Executor's Fees in Pennsylvania
When someone dies, his or her probate estate is administered by an Executor
or an Administrator. An Executor is designated under a will. An
Administrator is appointed by the Register of Wills and may be appointed
for a number of reasons. It may be because there is no will, because
the person designated in the will has died, because the person designated
in the will is unwilling or unable to serve as Executor or because the person
designated in the will or previously appointed is no longer willing and
able to serve. The term "Personal Representative" refers both to an
Executor and an Administrator.
The laws in Pennsylvania that relate to Executors and Administrators
can be found in the Probate, Estates and Fiduciaries Code, often referred
to as the "PEF Code." The PEF Code states that the compensation for
a Personal Representative shall be "reasonable and just" under the circumstances.
It also states that it may be calculated on a graduated percentage
and that is the customary manner in which those fees are determined. The
compensation is the same whether a person is an Executor or an Administrator.
The PEF Code does not provide for a specific compensation for an Executor
and there is no "official" schedule of permissible fees. There is
an unofficial schedule that is generally considered to represent "reasonable
compensation" in ordinary circumstances. The schedule was included
in an opinion of an Orphans' Court judge in Chester County, Pennsylvania.
Probate lawyers in Pennsylania generally assume that if the Executor's
compensation in an estate is not greater than the compensation calculated
on the basis of this informal schedule, then the compensation will probably
be approved by the appropriate authorities.
Executor's fees are allowed as deductions on a Pennsylvania Inheritance
Tax Return and on a Federal Estate Tax Return. Excessive compensation
might be challenged by the taxing authorities. Executor's fees that
fall within the guidelines of the informal schedule will probably not be
challenged by the taxing authorities in reviewing those tax returns. Executor's
fees may be reviewed by the Pennsylvania Office of the Attorney General
where a will contains a charitable gift, if the Executor's fees affect the
size of that gift. Again, if the Executor's fees fall within the guidelines
of the informal schedule, they will probably not be challenged by the Attorney
General. Executor's fees might also be challenged as excessive by
a beneficiary of the estate. The Orphan's Court will probably not
consider them to be excessive if they fall within the informal schedule
guidelines. However, because it is not an official schedule, there
is no absolute guarantee in any particular estate, that the fees will be
approved even if within the guidelines of the schedule.
The informal schedule provides for graduated rates depending on the size
of the probate estate. The rates range from a high of five
percent for an estate of $100,000 or less to a low of one half percent
for an estate over $4,000,000. These are marginal rates (like Federal
Income Tax rates). On an estate over $100,000, the next
dollar - not every dollar - is charged at the marginal rate. A
portion of the estate will be charged at one or more of the higher rates.
The schedule is generally based on the size of the probate estate.
There may be items that pass to beneficiaries outside the probate
estate - like life insurance - that are not considered in the computation
of Executor's fees. However, the schedule does provide for certain
non-probate items to be considered in the calculation. There are also
certain types of probate assets - such as real estate - that may involve
special calculations. The schedule should be consulted with the assistance
of a lawyer who understands its proper use and interpretation.
An Executor or Administrator is not obliged to take a fee. There
may be good reasons why the fee should be declined. It must be remembered
that the fee represents taxable income both for Pennsylvania Personal Income
Tax purposes and for Federal Income Tax purposes. The income tax
on the fee could be more than the deduction available for Inheritance and
Estate Tax purposes. For example, if an Executor was the sole beneficiary
of his or her mother's estate and the estate was not large enough to be
in the Federal Estate Tax bracket, the deduction would only be worth four
and a half percent (the Pennsylvania Inheritance Tax rate on transfers from
parent to child). If the Executor was in the lowest Federal Income
Tax bracket - ten percent, he or she would have to pay a combined Federal
and Pennsylvania Income Tax on the Executor's fee that was higher than
the Inheritance Tax saving from being able to deduct that fee. If
the Executor was in a higher Federal Income Tax bracket - fifteen percent,
twenty-seven percent or more, the disadvantage would be that much greater.
By declining the fee and merely allowing the funds to pass to the
Executor as part of his or her transfers under the will, the Executor would
end up with more money. It is important to consult with a knowledgeable
tax advisor to determine whether it makes sense to accept or decline the
Executor's fee under any particular situation.
The following chart is based upon the unofficial
schedule that appears in the Johnson Estate court opinion. It
is not the actual schedule set forth in the court's opinion but has been
simplfied for ease of reference and use. The middle column shows the
amount of the Executor's fee that would result from computations based upon
the general schedule that appears in that Johnson Estate court opinion
for an estate the size of the figure in the left hand column. The particular
circumstances of any specific estate could change the appropriate computations.
The rate shown in the right hand column is the percentage to be used
for the next dollar added to the size of the estate.
Size of Estate
|
Executor's
Fees
|
Rate
*
|
|
|
|
$50,000
|
$2,500
|
5%
|
$100,000
|
$5,000
|
4%
|
$150,000
|
$7,000
|
4%
|
$200,000
|
$9,000
|
3%
|
$300,000
|
$12,000
|
3%
|
$400,000
|
$15,000
|
3%
|
$500,000
|
$18,000
|
3%
|
$1,000,000
|
$33,000
|
2%
|
$1,500,000
|
$43,000
|
2%
|
$2,000,000
|
$53,000
|
1½%
|
$3,000,000
|
$68,000
|
1%
|
$4,000,000
|
$78,000
|
½%
|
|
|
|
* - Marginal rate for next dollar
For related information - See the Table of Probate Fees
in the Five-County Philadelphia Metropolitan Area.
Disclaimer:
This chart is for general information purposes only. It does not constitute
legal advice.
Fromhold Jaffe & Adams is not responsible for any errors on this
chart. You should not rely on the information in this chart as the
basis for any action but you should consult an attorney about the specific
facts of any particular estate before taking any action. |
© 2004 Marc H. Jaffe
Fromhold Jaffe & Adams
Attorneys
at Law
Villanova Center - Suite 220
789 East Lancaster Avenue
Villanova, Pennsylvania 19085
610-527-9100
www.fromholdjaffe.com
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