Executors of New York estates (and Administrators appointed when a person dies intestate, i.e. without a will) are entitled to receive a fee, called “commissions” to compensate them for their services provided to the estate. The law provides that commissions are based on a percentage of assets the executor collects and pays out during their administration of the estate. Commissions are based on a sliding scale of rates which decrease as the size of the estate increases. The commission rates start at 5% for sums not exceeding $100,000.00 to 2% for sums exceeding $5,000,000.00. NYS Surrogates Court Procedure Act Section 2307.
Generally, commissions are taken by the executor at the settlement of the estate, though in some cases the court may allow the advance payment of commissions. Commissions are calculated by applying one-half of the applicable rate to assets received by the executor and one-half of the rate to assets paid out. For example, if an executor collected $100,000.00 in assets, his or her receiving commissions would be $2,500.00 (2.5% of $100,000.00.) If the estate’s assets, e.g., stocks, decreased in value during the administration of the estate to $95,000.00, once the stocks are sold and the proceeds distributed to the beneficiaries, the paying commissions would be $2,375.00 (2.5% of $95,000.00.) The total commissions the executor would be entitled to receive would be $4,875.00 ($2,500.00 receiving commissions plus $2,375.00 paying commissions.)
There are certain rules which must be followed concerning which estate assets can be included in calculating an executor’s commissions. Any items specifically left to a beneficiary are not included in calculating commissions. Additionally, real estate is not included in the calculation of receiving commissions and can only be included in calculating paying commissions when it was sold to pay creditors or to make distributions to beneficiaries. There are other rules which apply when there are multiple or corporate executors or when the executor is an attorney.
While an executor is entitled to commissions, there are situations when it would be beneficial for an executor to waive their commissions. This typically arises when the executor is also a beneficiary of the estate. Commissions received by an executor are considered ordinary income subject to local, state and federal income taxes. Sums received by an executor as a beneficiary of an estate are not considered income subject to tax. It’s obvious that if the executor is also the sole beneficiary of an estate, it would make no sense to take commissions as the executor would be simply converting a portion of their tax free bequest into taxable income. In cases where the executor shares the estate with other beneficiaries, a calculation must be done to see if taking commissions makes sense.
Needless to say it’s important to retain an an estate attorney familiar with the rules relating to executor’s commissions to ensure that you receive the benefits that you are entitled to as a New York State executor or administrator.