From time to time, people ask me about trustee and executor commissions in New Jersey. Because it is a bit complex, I have broken it down into two posts and I will focus on administrator and executor commissions today.
To start, a Will can specifically provide for an executor’s commission. In that absence of expressly authorizing a commission an executor will be entitled to take an executor’s fee as provided in New Jersey Statutes 3B:18-12 through 3B:18-17. These same statutes also provide that if a person dies intestate (dies without a Will), the administrator of the estate may also take a fee. Since the fees for an executor and administrator are the same, I will use the term interchangeably for purposes of this post.
New Jersey statutes are very difficult to interpret because they use the term fiduciary to apply to executors, administrators, trustees, guardians and conservators. This would not be a problem if the fees were calculated the same, but they are not.
So how are executor commisions actually calculated?
First, an executor is entitled to annual income commissions of 6% without prior court approval. (N.J.S.A. 3B:18-13)
Second is the calculation of the corpus (or principal) commission. This is a bit more of a complicated formula. Normally an executor will take a one time commission as follows:
- 5% on the first $200,000 of all corpus received by the executor;
- 3.5% on the excess over $200,000 up to $1,000,000;
- 2% on the excess over $1,000,000;
- and 1% of all corpus for each additional executor provided that no one executor shall be entitled to any greater commission than that which would be allowed if there were but one executor involved. (N.J.S.A. 3B:18-14)
Sometimes an estate administration goes on for a lengthy period of time. Under such circumstances, an executor can also receive an annual commission equal to 1/5 of 1% (or 0.2%) of the corpus. However, this commission is not that frequently taken and a court may disallow it if it is in excess of N.J.S.A. 3B:18-14.
What assets are part of the corpus when determining the executor commissions?
The corpus of an estate is generally defined to mean any asset that has come into the hands of the executor.
Examples of assets that come into the hands of the executor are: Bank accounts, automobiles, tax refunds, business interests, an interest in a lawsuit or litigation, life insurance payable to the estate, retirement accounts with no beneficiary and real estate that were owned by the decedent.
Examples of assets that do not come into the hands of the executor and are not subject to the commission include: Life insurance (if there is a beneficiary other than the estate), retirement accounts where a beneficiary other than the estate is named, property that is held as joint tenancy by the entirety or joint tenants with rights of survivorship.
What about mortgaged property – do I use the net value or the gross value?
While it may be unfair if the estate is heavily leveraged, the commission is taken on the gross estate, not the net. If the result is too onerous, a beneficiary may wish to seek judicial relief.
An illustration of how to calculate the executor commissions
Let’s presume the following facts: Decedent owned a vacation house worth $500,000 and a mortgage of $100,000, a primary residence owned with his wife as tenancy by the entirety worth $1,000,000 and a mortgage of $300,000, a $400,000 IRA payable to his wife, $200,000 in stocks and bonds, a $200,000 life insurance policy payable to his children, and $100,000 worth of insurance with no beneficiary.
Let’s also presume that there is only one executor and during the administration, the $200,000 of stocks and bonds gave off $5000 of income.
Included for purposes of calculating the commission are: the $500,000 house, the $200,000 in stocks and bonds and the $100,000 life insurance policy with no beneficiary (for a total of $800,000). There is no deduction for the the $100,000 mortgage. The primary residence, the IRA and the $200,000 life insurance policy are excluded.
5% on the first $200,000 would be $10,000
3.5% on the next $600,000 would be $21,000
6% on the $5000 of income would be $300
So the executor would be entitled to a total commission of $31,300.
Final thoughts about executor commissions
Any commission that an executor takes will be subject to an income tax. As a result, if the executor is also a beneficiary, he or she may not want to take a commission. Additionally, many times relatives do not appreciate the amount of work involved and will become upset at an executor if he or she takes a commission. You should think about the dynamics of your family before taking one.
An executor that does extraordinary work can apply to the court for a commission in excess of the statutory fee. An executor that behaves badly can be removed by the court. If an executor or administrator is removed from office, he or she may be required by a judge to forfeit his commissions. This is not automatic though.
Finally, as discussed in back in May of 2013, an attorney who is serving as an executor may be entitled to a fee for legal services AND a commission.