New York Estate Lawyers regularly prepare Last Wills and Trusts for their clients. One item that is typically discussed is the amount of commissions or fees that an Executor, Administrator or Trustee may be paid. The primary source for the allowance and calculation of fiduciary commissions is Article 23 of the New York Surrogate’s Court Procedure Act (“SCPA”).
Section 2307 of the SCPA entitled “Commissions of fiduciaries other than trustees” relates primarily to Executors and Administrators. While the section and the implementation of its rules is rather complex, the simple formulas established are that commissions are paid at the rate of 5% of the first $100,000; 4% for the next $200,000; 3% for the next $700,000; 2½% for the next $4,000,000; and 2% for all sums above $5,000,000. Other parts of the statute provide that the fiduciary is allowed to be reimbursed for the reasonable and necessary expenses that he pays. Also, if the fiduciary collects rents and manages real property, he is entitled to receive an additional 5% of the gross rents he collects. If the value of the estate is more than $300,000 and there are multiple co-fiduciaries, each fiduciary (up to 3 in number) can receive a full commission.
Clearly, the amount of commissions that a single or multiple fiduciaries can receive can have an impact on the funds that are ultimately paid to the beneficiaries. Therefore, when creating an estate plan, it is important to consider the effect the payment of commissions may have. Not only is there the financial consideration whereby the net estate available for the beneficiaries is reduced, commissions may result in unknowingly benefiting one beneficiary over another. For example, if a decedent wants to name only one of his children as an Executor, the child who acts as Executor may end up with a larger share of the estate due to the up-front payment to him of commissions. This result may be unintended if the Executor child was only named for convenience because he or she lived in New York while the other children resided elsewhere.
SCPA 2309 entitled “Commissions of Trustees under wills of persons dying, or lifetime trusts established, after August 31, 1956” provides the basic guidelines for the payment of Trustees commissions. When selecting any fiduciary such as an Executor or Trustee, there are many considerations to be taken into account. In addition to the estimated amount and possible financial impact of commissions, the creator of a Will or Trust must have the utmost confidence that the fiduciary will perform his duties properly and carryout the intentions of the creator. As can be seen from many previous posts in the New York Probate Lawyer Blog, fiduciaries have many responsibilities and can face many complex and intricate problems such as Estate Tax issues and Estate claims. While fiduciary commissions may be well earned compensation, it is still important to consider and plan an estate and trust bearing in mind the commissions that may be paid.
An additional factor that may be important to consider when reviewing potential commissions is that the payment of fiduciary commissions is typically a deductible expense for Estate Taxes. Also, fiduciary commissions are usually taxable as income to the fiduciary whereas beneficiary distributions from an estate are commonly received income tax free. Therefore, a fiduciary may be better off from an income tax standpoint to receive his beneficial share in full rather than receive an upfront payment of a taxable commission which would reduce his non-taxable beneficiary payment.