If you’re an executor to an estate, you can take a commission – to pay yourself out of the estate for the hard work that being an executor entails. An executor doesn’t have to take a commission, but is entitled to do so. (This also applies to an administrator managing an intestate estate.)
The amount of the commission is proscribed by law in N.J.S.A. 3B:18-13 – 16. The executor can take commission on both the income the estate earns, and the “corpus” of the estate – the assets that the estate holds. The amount of each is calculated differently.
The executor is allowed to take a 6% commission on any income the estate earns (that the executor manages). For example, if the estate has investments that earn $10,000 in dividends, the executor can take $600 in income commission.
For the corpus, the executor can take a commission based on the value of the assets he manages for the estate. The formula is:
5% on the first $200,000 of all corpus received by the fiduciary;
3.5% on the excess over $200,000 up to $1,000,000;
2% on the excess over $1,000,000
So if the executor received assets of $2 million for the estate, then the corpus commission would be $58,000 – $10k on the first $200k, $28k on the next $800k, and $20k on the final million. If there are multiple c0-executors, an additional commission of 1% can be taken, and a court can set commission higher for extraordinary services.
As you can see, executor commissions can get quite hefty. If you’re an executor managing a large estate, the commission might be higher than your annual salary. That said, in many cases the executor should abstain from taking a commission. That is because an executor commission is taxable income – it gets reported and taxed like wages from your employer. An inheritance is not income tax, although it may be subject to estate or inheritance tax. So if the executors of the estate are also the sole beneficiaries (which often happens when folks leave everything to their spouse or children), it may be advantageous to leave the money in the estate, and take it as an inheritance instead of a commission.
FriedmanLaw is here to offer guidance on executor commissions and other probate and fiduciary matters. If you have had a loved one pass away and must administer their estate, call or email us today.