Should an Executor Be Compensated?

Introduction. Fiduciary fees are often a hot topic. Your client may request guidance on what fees they are entitled to as a fiduciary (e.g., executor). You also have the sometimes uncomfortable job of explaining to the client that your attorney fees can reduce the compensation he/she is entitled to.

Statutory Right to Compensation. In Virginia, the right of a fiduciary who administers an estate to receive compensation is statutory in origin. Section 26-30 of the Virginia Code allows for “reasonable compensation” to be paid to fiduciaries.

What to Charge for Compensation. Virginia fiduciaries and Commissioners now have compensation guidelines. The Judicial Counsel of Virginia (“Council”) adopted Guidelines for Fiduciary Compensation as proposed by the Standing Committee Regarding Commissioners of Accounts (“Committee). In a memorandum to circuit court judges dated December 17, 2004, (attached and discussed below) the Council asked circuit judges to consider approving the Guidelines to promote unity in fees. The Guidelines were also distributed to Commissioners. Most circuit courts have since approved the Guidelines. Commissioners are required by law to use the fee structure prescribed by the court that appointed them. Va. Code § 26-24.

Guidelines for Fiduciary Compensation - Key Points.

The following is a summary of the Guidelines, which are attached to this outline.

a. Where the document clearly sets out a specific dollar amount or specific percentage, the fiduciary is entitled to receive that amount or percentage.

b. Where the document sets compensation by reference to the fiduciary’s published fee schedule (ie. a corporate fiduciary) in effect when services are rendered, fees taken according to the schedule are presumed reasonable. The guidelines make clear that the Commissioner has ultimate responsibility for determining reasonableness and that the burden of proving scheduled fees are not reasonable is on the objecting party. The guidelines also declare that naming a fiduciary that uses a published fee schedule, without referring to the schedule, creates no presumption as to the reasonableness of the fee schedule.

c. Where all parties affected by the amount of fiduciary compensation (i) are competent to contract, (ii) understand the issues involved and (iii) agree in writing on a compensation amount, the Commissioner is to honor their agreement.

d. Unless established under the foregoing rules, fiduciary fees are:

(1) Percent of Inventory Assets. 5% of the first

$400,000; 4% of the next $300,000; 3% of the next $300,000; 2% over $1,000,000. If the probate estate exceeds $10,000,000, the executor must consult the Commissioner and secure approval before taking any fee on the excess amount. (Different amounts are prescribed for trusts.)

And

(2) Percent of Income Receipts. 5% of income receipts (not including capital gains).

e. Other Information Pertaining to Fees.

(1) The value of real estate is included only if the executor has the power to sell the real estate and (i) the will requires a sale or (ii) all

affected beneficiaries or devisees request a sale or (iii) the executor must sell to pay taxes or other charges against the estate or (iv) the Commissioner determines that a sale is clearly in the best interest of the estate and beneficiaries as a whole.

(2) Compensation should be prorated for an accounting period of less than one full year.

(3) The schedule of fees for conservators, guardians of infants and veterans’ trustees generally follows the trustee fee schedule above, with an

additional 5% fee on non-investment income (such as retirement payments) received during the year.

f. Reasonable fees of an investment advisor generally should not be deducted from the fiduciary’s compensation. Reasonable fees of attorneys or

accountants for tax work, litigation or other legal services reasonably necessary for orderly administration likewise should not affect the fiduciary’s compensation. However, to the extent that attorneys or accountants perform duties that the fiduciary should perform, their fees for those services should be deducted from the fiduciary’s compensation. This is discussed more in #8 below.

g. The Commissioner may increase or decrease otherwise allowable compensation in exceptional circumstances. Relevant factors include the nature of the assets, the character of the work, the difficulties encountered, the time and expertise required, the responsibilities assumed, the risks incurred and the results obtained. In particular, a trustee’s compensation may be reduced where it has delegated otal investment responsibility to professionals or is not making any discretionarydistributions. The guidelines encourage fiduciaries with specific questions to consult with the Commissioner before taking any fee.

h. Generally one fee is to be awarded, divided equally among co-fiduciaries unless they agree among themselves on a different division. The Commissioner, however, has discretion to allow more than one full fee. Compensation is to be prorated among the successor fiduciaries. The Commissioner will determine the amounts allowable to successor executors based on the factors listed in item 5 above. The Commissioner may hold a hearing to resolve a dispute over division of a fee, but all of the fiduciaries should first agree to the use of this hearing procedure. 

i. Fees of trustees, conservators and guardians generally should be taken annually. Executors need not wait to take their fees until the estate is closed; but fees taken should bear some relationship to the expected life of the estate, the work already done and the work remaining.

