Virginia Probate — Calculating the Executor’s Fee
By Attorney Jennifer Kahl, July 13, 2021
One of the more nuanced aspects of estate administration is the calculation of the fiduciary fee. Most people refer to this as the “executor’s fee.” This isn’t precisely accurate, because not every Personal Representative of an Estate carries the official title of “Executor” (for an explanation of the various titles for Personal Representatives, click here). However, for the purposes of this article, I’ll use the familiar term “executor” to refer to any Personal Representative of a Decedent’s estate.
The Executor’s Fee Only Applies to Court-Appointed Fiduciaries
I have met many people who claim they are entitled to an executor’s fee because “Dad’s Will names me as executor.” Just because a Will nominates someone to be an executor doesn’t mean that the person actually is an executor. To become an executor (or any other type of personal representative), a person must appear before the Clerk of the Circuit Court and get qualified as such. Only then would a person be eligible to receive an executor’s fee.
Following the Will
If the decedent’s Will includes specific instructions about the executor’s fee, then those instructions control. For example, the Will might say that the executor 5% of the probate estate for his or her services. However, most Wills do not outline a specific fee, so the executor must look elsewhere for guidance.
Virginia Code § 64.2-1208 states that executors shall receive “reasonable compensation.” This isn’t incredibly helpful. Different people have different opinions about what is “reasonable.” Ultimately, the decision about what is and is not reasonable will be made by the Commissioner of Accounts (“COA”).
The Standard Schedule
As a guide to what might be “reasonable,” the Virginia Manual for Commissioners of Accounts publishes a fee schedule. It looks like this:
5% of the first $400,000
4% of the next $300,000
3% of the next $300,000
2% of assets over $1 million
5% of income receipts (not including capital gains)
However, the fee schedule is not dispositive; it is not “intended as a substitute for the analysis the Commissioner must do to determine the statutory ‘reasonable compensation’ in each case.” (COA Manual 21 Appendix, page 361). The schedule, then, is just a guide to assist the executor and COA in determining what might or might not be reasonable. In my experience, COAs have always approved executor’s fees that were calculated using the fee schedule. However, if the schedule produces an extraordinarily large fee (say, over $40,000), I get the COA’s written approval of the fee before I advise the executor to take it.
Applying the Standard Schedule
When applying these calculations, we have to ask, “5% of what?” The calculations are based on all property in the decedent’s probate estate, as stated on the inventory. Remember, there are specific rules about what is and is not included in the probate estate, so the executor should review those rules before getting too excited (the probate estate is usually smaller than most people realize).
If the executor does not have power to sell the decedent’s real estate, the value of the real estate is not considered when calculating the executor’s fee. If the executor does have power to sell the real estate (either by grant of authority in the Will or by court order), the executor only takes a fee for the real estate if he or she actually sells it (click here for examples of when this might happen).
Problems with the Fee Schedule
The problem with the fee schedule is that it compensates the executor based on the size of the estate, not on the amount of work done. In my experience, some of the most time-consuming and difficult estates are the very small ones. Executors of small estates often put in a lot of effort for very little compensation.
In these cases, the executor can send the COA a written request asking for approval of a higher fee. Successful requests include clear details and explanations for why the requested fee is “reasonable.” If possible, the executor should ask the beneficiaries of the Estate to sign a notarized document stating that they agree with the proposed fee. An executor’s success will depend on the details of the case and the temperament of the COA.
How Attorney Bills Impact the Fee
The confusing component of the fee calculation is how it interacts with the estate’s attorney fees. The purpose of the executor’s fee is to compensate the executor for “services that the fiduciary is expected to perform” (COA Manual 21.1). Per the COA Manual, “expected services” include the preparation of inventories and accountings. If the executor hires someone else to perform those services, the executor is responsible for paying that person. This is problematic because many executors hire attorneys to do exactly those things. This plays out in one of two ways: (1) if the attorney has already been paid from estate funds, the executor’s fee will be reduced by the amount paid to the attorney, or (2) if the attorney has not been paid from estate funds, the executor takes the entire fee and pays the attorney personally.
Of course, attorneys also assist executors with legal matters that fall outside the “expected services” of an executor. Legal services that are “reasonably necessary to aid the executor in the performance of his or her duties” are payable by the estate (COA Manual 21.1). These attorney expenses do not impact the executor’s fee. The challenge, then, is determining which attorney bills are for “executor services” and which are for “legal services.”
For example, an executor might hire an attorney to (1) assist him with preparing for the qualification appointment, (2) prepare the inventory, and (3) petition the court for power to sell the decedent’s real estate. Items (1) and (2) are clearly “executor services,” while item (3) is a “legal service.” The attorney, then, should be very clear on her billing report to separate which bills pertain to items (1) and (2) and which pertain to item (3). Of course, not all matters are so clear. There are plenty of situations where the executor, attorney, or COA might disagree on what is “legal work” and what is “executor work.”
In cases where the attorney’s billing might impact the executor’s fee, I recommend getting the COA’s approval before taking the fee. I usually write the COA a letter where I summarize the situation and explain which fees are legal services and which are executor services. I include copies of my billing statements. Once the COA approves my characterization of the attorney fees, I can confidently calculate the executor’s fee.
Calculating the executor’s fee is a complex process. I prefer to put it off until the end of the estate administration process, shortly before it is time to make the final distributions to the beneficiaries. I go through the calculations and determine if the result is “reasonable.” Then I review all the attorney billing to see which bills are payable by the estate and which are not. Based on this review, I put together a proposal for the executor’s fee and send it to the COA. After the COA has approved my request, I instruct the executor to take the fee.
If you have questions about calculating your fee, contact The Heritage Law Group to speak with one of our attorneys. (Just realize that any fees you pay us may come out of your executor fee, which stinks.)