Barr & Douds, we understand the vital role executors play in managing estates. In this post, we’ll provide more information about executor fees and explain how they’re calculated in California.
How to Calculate Executor Fees in California
When someone passes away, their assets and belongings become part of their estate. Executor fees are the compensation an executor or personal representative receives for their services in managing a deceased individual’s estate.
The amount an executor receives depends on the size and complexity of the estate they’re overseeing. Being named an executor in California comes with both the responsibility of managing the deceased person’s estate and the right to receive payment for your efforts.
With that in mind, here’s a step-by-step guide on how to calculate executor fees in California.
Step 1: Determine the Estate’s Value After Probate Debts and Expenses
Start by gathering all documentation related to the estate’s assets, including appraisals for real estate, vehicles, and other valuables. This will give you the gross value of the estate, which will be used to calculate the executor fee.
Step 2: Apply the California Statutory Fee Schedule
California Probate Code Section 10800 outlines a tiered fee structure based on the value of the estate after debts and expenses.
Here’s a breakdown:
- 4% on the first $100,000 of the estate’s value
- 3% on the next $100,000
- 2% on the next $800,000
- 1% on the next $9,000,000
- 0.5% on the next $15,000,000
The estate’s value is based on the appraised value of assets, not including any debts owed. While the deceased’s will may specify a different amount, it can’t be lower than this statutory minimum. A higher fee in the will might require court approval.
For very large estates exceeding $25 million, the court determines a “reasonable” fee based on the estate’s complexity and the time involved in its administration.
Note that this information is for educational purposes and doesn’t constitute legal advice. Consult an experienced probate attorney for more specific guidance regarding your situation.
Step 3: Calculate the Fee for Each Tier
Next, multiply the percentage for each tier by the corresponding dollar amount within that tier. For example, if the estate value is $500,000, you would calculate the fee as follows:
- First $100,000: 4% x $100,000 = $4,000
- Next $100,000: 3% x $100,000 = $3,000
- Remaining $300,000: 2% x $300,000 = $6,000
All that’s left to do now is find the sum of the fees for each tier.
Step 4: Add Up the Fees from Each Tier
Once you’ve calculated the fee for each tier applicable to the estate value, simply add them together to get the total executor fee. In the example above that features an estate value of $500,000, the total fee would be $13,000 ($4,000 + $3,000 + $6,000).
Calculating Executor Fees in California: Case Example
A hypothetical scenario can better illustrate how to calculate executor fees in California.
Let’s say you’re the executor of an estate with a value of $750,000 after probate debts and expenses are settled. According to the tiered fee structure based on the net estate value, the calculation process would proceed as follows:
First $100,000
For the first tier, 4% of $100,000 is $4,000. This represents 4% of the first $100,000 of the estate’s value, which is the standard executor compensation for this portion.
Next $100,000
Since the estate value is $750,000, the next $100,000 falls within this tier. The fee is 3% of $100,000, or $3,000. That’s 3% of the next $100,000 of the estate’s value.
Next $550,000
The remaining estate value after the first two tiers is $550,000 ($750,000 – $200,000). This falls under the 2% tier, making the fee 2% of $550,000, or $11,000. Here, 2% is applied to the remaining balance of the estate after the first two tiers are accounted for.
You’d then add the fees calculated for each tier for a sum of $18,000. This is the total executor fee for your client’s estate based on the California statutory fee schedule.
In some cases, the actual fee may vary depending on the details of the estate (e.g., complexity or administration time). It’s crucial to consult a probate attorney to determine the exact executor fees that will apply. Your attorney will identify and consider factors beyond the base fee schedule.
Executor Compensation: Key Considerations
Taking on the role of executor comes with a number of responsibilities, and compensation is only one of the important aspects to consider. Here’s an overview of how to navigate executor duties and fees effectively.
Timing
Executors are typically compensated during the final stages of estate distribution, one of the last tasks to be handled. Make sure there are enough funds to cover both your fee and all outstanding debts. Otherwise, legal issues could arise.
Communication
It’s highly recommended that you discuss your compensation with the beneficiaries early on. Doing so will ensure transparency and help you avoid any surprises or potential conflicts when they receive their inheritance. You may also want to leave room for adjusting your compensation as the process unfolds, depending on the actual workload involved.
Optional Compensation
It’s important to remember that collecting executor fees is entirely optional. Even if the will specifies a fee or state law allows one, you can choose to waive it altogether. While this is a personal decision, keep in mind that being an executor is often a laborious undertaking. State laws mandating compensation acknowledge this labor.
Tax Optimization
Executor compensation is taxable income, whereas inheritances generally aren’t. As such, if you stand to inherit a large portion of the estate, you might benefit more after taxes by forgoing executor compensation.
Trusts vs. Estates
Trustee compensation for managing a trust is handled differently than executor compensation for settling an estate. A seasoned attorney can explain the distinctions to you in more detail.
Expense Reimbursement
In addition to compensation, executors are entitled to reimbursement from the estate’s funds for reasonable and legitimate administration costs. These can include document notarization fees, copies of the death certificate, and even travel expenses directly related to managing the estate.
Establishing an estate bank account will allow you to pay for these expenses directly, eliminating the need for reimbursement. However, it’s important to maintain meticulous records to justify your expenditures to the IRS or beneficiaries if necessary.
While executor expenses are typically paid separately from compensation, a probate judge may, in some situations, reduce the standard executor fee if the executor incurs substantial costs for services they would normally handle themselves.
Get Help Calculating Your Executor Fees from Barr & Douds
While the steps outlined here provide a basic framework for calculating executor fees, consulting an experienced probate attorney can be highly beneficial. An attorney can help you grasp the nuances of calculating executor compensation, ensure compliance with California law, and address any specific concerns you may have regarding your duties.
Being an executor is a big responsibility. If you have questions or need help calculating your fees, the skilled probate attorneys at Barr & Douds are here to guide you through the process.
We’ll make sure you understand your rights and help you navigate the various legalities for a smooth probate experience. Contact us today to schedule a consultation.
