Commission/Compensation to the Personal Representative
General Standard for Fiduciary Compensation
In this discussion the word “commission” is synonymous with “compensation”.
As the personal representative charged with the responsibility of administering an estate, you are generally entitled to be compensated for your time, provided that you properly and timely perform your duties and file the documents required by the Office of the Commissioner of Accounts and the will does not disallow fiduciary compensation. Your failure to timely file an proper Inventory or proper Account could result in the denial of a commission for your services rendered. You may not delegate your duties as personal representative to another person. You are personally responsible once you have qualified. You may enlist the services of professionals, however, the amount paid to them may affect the amount of compensation to which you are entitled.
Commission (Fiduciary Compensation) Provided for in the Decedent’s Will
Where the decedent’s Last Will and Testament clearly sets out the compensation to be paid to you as executor by specific dollar amount or by a percentage, the Commissioner’s office will generally approve that allowance as a commission provided the actions of the executor have been proper and timely.
Where the decedent’s Last Will and Testament provides for the executor to be paid according to a corporate fee schedule published and in effect at the time services are rendered, those fees will be presumed to be reasonable, but the final determination of reasonableness is that of the Commissioner. Any party objecting to the fee taken or requested according to a published fee schedule, has the burden of proving that such a fee is not reasonable.
****NOTE: If you employ an attorney or cpa to perform the duties you are obligated to perform as executor or administrator, the fees charged by those professionals will usually be deducted from the commissions to which you may otherwise have been entitled. You may hire an attorney or cpa to prepare tax returns or an attorney to handle legal issues arising during the administration of the estate, and so long as those professional fees are reasonable and necessary they will ordinarily not be charged against your commission. However, the preparation of the inventory, accounts and day to day administration of the estate are duties the personal representative is expected to perform. If you employ an attorney and expect the attorney’s invoices to be paid from the estate without reduction in your commission, examination of the attorney’s invoices is required to determine that the services provided were for “legal services” and not normal and customary administration services for which you are being compensated.
****Also Note: If the legal fees incurred are the result of a disagreement between beneficiaries no legal fees may be allowed as a charge against the estate in the discretion of the Commissioner. This may require a hearing on the allowance of such fees. Therefore, do not assume that you may charge legal fees to the estate if the legal conflict is one between individual beneficiaries who should be responsible for their own legal expenses.
Attorneys Administering the Estate by Agreement with Executor/Administrator or as Executor/Administrator:
If an attorney is hired to perform all work associated with the administration of the estate, or is the qualified personal representative of the estate, the Guidelines for Fiduciary Compensation are considered applicable to the attorney in the consideration of “reasonable compensation” for administration of the estate, unless the will provides otherwise.
Commission by Agreement of all Beneficiaries
Where all beneficiaries affected by the amount of commission requested by the personal representative are informed and agree in writing (notarized) to a specific amount of compensation to be paid, the Commissioner will generally honor that agreement. Totally unreasonable commissions will not be approved, even by agreement.
Commission in Other Circumstances not Referenced in the Foregoing Sections
Where the will is silent as to the commission to be paid, or states a “reasonable commission” is to be paid or in intestate estates, the general standard of “reasonableness” adopted by the Standing Committee on Commissioners of Accounts (the Guidelines for Fiduciary Compensation) suggests reasonable fiduciary compensation (commission) as follows:
- Five (5%) percent of the first $400,000.00 of probate assets under the actual control of, and administration by, the personal representative, calculated on the inventory value, including amended inventories;
- Four (4%) percent of the next $300,000.00;
- Three (3%) percent of the next $300,000.00;
- Two (2%) percent over $1,000,000.00; and
- Compensation on estates valued at over $10,000,000.00, by agreement with the Commissioner of Accounts based upon prior consultation.
Additionally, the Guidelines suggest the fiduciary is entitled to five (5%) percent of income receipts excluding capital gain receipts.
Compensation is usually divided equally among co-fiduciaries. Absent agreement, a hearing will be conducted by the Commissioner on the entitlement of each co-fiduciary to compensation.
NOTE: THE ABOVE STATED GUIDELINES FOR FIDUCIARY COMPENSATION ARE A SUGGESTION OF “REASONABLENESS”, AND EACH ESTATE IS EVALUATED ON ITS OWN MERITS. Do not assume you are entitled to the commissions stated in the Guidelines.
Please see the Note stated above regarding the employment of an attorney or cpa and the
effect of professional fees on your commission.
CAVEAT: In determining the commission payable, if the estate includes real estate please see the next section dealing with real estate and its inclusion or exclusion in determining commission.
Treatment of Real Estate in Determining Commission
Payable to the Personal Representative
- If the decedent’s will directs that real estate be sold by the personal representative and it is sold by the personal representative, its value will be included in the calculation of commission;
- If it is necessary to sell real estate to pay an existing mortgage on the property or taxes or other charges against the estate, the value of the real estate will be included in the calculation of commission (BE CAREFUL OF THE NON-EXONERATION STATUTE: Section 64.2-531, Code of Virginia);
- If all beneficiaries of the real estate give “informed consent”, by notarized statement, that the personal representative sell the real estate as part of the administration of the estate, the value of the real estate will be included in the calculation of commission;
- If the Commissioner determines, after prior consultation with the personal representative, that the sale of real estate is in the best interest of the estate and the beneficiaries, the value of the real estate sold will be included in the calculation of commission.
Note: The power of sale granted under most wills by reference to Section 64.2-105, Code of Virginia (1950), as amended, (formerly Section 64.1-57, Code of Virginia) is not a direction to sell real estate. It is a power of sale which in most cases should not be exercised unless it is necessary, as previously discussed. Real estate passes to the decedent’s beneficiaries by operation of law under a will (and heirs at law by intestacy), and unless one of the previously discussed circumstances exist, it is generally not necessary, and therefore inappropriate, for real estate to be sold by the executor as part of the administration of the estate, even though you have the power to sell real estate. The sale of real estate triggers a taxable event, and this should be a prominent consideration in the decision to sell real estate rather than distributing it to the beneficiaries, in kind, and allowing them to make the sale decisions.
Administrators of intestate estates have no power to sell real estate unless it is specifically granted after petition to the Circuit Court and by specific order of the Court granting the power. It is absolutely improper for an administrator to sell real estate without prior authorization of the Court. As an administrator you have power only over the personal property (tangible and intangible) of the decedent. You should consult with an estate administration attorney if you are the administrator of an estate before petitioning for the power to sell real estate owned by the decedent.
COMMISSIONS AS INCOME TO FIDUCIARY AND DEDUCTION TO ESTATE
Compensation paid to the personal representative of an estate is income to the executor or administrator and is reportable as such on the personal income tax returns of the personal representative. The compensation paid is also a deduction on the fiduciary income tax return for the estate and may result in a benefit to the beneficiaries/heirs. If compensation is taken, we expect to see the filing of a fiduciary income tax return (Federal form 1041) for the estate which reports the compensation as a deduction.
Schedule for Fiduciary Compensation (Commission)