Two Questions Executor Compensation During Probate
There is a lot of work that has to be done when someone passes away with regard to settling the estate. The entire estate will go through the probate process, and someone will be assigned as the executor to manage it all. If you've been picked as an executor of the estate, you may be wondering if you want to take on all that work. That is why executors can receive payment from the estate for the work that they do. Here are a few questions you may have about receiving this payment.
Who Decides On Executor Compensation?
It is possible that the person that passed away identified in their will how much the executor should be compensated for all of their work. This is often done to avoid arguments between family members on what is considered fair compensation because it has already been decided. The person that passed away can be as generous as they would like with listing the compensation since it is part of their will and is really no different than being assigned an inheritance.
However, things get a bit confusing when there is no will, no executor compensation is provided, and the executor is assigned by the court. In this situation, the court will assign a percentage of the inventory of the estate as compensation to the executor. The inventory is what is left after accounts with beneficiaries are transferred, such as investment accounts and life insurance policies. What it does include is the value of large assets like real estate and vehicles.
Is Executor Compensation Taxable?
One thing to be aware of is that executor compensation is considered taxable income. You are essentially getting paid to do a job, and that compensation must be included when you file your income taxes. However, receiving an inheritance is not considered income, and this is where things become complicated.
A person may be assigned as an executor as part of a will, and a larger inheritance is assigned to that person due to the job they are performing to avoid taxes. If that person doesn't want the job of the executor, then the assigned inheritance of the will would remain, but the executor would be a different person. While the person that created the will had the best intentions in mind when they wrote their will in that way, it can create problems when inheritance is not split equally.
Reach out to a probate lawyer to learn more about executor compensation.