By: James M. Bright, Attorney at Law
The following is provided for informational purposes only and is not, nor should it be construed as legal advice.
Very often, this firm is confronted with the question, “Are executors or administrators of a probate estate entitled to be paid and if so, how much?”
The immediate answer is “look to the will for instruction” in determining the desires of the testator. If the will specifies how much or if no fees are to be paid, then there is no controversy. The executor should simply follow the instructions in the will.
This answer is not so clear, however, when the will is silent regarding executor compensation or when the decedent dies without a will. In those cases, the answer may in some cases be crafted from Texas Probate Code Article 241. The following is a partial reproduction of that statute:
“(a) Executors, administrators, and temporary administrators shall be entitled to receive a commission of five per cent (5%) on all sums they may actually receive in cash, and the same per cent inn all sums they may actually pay out in cash, in the administration of the estate on a finding by the court that the executor or administrator has taken care of and managed the estate in compliance with the standards of this code; provided, no commission shall be allowed for receiving funds belonging to the testator or intestate which were on hand or were held for the testator or intestate at the time of his death 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; nor for collecting the proceeds of any life insurance policy; nor for paying out cash to the heirs or legatees as such; provided, further, however, that in no event shall the executor or administrator be entitled in the aggregate to more than five per cent (5%) of the gross fair market value of the estate subject to administration. If the executor or administrator manages a farm, ranch, factory, or other business of the estate, or if the compensation as calculated above is unreasonably low, the court may allow him reasonable compensation for his services, including unusual effort to collect funds or life insurance
Although one might believe that, because Texas has a statute to calculate executor fees, no more problems would exist in making that determination. That assumption is, however, very far from being true.
One area where a great deal of confusion has arisen in the courts is in the use of the terms “receive in cash” or “pay out in cash.” As the statute is currently written, compensation will be based upon a cash-flow analysis rather than upon actual service rendered, while at the same time excluding particular identified cash-flow transactions. Although the personal representative must actually be appointed and perform some service, there is no quantitative measure of service that must be performed to justify payment of his/her commission.
Further confusion arises when the executor/executrix is an “independent” executor or “independent” executrix. Article 241(a) does not specifically state that it relates to representatives that are acting independently and without court supervision. In those cases, it can be argued that we are then left with guidance that presumes that independent administrators would be entitled to “reasonable compensation” based upon work done without any definitive explanation of what constitutes “reasonable.” This fact is further exacerbated by the fact that most wills in Texas provide for “Independent Administration.”
If an executor finds himself in the position of attempting to find out what is “reasonable,” he may be best served by obtaining an agreement between the beneficiaries regarding his fees rather than relying upon a statute that does not quite fit his fact situation. Agreement between the parties, if possible, is a preferred approach.
If no such agreement is practical or possible, a second alternative to establish “reasonable” might be to check with trust companies or banks in the same geographic area to determine the rates charged by them for performance of similar tasks. Most trust companies charge a predetermined percentage of the value of estate assets each year. This may or may not be the intent of the testator.
The vast majority of wills that pass over my desk either in the drafting stage or at the time of probate provide that no compensation shall be paid to the executor for performance of his duties, but that “out-of-pocket” expenses shall be reimbursed.
If the estate being settled involves a close family relationship between executor and beneficiaries, this proves to be a preferred approach in many cases.
If, however, the executor’s duties will be extensive, such as liquidating numerous properties or winding up or selling a business, it may be desirable to set out fees in the testator’s will.
In my own will-drafting experience, many persons direct that no fees shall be payable to the executor; some place a dollar value on a percentage of estate value, and still others attempt to place a finite value on the duties to be performed by the executor.
The method selected to compensate an executor is not as important as making certain that the testator’s intent is being followed. The best way to insure that goal is to have a well drafted will.
James Bright is admitted to practice before the Federal Courts for the Southern District of Texas and Eastern District of Texas as well as all of the Justice Courts, Probate Courts, County Courts at Law, District Courts, Courts of Appeal and Supreme Court for the State of Texas. He maintains an office in Houston and by appointment another at 208 McCown Street in the heart of historic Montgomery. Contact may be made by telephone (936) 449-4455 or (281) 586-8277. For more information about wills or probate in Texas, please see- www.houstontxprobate.com