Source: http://www.mayberrylawfirm.com/probate/executor-s-fiduciary-liabilities/compensation-executor
Timestamp: 2019-04-20 02:54:19+00:00

Document:
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.
(2) Percent of Income Receipts. 5% of income receipts (not including capital gains).
e. Other Information Pertaining to Fees.
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.
additional 5% fee on non-investment income (such as retirement payments) received during the year.
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.
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.
the estate was better served by its retention. Id. The Court did not say that the two and one-half percent rate was a hard and fast rule, however, leaving the rate to vary based on the facts of each case. Id, at 27.
Modern decisions regarding a fiduciary’s reasonable compensation have generally followed the cases discussed above. In 1972 the Court again held that five percent was the usual commission. Clare v. Grasty, 213 Va. 165, 173, 191 S.E.2d 184 (1972). They also stated that compensation was to be based on the services rendered to the estate or trust. Id; see also, Cannon v. Searles, 150 Va. 738, 750, 143 S.E. 495, 499 (1928). The Virginia Supreme Court has also held that a testratix has the right to fix the amount of compensation, which then must be upheld as a matter of contract. Williams v. Bond, 120 Va. 678, 91 S.E. 627 (1917). The Circuit Court of the City of Lynchburg followed that holding in Elliot v. Fidelity National Bank, saying that the Bank, as coexecutor, could not charge more than what had been provided for in the will, even thought their fee schedules had changed. 35 Va. Cir. 483 (1974). In 1984 the United States Bankruptcy Court for the Western District of Virginia interpreted Virginia law to be clearly dependent on the facts of each case, to which the general principles set forth in the case law will be applied. Manning, at 714. They also stated the impossibility of laying down a hard and fast rule when so many factors are involved, but that five percent is the usual commission when a fiduciary sells property. Id. Two and one-half percent is the usual commission when tangible or intangible property is distributed in kind, and the fiduciary has perTt Court of Bedford County, citing Perrow, based its ruling on the grounds that without the right to sell, the commission could not exceed two and one-half percent of the ale price. Id, at 575; citing, Perrow, at 26.
Assets not Included in Value of Estate for Computing Fiduciary Compensation.
Two items have been held to not be included in the determination of the commission. (1) Specific bequests, (but the initial determination of whether a bequest is a specific bequest can be difficult.) Claycomb v. Claycomb, 51 Va. (10 Gratt.) 589 (1814). Modern case law has not modified this ruling, but many Commissioners often allow compensation for specific bequests because a service to the estate has been rendered. (2) Non-probate assets; under the terms of § 26-30, these assets are not included when valuing the fiduciary’s commission because they are not part of the receipts. However, the Guidelines allow a fiduciary to include non-probate assets if the fiduciary has to assume some responsibility to dispose of them.
When the Fiduciary Should Receive Compensation.
The fiduciary should be paid when he/she files the final accounting. Under § 26-30, the fiduciary is to be paid upon the settling of the fiduciary’s final account to the Commissioner. However, custom and usage, as well as case law, have allowed advances on the commission in some cases. Koteen v. Bickers, 163 Va. 676, 177 S.E. 904 (1934). As noted earlier, commissions may be subject to forfeiture if the accounts are not timely filed. Va. Code § 26-19; Va. Code § 64.1-134.
8. When Attorney Fees Reduce the Fiduciary Compensation.
This issue has two sides; first, when the attorney is also acting as fiduciary, and second, when the attorney and fiduciary are different persons.
(1) Attorney also acts as Fiduciary. Virginia courts have held that a fiduciary who also acts as an attorney of the estate cannot receive extra services in that capacity. Koteen v. Bickers, 163 Va. 676, 177 S.E. 904 (1934). The general practice has been to pay the attorney's fees from the commission of the fiduciary, but a higher commission has been awarded to a fiduciary who served in both capacities. Id, at 676. Virginia law has made clear that fiduciary’s can retain attorneys and pay reasonable attorney fees, and that an attorney may also fulfill the role of fiduciary. Section 26-30 of the Virginia Code does allow for reimbursement of any expenses incurred by the fiduciary as fiduciary. The Court will allow the payment of attorney’s fees, if they were incurred in the beneficial service of the estate in good faith, and the employment of counsel was reasonably necessary. Clare, at 170, 191 S.E.2d at 188. The Court has also held that where the employment of an attorney is proper, the fiduciary who is an attorney may act as the attorney for the estate. Swank, at 943, 27 S.E.2d 191.
(2) Attorney and Fiduciary are Different Persons.
This topic can set an attorney at odds with his fiduciary client, and it remains a gray area. The Guidelines provide that fiduciary compensation will be reduced by attorney fees paid for the estate, except for litigation and tax work, if the attorney performed duties the fiduciary should have performed. Exactly what duties should the executor perform? Filing accounts and inventories? Contacting beneficiaries? Many attorneys prepare these for executors, and the executors help by gathering information. One way to calculate fiduciary compensation is to use the Guidelines to determine the total appropriate compensation, then subtract the attorney fees from this number - the balance is the fiduciary compensation. To illustrate, let’s say the allowable compensation on an estate is $20,000 per the Guidelines. If the attorney fees total $15,000, (excluding tax work, etc.,) then the executor may take $5,000 for a fee. Unfortunately, this technique does not always work, because the attorney fees often exceed the amount calculated by the schedule. The best practice is to remember that the Commissioner can approve reasonable fees, and the above guidelines are just that, guidelines. If a question of fee arises, bring it before the Commissioner before paying it, because the Commissioner has the power to disallow fees as well.