(1) A fiduciary whose account is set up so that assets are valued and fees calculated on a monthly basis may ask the Commissioner to approve the taking of fees on a monthly basis.

(2) If a ward or incapacitated person dies within a short time after qualification, the Commissioner will consider additional compensation, as much of the fiduciary’s work occurs at the beginning of the estate.

j. The guidelines make clear that they are not intended (i) to substitute for the analysis the Commissioner must do to determine the statutory “reasonable compensation” in each case and (ii) to alter any statute concerning fiduciary compensation. 

Case Law History Regarding Compensation 

This section provides a brief overview of relevant cases on fiduciary compensation. However, the above Guidelines provide the most relevant instruction on fees, and we encourage the reader to refer to them. While the courts have fluctuated over this issue, a few themes remain constant throughout the cases–trustee fee amounts are base  on the individual circumstances, and a 5% compensation is often reasonable. In Jones v. Virginia Trust Co., the Supreme Court of Virginia held that not allowing compensation for delivery of an estate’s assets in kind was too strict, but that allowing a commission of five percent, as held in Allen’s Executrix v. Virginia Trust Co., is too liberal when much of the estate assets is composed of stocks and bonds. 142 Va. 229, 128 S.E. 533 (1925); 116 Va. 319, 82 S.E. 533 (1925). The Court in Jones went on to say that they believed it unwise to lay down a hard and fast rule, but did state that: if a fiduciary sells property, of any kind, he is entitled to five percent of the total receipts, and if he has the right to sell, but the beneficiaries prefer delivery in kind, then he is generally entitled to receive five percent commission upon the appraised value of the property. Jones, at 241-2, 128 S.E. 537. Finally, if an executor is not entitled to sell, but must deliver the property in kind, then he is entitled to a reasonable compensation fixed by the commissioner, or court, upon proof of any expenses incurred, risks taken and/or services rendered to the estate. Id. Later courts have held that the practice in Virginia has been to allow a five per cent commission upon receipts, unless reason to the contrary is shown. Harris v. Citizens Bank & Trust Co., 172 Va. 111, 200 S.E. 652, 660 (1939); citing to, Allen’s, at 319, 82 S.E. 104. In Grandy v. Grandy the Court relied on the conclusion in Jones mentioned above to allow an executor’s five percent commission on the appraised value of all property, real and intangible, of the estate. 177 Va. 601, 15 S.E.2d 66 (1941). In determining what is a reasonable commission, the Court considered the difficulties the executor encountered, the intent of the testator, and the expressed testamentary authority of the executor to sell. Id. Two years later, a commission of five percent was allowed on the value of real estate delivered in kind, reversing a trial court commission of two percent, on the ground that the will directed the executor to convert the estate into cash, but that the beneficiaries preferred delivery in kind. Swank, 181 Va. 943, 27 S.E.2d 191 (1943). The Court held that the express direction to sell was equivalent to the right to sell, and therefore, awarded five percent. Id.

In 1952, the Supreme Court repeated what they had said twenty-seven years earlier in Jones, in Virginia Trust Co. v. Evans, that a commission of five percent on the appraised value of all the property which came into its possession, regardless of its distribution in kind, was too liberal. 193 Va. 425, 432, 63 S.E.2d 409 (1952). The Court distinguished between the power to sell and the right to sell, with the first referring to statutory or instrument created authority, and the second referring to the proper duty or necessity. Id. They also held that compensation for the fiduciary is not measured solely by the power or right to sell or not to sell, but also, must take into consideration the value of the estate, the character of the work, the difficulties encountered, and the results obtained. Id. They concluded that the amount of compensation to which an executor may be entitled is dependent upon the particular facts of the case. Id.

A more recent decision of the Supreme Court of Virginia fully addressed the question of reasonable compensation and held that by custom, an executor is entitled to a commissions of five percent upon actual receipts. Perrow, Executor v. Payne, 203 Va. 17, 24, 121 S.E.2d 900 (1961). Again, it was stated that the five percent rate is subject to increase or reduction under peculiar circumstances. Id. The distinction developed in Jones between the right to sell and the power to sell was also reiterated. Id, at 26. The Court, in its holding on the particular facts of this case, stated that for the stock which was delivered in kind, that the executor would receive a two and one-half percent commission. Id, at 29. For the proceeds delivered, the appraised value of the tangible property that was sold, and the sale of the farm, however, the executor would receive a five percent commission. Id. The Court stated that the executor had only served as custodian of the stock, and never had the necessity or the right to sell because