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THE TEXAS TWO-STEP (PART 2): HOW MUCH CAN AN EXECUTOR BE PAID?

A common question by someone who has been appointed as an executor of a Will after the Will has been probated (the process where it is determined the decedent’s Will is valid) is “What can I charge for acting as Executor?” After all, it often takes the executor much time to gather and inventory the assets of the estate, pay all the debts, taxes, and expenses before distributing the estate – not to mention the liability if things are done incorrectly. Under the Texas Estates Code, the standard compensation is a five (5%) percent commission on (1) all amounts that the executor or administrator receives; or (2) pays out in cash in the administration of the estate (the Texas two-step on executor compensation). However, there is a catch. Texas law does not permit compensation to an executor for cash on hand at the decedent’s death, including checking accounts, savings accounts, certificates of deposit, money market accounts, collecting life insurance policy proceeds (unless difficult to obtain), or paying out cash bequests to beneficiaries. The executor might be able to get more than five (5%) percent commission if the type of work involved is difficult. For example, if the executor manages a business, farm, or ranch, the executor can apply to the court for more than the standard fee. On the other hand, an interested party may request the executor be paid less than the standard compensation if the executor was not careful.

The Texas Estates Code does not address whether an independent (an executor who can act without court supervision) executor would be entitled to the same standard commission rate, so the independent executor might want to reach an agreement with the beneficiaries as to what is reasonable. Of course, the executor should be entitled to reimbursement of expenses (including attorney’s fees) as long as the expenses are reasonable and necessary.

Of course, to avoid these issues, the Will could provide the amount of compensation (dollar amount, percentage of the estate, etc.) the testator or testatrix desires to pay the executor from his or her estate (instead of just not addressing or saying “reasonable compensation”). This is particularly important if selling a business or if many properties need to be sold.

If the Will simply says the executor is entitled to “reasonable” compensation, sometimes executors check with banks or trust companies to see what such institutions normally charge annually.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.

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