Special Administration Issues. (Wrongful Death, Curator and Ancillary Action Administration) Wrongful Death Action. Virginia Code Section 64.1-75.1 authorizes the appointment of a personal representative solely for the purpose of prosecuting an action for personal injury or wrongful death on behalf of the decedent.
Curator. What happens when there is a dispute over the validity of the will before it can be probated? In such cases (or where the named executor is either absent or an infant), the circuit court or clerk may appoint a curator of the estate until the matter is resolved. Va. Code § 64.1-93. As can be expected, the curator has limited powers over the decedent’s estate. In effect, the curator is to perform the customary duties of the personal representative, with one important exception – the curator may not pay legacies or make distributions to heirs or beneficiaries. Upon the appointment of the personal representative, the curator’s appointment terminates assuming there is proper delivery and accounting of the decedent’s property.Ancillary Administration. Primary administration of a decedent’s estate will take place in the state where the decedent had his or her domicile (“Domiciliary Administration.) Ancillary administration deals with the disposition of property (often real estate) located outside the jurisdiction of the decedent’s domicile and over which the personal representative appointed in the domiciliary jurisdiction has no authority. If a nonresident decedent owned real estate in Virginia, Virginia’s special treatment of real estate should enable title to pass to the beneficiaries without having to open an ancillary administration in Virginia - - title would pass upon probate of the will. If the will had already been admitted to probate in the domiciliary jurisdiction, Virginia Code Section 64.1-92 provides a shortened procedure whereby an authenticated copy of the will is offered for probate along with the certificate of probate from the domiciliary jurisdiction. Once the authenticated copy is admitted and recorded in the ancillary jurisdiction containing the nonresident’s Virginia real estate, the will serves as a muniment of title and has the same effect of a recorded deed.
Duties of Attorney for the Executor - Who is the Client?
Although it will be addressed in greater detail later, ethical issues always occur when there is potentially more than one client. The attorney is acting at the direction of the personal representative (fiduciary). Sometimes the personal representative is a beneficiary as well, and the attorney is being asked to assist the same individual with personal matters (i.e. selling a home left to the fiduciary under the will). The attorney must carefully segregate these roles and fees, because potential conflicts might develop in representing both the entity and the person.One issue that the attorney needs to decide, hopefully in the early stages of the administration, is how much control the fiduciary will have and how much control the attorney will need. The attorney must give the client all pertinent information regarding his/her duties and required filings, usually in conference and followed up in a memorandum or letter. Do not leave this area untouched. It is crucial that the personal representative know the deadlines under which he/she will be asked to work and the attorney must be assured that these deadlines are going to be met.
The attorney should assess the fiduciary’s capabilities in segregating responsibilities. How capable, busy and motivated is the personal representative? Does he/she appear to have integrity? Remember that the attorney is the one who may end up with ethical sanctions or reprimands. If the personal representative does not follow through with his/her responsibilities in a timely manner, the attorney must make sure that he/she is able to take the jobs back so that all deadlines are met. This can be accomplished with regularly scheduled meetings far in advance of the time required for submittal. LEO 1452. The Ethics Committee ruled that the client in the estate administration setting is the personal representative, and not the estate generally, or the other beneficiaries. The Ethics Committee reasoned that “since the personal representative assumes the legal status as the agent of the decedent and is the only available conduit for information between the entity [i.e., the estate] and the attorney, the Committee opines that the attorney/client relationship arises between the attorney and the personal representative. Furthermore, the Ethics Committee added that “there is no contractual privity with the beneficiaries which can give rise to an attorney-client relationship with the beneficiaries.” Id. Therefore, the attorney must make it clear by means of the engagement letter that he or she has been hired by the personal representative to assist in the administration of the personal representative’s duties. The engagement letter should clearly explain that the attorney has not been hired by all of the various estate beneficiaries. This does not mean that the attorney has no ethical duties to the beneficiaries. In LEO 1599, the Ethics Committee discussed an attorney’s duties to beneficiaries of an estate who were not also personal representatives of the estate. In that opinion, the Ethics Committee noted that it is “not uncommon for an estate beneficiary to assume that the Executor’s attorney is also the beneficiary’s attorney.” The Ethics Committee concluded that “[t]he attorney’s duty to communicate with a client includes a duty to communicate to persons who reasonably believe they are clients to the attorney’s knowledge at least to the extent of advising them that they are not clients.” If more than one individual will be serving as a personal representative, the engagement letter should include an explanation of the implications of the common representation and the advantages and risks involved. The engagement letter should have a place for all of the personal representatives to sign consenting to the joint representation and to full disclosure between the parties. An attorney undertaking joint representation should be familiar with LEO 1473 which involved a situation where the joint representation failed and separate counsel was then needed for each of the personal representatives.

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