A person who is named executor of an estate has an important and sometimes difficult job, especially when the estate is a large one. Administering the estate means that the executor must inventory the estate, file bills, maintain records, and then pay all debts and taxes on the estate, among other tasks. A large estate may take months or even years to direct. Given the time and effort required to settle an estate, it is only fair that the executor receives compensation for administering the work required.
Calculating Compensation
Ideally, the testator and the executor will communicate during estate planning to determine the executor’s fees. The executor also has the right to lower fees or to waive them altogether. If there is no will, or if the will does not specify executor’s fees, each state has its own formula to calculate executor fees. According to Section 352.002 of the Texas Estates Code, Texas executors are entitled to up to 5% of the estate to compensate them for their efforts.
When calculating the value of the estate, however, some assets are excluded from that valuation, which decreases the executor’s fees. For example, cash on hand and cash in bank accounts are excluded, as are proceeds from life insurance. A beneficiary’s assets are also excluded from valuation of the estate, all of which might lower the executor’s fees substantially. Let’s say for example that an estate is valued at $1,000,000 before debts, taxes, and beneficiaries are paid. After administering the estate and excluding the assets mentioned above, let’s assume that the remaining value is $500,000. The executor’s fees will not be more than 5% of $500,000 or $25,000. The complete text of Texas Estates Code § 352.002-352.004 regarding executor fees follows this article.
Flexibility of Fees
If the executor believes that the fees specified in the will are too low or that the state cap of 5% is too low, the executor has the right to petition the court for higher compensation. Conversely, if the court feels that the executor has not administered the estate well, the court may reduce or even deny compensation for the executor.
An experienced probate attorney is an expert on the Texas Estate Code who will take into account the amount of time and energy an executor might spend administering an estate. Good estate planning means that the testator’s assets will be distributed as he or she prefers, and the executor will be fairly compensated.
Sec. 352.002. STANDARD COMPENSATION.
a) An executor, administrator, or temporary administrator a court finds to have taken care of and managed an estate in compliance with the standards of this title is entitled to receive a five percent commission on all amounts that the executor or administrator actually receives or pays out in cash in the administration of the estate.
(b)Â The commission described by Subsection (a):
(1)Â may not exceed, in the aggregate, more than five percent of the gross fair market value of the estate subject to administration; and
(2)Â is not allowed for:
(A)Â receiving funds belonging to the testator or intestate that were, at the time of the testator's or intestate's death, either on hand or held for the testator or intestate in a financial institution or a brokerage firm, including cash or a cash equivalent held in a checking account, savings account, certificate of deposit, or money market account;
(B)Â collecting the proceeds of a life insurance policy; or
(C)Â paying out cash to an heir or legatee in that person's capacity as an heir or legatee.
Added by Acts 2009, 81st Leg., R.S., Ch. 680 (H.B. 2502), Sec. 1, eff. January 1, 2014.
Sec. 352.003. ALTERNATE COMPENSATION.
(a)Â The court may allow an executor, administrator, or temporary administrator reasonable compensation for the executor's or administrator's services, including unusual efforts to collect funds or life insurance, if:
(1)Â the executor or administrator manages a farm, ranch, factory, or other business of the estate; or
(2)Â the compensation calculated under Section 352.002 is unreasonably low.
(b)Â The county court has jurisdiction to receive, consider, and act on applications from independent executors for purposes of this section.
Added by Acts 2009, 81st Leg., R.S., Ch. 680 (H.B. 2502), Sec. 1, eff. January 1, 2014.
Sec. 352.004. DENIAL OF COMPENSATION.
The court may, on application of an interested person or on the court's own motion, wholly or partly deny a commission allowed by this subchapter if:
(1)Â the court finds that the executor or administrator has not taken care of and managed estate property prudently; or
(2)Â the executor or administrator has been removed under Section 404.003 or Subchapter B, Chapter 361.
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