To answer the question of what a personal representative should be paid, it’s important to start with two questions: what is a personal representative and what, specifically, do they do? A personal representative, sometimes called an executor, has the following duties as explained in the Code of the District of Columbia:

A general duty to settle and distribute the estate of the decedent in accordance with the terms of the will or laws relating to intestacy… as expeditiously and efficiently as is prudent and consistent with the best interests of the persons interested in the estate.

In essence, the personal representative acts on behalf of the estate to expeditiously gather all the assets and distribute them per the terms of the will. Two key points here: the personal representative must act on behalf of the estate, per the terms of the will. This means that the personal representative cannot decide to give one person (or themselves) any amount other than what the will states. I continually receive calls from people claiming they are a beneficiary under the terms of a will but the personal representative gave themselves more than they were allowed under the terms of the will. A word of advice: don’t do this if you are the personal representative.

Now that you understand what personal representative does, we can discuss how much they should be compensated. According to one source, there are three types of personal representative compensation schemes in place: reasonable compensation (35 states), a percentage formula of the estate (11 states) and a flat percentage of the estate (four states). Let’s start with the latter: a flat percentage. States under this formula allow for a flat percentage (2-5%) of the value of the estate. If an estate is worth $1 million, then the executor would receive $20-$50,000. A similar compensation scheme is a percentage formula. As an example, New York state has the following formula: for the first $100,000, compensation is 5% of the value of the estate, the next $200,000 is 4%, the next $700,000 is 3%, the next $4,000,000 is 2.5%, and for the remaining amounts greater than $5,000,000 compensation is 2% of the value of the estate. For a $1 million estate, personal representative compensation would total $34,000. The final compensation scheme, which the majority of states follow, is a reasonable amount. This term is somewhat vague but I think a general rule of thumb is that the fee should be equal to the amount of time involved in distributing the assets.

If total assets of an estate consisted of a bank account, and there was not a great deal of effort involved in transferring the asset to the rightful beneficiary, a reasonable fee would be quite low. On the other hand, if the estate had illiquid investments scattered in multiple countries around the world, and it consumed a great deal of the personal representative’s time, the reasonable fee should arguably be greater. A good tip: if you are the personal representative, keep track of the time you spent in administering the estate. This way, you have an indication of the time involved as a personal representative.

Determining Fair Compensation for a Personal Representative

Understanding the role and responsibilities of a personal representative, often referred to as an executor, is crucial before discussing their compensation. As outlined in the Code of the District of Columbia, a personal representative has a general duty to settle and distribute the decedent’s estate in accordance with the terms of the will or the laws of intestacy. This role requires them to act diligently and impartially to gather assets and distribute them as specified in the will, ensuring the best interests of the beneficiaries are met.

The personal representative’s role is fiduciary in nature, meaning they must act in good faith and with the estate’s best interest at heart, not favoring any beneficiary or themselves. It is a position of trust and responsibility, necessitating ethical behavior and adherence to the will’s stipulations. Overstepping these bounds not only breaches their fiduciary duty but can also lead to legal consequences.

With a clear understanding of the duties and ethical obligations, let’s explore the compensation aspect. Compensation varies significantly across jurisdictions and is primarily governed by three schemes: reasonable compensation, a percentage formula of the estate’s value, and a flat percentage of the estate’s value.

Flat Percentage Scheme:

In some states, the law stipulates a flat percentage, generally ranging between 2% to 5%, of the estate’s total value. For instance, in a state with a 3% rate, an executor handling a $1 million estate would receive $30,000.

Percentage Formula Scheme:

Other states use a sliding scale percentage based on the estate’s value. New York, for example, follows a tiered percentage system where the percentage decreases as the estate value increases, ensuring a proportionate compensation structure.

Reasonable Compensation Scheme:

The most common scheme across the majority of states is the reasonable compensation method. This approach takes into account the complexity and time required to manage and distribute the estate. A simple estate with few assets and clear beneficiaries might warrant a lower fee, while a complex estate with assets across multiple jurisdictions or involving intricate legal considerations might justify a higher fee.

It is imperative for personal representatives to meticulously document their time and efforts when administering the estate. This documentation serves as a reference for determining a fair and justifiable compensation, especially under the reasonable compensation scheme. When considering compensation, factors such as the size of the estate, the complexity of tasks involved, the time spent, and any special skills or efforts required by the personal representative should be taken into account. The goal is to ensure fair remuneration for the work done while respecting the estate’s integrity and the beneficiaries’ interests. In any case, it’s advisable for personal representatives to discuss compensation upfront with beneficiaries or seek legal advice to align on expectations and avoid disputes. Understanding the local laws and customary fees is also crucial in setting a fair and reasonable compensation that reflects the effort and responsibility involved in executing the duties of a personal representative.