So, a close friend or relative has asked you to be the executor(rix) under his or her will or the trustee of a trust to be funded now or later. What an honor, right? Yes, but …. Being asked to fill one of these roles means the testator(rix)/grantor really respects and trusts you. It’s honorable and natural to want to live up to the expectations implied by such a request, but it’s a mistake to allow feelings of gratitude impair your ability to fully comprehend the responsibilities these roles include. Here are some issues you ought to think about and possibly discuss with the testator(rix)/grantor when approached with such a request:
- What is the character and value of the property involved? The answer to this questions has a direct bearing on whether you will have to make decisions about real estate and/or investments that may be beyond your expertise. If that’s likely, you can certainly hire advisers with the expertise you need, but it’s important at the outset to at least have some sense of what you’re getting into.
- Who are the beneficiaries and what are their levels of maturity, responsibility and competency? You may be asked to be the heavy when evaluating distribution requests from spendthrift beneficiaries. You may be ready for this challenge and, of course, someone has to, but, again, it’s helpful to prepare yourself before you become inundated with inappropriate distribution requests.
- What dynamics characterize the testator(rix)’s/grantor’s family? In other words, are there parties who might seek to make your job difficult and/or is the will or trust likely to be contested? You ought to familiarize yourself with the laws of intestacy, which govern the distribution of an estate when someone dies without a will. In many circumstances, wills mimic the laws of intestacy, in which case the beneficiaries often believe they’ve received their fair share. In other circumstances, fair or not, and for a variety of reasons, the testator(rix) deviates from those laws, as is often his or her right, and clearly favors some beneficiaries over others. In such cases, the situation might be ripe for a will contest. This isn’t the executor(rix)’s problem, but he or she should consider how he or she will respond if the beneficiaries misbehave. If your instinct is that the family’s dynamics will be too much trouble, then you might want to consider declining the invitation to serve as executor(rix) or trustee.
- This sounds like a lot of work, will I be compensated? Yes, and that compensation will be taxable to you as “other income” on line 21 of your IRS Form 1040. In New York, under SCPA §2307, executor(rix)s are compensated according to the following sliding scale:
5% of the first $100,000
4% of the next $200,000
3% of the next $700,000
2.5% of the next $4,000,000
2% of all additional assets owned by the estate
The asset base of the estate will be calculated by averaging the amount of money received by the executor(rix) and the amount paid out.
In New York, under SCPA §2309, trustees are compensated annually according to the following sliding scale:
1.05% of the first $400,000
.45% of the next $600,000
.3% of all additional principal held by the trust
The asset base is set by the trustee during the first year as either the value of the principal at the beginning of the period or at the end. This decision is binding on future years and successive trustees.