Explaining Executor Fees & Accounting in NYC
Calculating Executor Fees and Compelling an Accounting in NY
Tension between the appointed executor and the beneficiaries of an estate is foreseeable in several areas throughout the probate or administration proceeding. Beneficiaries commonly feel that they have no control over the estate assets and have no say so in its administration. Often it is the case that the executor takes the fiduciary role very seriously and, although under a belief that they are acting in the best interests of the estate, fails to communicate and consult with the beneficiaries pending probate. The conflict becomes reoccurring and leads to the parties being frustrated and not trusting each other, especially if the executor is a family member with whom the beneficiary experienced turmoil in the past.
Executor Fees in New York
A region in which disputes typically arise is that of the executor fees. In New York, the executor of an estate is entitled to commissions for his or her services. When calculating executor fees, you look to a statute to determine the rightful amount. The Surrogate’s Court Procedure Act provides for a percentage based on the size of the estate and its administration. Unless the will of the deceased limits the executor fees to a specified amount (ie I direct that the executor of my last will and testament receive no more than $5,000 for their services) or prohibits commissions, the executor will be owed compensation in addition to the reimbursement of expenses incurred on behalf of the estate. If the will fails to specify how the executor fees are to be paid, the potential for disagreement between the executor and the heirs rises, particularly if there is already a sense of distrust between the parties.
Before opting for litigation and commencing an action in Surrogate’s Court for excessive executor fees, the first step in resolving conflict is the retention of an estate attorney. The attorney you retain to act on your behalf, can examine the informal accounting setting forth the executor fees and determine whether they are in fact unreasonable. Calculating executor commissions is not an easy task for laypeople and lawyers alike. It may be the case that the executor made an error or misinterpreted the statute in her calculations. As long as the executor admits and understands the error, the miscalculation can be quickly resolved without court intervention. On the other hand, the executor may refuse to back down and further investigation of the accounting reveals the expenses and the fees charged to the estate are excessive and unreasonable. Before running to Surrogate’s Court for relief, the estate attorney may attempt to settle the issue with the executor in which the fiduciary accepts less in fees.
When the beneficiaries are not represented by an attorney, and especially when the executor does not have a lawyer representing the estate, the executor is likely to take advantage of the estate. Although court intervention may be the only means to an end, it should not be the first choice. When filing an action, be mindful that a resolution is not immediate. Expect a long delay before a Surrogate’s Court judge hears the case and makes a decision. In the interim, you will be encouraged by the judge and the law clerks to settle out of court.
Calculating Executor Fees in New York
The NY statute that provides a formula for calculating executor fees can be challenging to understand. The following is our best attempt to explain it here in a simplified manner.
Generally, executor fees are calculated based on the total value of the assets of the estate plus any income derived from estate property. However, the following assets are not included when calculating executor fees:
- Assets passing outside of probate. For example, life insurance policies, joint bank accounts, “in trust” accounts, real estate in which title is held as joint tenants, 401k accounts with a named beneficiary.
- Any real estate not sold by the executor.
- Property that is explicitly gifted to a person or organization. For example, I give my 1969 Porsche to my niece, Anna.
The governing statute on this topic is the Surrogate’s Court Procedure Act, which sets forth the rates for the executor fees as follows:
(a) For receiving and paying out all sums of money not exceeding $100,000 at the rate of 5%.
(b) For receiving and paying out any additional sums not exceeding $200,000 at the rate of 4%.
(c) For receiving and paying out any additional sums not exceeding $700,000 at the rate of 3%.
(d) For receiving and paying out any additional sums not exceeding $4,000,000 at the rate of 2 1/2 %.
(e) For receiving and paying out all sums above $5,000,000 at the rate of 2 %.
For illustration purposes, if the value of the estate, subject to commissions, is $1,000,000.00, the executor’s fee would be computed as follows:
$100,000 x 5% = 5,000
$200,000 x 4% = 8,000
$700,000 x 3% = 21,000
With the ultimate fee resulting in $34,000.00.
Requesting an Accounting in New York
Imaginably the most overarching basis of conflict is the lack of communication between the parties concerning the probate proceeding. NY executors are required to furnish an accounting to the interested parties before closing out the estate or when a beneficiary compels an accounting. An accounting is due at least once during the pendency of the probate, but may required more frequently if justified by the circumstances of the estate. An Accounting statement provided by the executor or the attorney for the estate should detail the assets of the estate, expenses, executor fees, legal fees, any distributions. The opening and closing balances for all accounts should also be included in the Accounting.
When an executor fails to precisely account for the estate’s activity, it may tip off the beneficiaries that the executor is concealing something or not being responsible with the assets of the estate. There are two types of accountings that a beneficiary may request. In an Informal Accounting, no filing with the court is necessary. The accounting statement is provided to the interested parties, and upon review, if all parties agree to the amounts in writing, the estate is closed and assets are distributed pursuant to the terms of the will. An informal accounting can be the source of the conflict too. An executor who fails to clearly explain the expenditures of the estate can cause undue litigation. Similarly, a beneficiary who makes unreasonable demands and scrutinizes every action of the executor may be perceived as demanding or irrational.
Whenever an executor fails to comply with an accounting demand, or in the alternative, the beneficiaries are not happy with the amounts set forth in the informal accounting, the parties can compel the executor to file a formal accounting in court. Upon filing, the statement is reviewed by the judge for appropriateness and excessiveness. Whatever issues the beneficiaries may have with the numbers can be address in this accounting proceeding.
Questions or Concerns? Need to speak with a probate lawyer in NYC today? Call us for a free consultation at (646) 233-0826.