Among the issues commonly disputed over estates is the compensation of the executor. Most states allow for “fair compensation,” but Texas has a unique 5% in / 5% out rule. Read this informative blog post on the topic. If you are involved in estate administration and even perhaps a dispute over an estate under Texas law, reach out to us for a free consultation. We are located in Dallas, but serve clients all over Texas – from Houston to San Antonio, Dallas to Austin and everywhere in between.
An estate executor or estate administrator is generally referred to as the “personal representative” of an estate. The Texas Estates Code provides that a personal representative is entitled to receive compensation for serving on behalf of the estate. Since acting as a personal representative is a challenging and time-consuming endeavor, and full of liability, it often makes sense for a personal representative to take compensation for the work he or she performs.
Although many states grant “reasonable” compensation to personal representatives, Texas observes the “five percent in, five percent out” rule. The Texas rules provide that the personal representative may receive compensation on all amounts the administrator actually receives or pays out in cash. The compensation cannot exceed five percent of the gross fair market value of the total estate property being administered. However, the personal representative is not entitled to receive commission for everything he receives or pays out. The personal representative generally cannot be compensated for cash that is held in a checking account, brokerage account, or other cash equivalent; proceeds of a life insurance policy (unless unusually complicated to obtain); or paying the heirs their inheritance funds.
There are certain complicated estate administrations where the typical five-percent rule is not sufficient for the level of work involved. If the personal representative’s duties require her to manage a farm, factory, or business, for example, then the court can increase the personal representative’s compensation. On the other hand, the court can deny compensation to a personal representative who has not cared appropriately for estate property or breached a duty owed to the estate beneficiaries or heirs.
Among the issues about which we are asked, the fair administration of estates is a common one. What is “fair compensation” for the executor of an estate? The issues surrounding compensation can create not only hard feelings but sometimes, unfortunately, litigation around estates. If you are concerned about estates up to an including litigation under Texas law, reach out to us for a free consultation.