Brother’s $20,000 Executor Fee Creates Family Discord

Brother’s $20,000 Executor Fee Creates Family Discord

We recently had a call from Josh, a client we’ve assisted on other matters. He had a question about a family disagreement—not unusual when there’s an inheritance at stake. Their father died in 2012; their mother in 2016. They had an AB Trust. The estate included the family home that was paid in full, but a mortgage was opened a few months before their mother died to pay for health care expenses, property, a timeshare and personal belongings.

After nearly two years, the estate is still not completely settled for two reasons:

 

1. A timeshare. This was a last-minute revelation; it was not included in the Trust, and therefore, needed to go through Probate. Each sibling had sent a release of any interest in the timeshare.

2. Withholdings. Josh’s brother, Peter, became the estate Executor, and he hired a lawyer to navigate the process. $100,000 ($25,000 per child) was held back until the siblings “released” Peter from any future claims and/or contests against him or the estate. The siblings also discovered that Peter took an Executor fee of $20,000. Once settled, the estate would be worth about $600,000.

How much should the estate’s Executor be paid?

Josh wanted to know if the Executor fee is a standard practice, and if so, what determines the amount. None of the siblings disputed that Peter worked hard to settle their parents’ affairs, and all agreed that Peter was the most qualified sibling to fill this role, and that he deserved compensation. They also agreed that the compensation should have been clarified in the beginning and that the fee was excessive.

Being the Executor for the family estate is a thankless job

The estate can drag on for more than a year in even simple cases. It’s not uncommon that a family’s loved ones are incapacitated at the end of their lives, and bills from endless healthcare providers, Social Security and Medicare continue to trickle in. Peter already had a family and a demanding full-time job; he managed their mother’s estate for two years, including dealing with a Probate. A fee of $20,000 is likely not unreasonable.

When my own parents died within months of each other, my brother became the Executor and we were all eternally grateful. He was diligent in his efforts to be fair and professional; he communicated with us at regular intervals. I believe he took $10,000 for his fee, and I would have gladly paid him much, much more not to have to do this myself. He took care of everything—the nursing home, assisted living, their CPA, etc. Ours was a fairly straightforward case, yet it dragged on for well over a year.

Under California Probate Code, the Executor typically receives 4% on the first $100,000, 3% on the next $100,000 and 2% on the next $800,000. For an estate worth $600,000 the fee works out at approximately $15,000. They usually take a year to settle, but can take longer, depending on the complexity of the estate.

We can learn from Josh and his family’s experience

Signing release forms at the end of this process is pretty standard. In retrospect, Peter should have been more upfront about his fee, and he should have explained how he arrived at the $20,000 figure. Peter’s siblings also might have been more generous. Peter had always been the siblings’ leader, and as usual, they assumed he would be the Executor. They should also have assumed that he needed to be adequately compensated for his efforts.

There’s still time to get started on your Living Trust in 2018!

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janet
jpeischel@top-mindmarketing.com