Compensation for attorney fees and executor fees are set by California law. They are calculated on the gross value of the estate. In a nutshell, the Attorney and the Executor receive as their fees:
- 4% on the first $100,000.00 or fraction thereof;
- 3% on the next $100,000.00 or fraction thereof;
- 2% on the next $800,000.00 or fraction thereof;
- 1% on the next $9,000,000.00 or fraction thereof;
- ½ of 1% on the next $15,000,000.00 and a reasonable fee on the excess over $25,000.00.
We at East Bay Probate and Trust Administration often times counsel our Executor clients to decline compensation for their work. Why? To avoid income taxes. Let us explain. When a beneficiary receives an inheritance, they receive it income tax free. No income tax is paid on inherited wealth. If the Executor is a beneficiary and gets paid for their work as Executor, even though they won’t be taxed on any of the inherited wealth, the fees paid to the Executor are income and are considered taxable income. Thus, if an Executor is also a beneficiary of an estate, we recommend that the Executor waive their fee and collect their money instead through the inheritance.
In addition to compensation provided by the schedule above, the Attorney and the Executor may be compensated separately for any extraordinary services, which is payment above and beyond the above statutory schedule. The extra payment for extraordinary services can be ordered by the court and are within the courts discretion (whatever the court feels is just and reasonable). However, all fees, whether the basic statutory fees or the extraordinary fees must be approved by the court before the Attorney or the Executor are paid.
What happens if value of the debts exceed the amount of money and wealth of the estate, yet the Attorney and Executor wish to get paid? Attorney and Executor fees enjoy the highest priority of payment among the seven categories of estate debts listed in Probate Code sec 11420, but Attorney and Executor fees are subordinate to the debts owed to the United States or California that have preference under federal or California law.
If the Attorney and Executor seek extraordinary fees (above those awarded by the statutory formula above), they must petition to the court to so approve. A wide array of services may merit additional compensation as “extraordinary services” such as:
- Selling, leasing, exchanging, financing, or foreclosing real or personal property; legal services in connection with the sale of property held in the estate;
- Carrying on decedents business pursuant to a court order;
- Defending the personal representative in an estate proceeding;
- Contesting or litigating claims against the estate; litigation undertaken to benefit the estate or protect its interests;
- The preparation of estate, income or other tax returns, or the adjustment or litigation or payment of any of those taxes; preparation of tax returns, and handling audits;
- Litigation in regards to property of the estate;
- Making repairs to the property;
- Extraordinary efforts to locate estate assets;
- Coordination of ancillary administration;
- Accounting for a deceased, incapacitated or absconded personal representative;
- Services of a paralegal acting under the direction of an attorney.
The California Supreme Court has noted that in fixing the extraordinary compensation rate, the court may properly consider the time spent, the value of the estate, the skills exercised, the amount in dispute, and the results obtained. The probate court may also look at the amount of ordinary compensation awarded to see if that amount is adequate compensation before the court considers extraordinary compensation.