Source: https://nytaxattorney.com/2013/05/03/executor-and-trustee-commissions/
Timestamp: 2019-02-23 19:53:47
Document Index: 561171182

Matched Legal Cases: ['§2307', '§168', '§2307', '§2310', '§2311', '§2309', '§2309', '§2309', '§ 2309', '§ 2309', '§101']

Executor and Trustee Commissions Under NY EPTL | Law Offices of David L. Silverman
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Executor and Trustee Commissions
I. Executor Commissions. Executors and Trustees are entitled to compensation for serving in their fiduciary capacity. The will or trust may provide a fee schedule or may provide for a waiver of fiduciary fees. If the will is silent or provides for statutory commission, then reference should be made to the Section 2307 of the Surrogates Court and Procedure Act (SCPA). SCPA §2307 provides that an executor is entitled to a commission rate of 5 percent on the first $100,000 in the estate, 4 percent on the next $200,000, 3 percent on the next $700,000, 2-1/2 percent on the next $4,000,000 and 2 percent on any amount above $5,000,000. Executor commissions are in addition to the reasonable and necessary expenses actually paid by the Executor.
Executor Commission Base
In general, any asset which the fiduciary takes under his administration, and with respect to which he assumes a risk, would be included in the decedent’s estate for calculation of the fiduciary’s commission. Damages recovered in court actions by the personal representative are general assets of the estate subject to full commissions. [29 Carmody-Wait 2D §§168:19]. The value of non testamentary assets (such as joint property, life insurance payable other than to the estate, and Totten Trust accounts) are not included in the commission base. Property transferred by the decedent in his lifetime in trust is also not part of the testamentary estate, and not included in the commission base. However, if the assets of a trust are paid to the estate or used to pay claims, expenses, taxes or other estate charges, those assets will be subject to commissions. Commissions are based upon amounts received and amounts paid out, with one-half of the Commission being attributable to each. Paying and Receiving Commissions together represent one full Commission.
Advance Payment of Commissions
Executor commissions are paid after administration of the estate upon the settlement of the account of the fiduciary under SCPA §2307(1). SCPA §2310 and §2311 permit advance payment of executor commissions by application and approval of the Surrogate’s Court. A fiduciary may request an advance payment on account of commissions to which the fiduciary would be entitled if he were then filing an account. Commissions paid to an Executor are considered taxable income, and must be reported on the Executor’s income tax return.
II. Trustee Commissions
Trustees are entitled to annual commissions as well as commissions based upon amounts paid out. SCPA §2309(2) provides that Trustees are entitled to annual Commissions at the following rates:
Annual commissions may be computed either at the end of the year or, at the option of the Trustee, at the beginning of the year; provided, that the option selected be used throughout the period of the trust. The computation is made on the basis of a 12-month period but is adjusted upward or downward for any payments made in partial distribution of the trust or the receipt of any new property into the trust within that period.
SCPA §2309(3) further provides that annual commissions shall be paid one-third from the income of the trust and two-thirds from the principal, unless the will or trust otherwise directs.
Commissions Based Upon Sums of Money Paid Out
In addition to annual commissions, SCPA §2309(1) provides for Trustee Commissions to be paid on the settlement of the account:
On the settlement of the account of any trustee under the will of a person dying after August 31, 1956, or under a[n] [inter vivos] trust . . .the court must allow to him his reasonable and necessary expenses actually paid by him . . . and in addition it must allow the trustee for his services as trustee a commission from principal for paying out all sums of money constituting principal at the rate of 1 per cent. Therefore, the trustee is entitled to a commission of 1 percent.
Annual Accounting to Beneficiaries
Trustees are required to furnish annually as of a date no more than 30 days prior to the end of the trust year to each beneficiary currently receiving income, and to any other beneficiary interested in the income and to any person interested in the principal of the trust who shall have made a demand therefor, a statement showing the principal assets on hand on that date and, at least annually, a statement showing all receipts of income and principal during the period including the amount of any commissions retained by the trustee.
SCPA §2309(4) provides that a trustee shall not be deemed to have waived any commissions by reason of his failure to retain them when he becomes entitled thereto; provided however that commissions payable from income for any given trust year shall be allowed and retained only from income derived from the trust during that year and shall not be supplied from income on hand in respect to any other trust year.
III. Effect of Multiple Trustees on Commissions
Assume that the will of John Smith names three Trustees. The following paragraphs discuss the effect of multiple trustees on the determination of trustee commissions.
Effect of Multiple Trustees on Amounts Paid Out
SCPA § 2309(6)-(a) provides that, “subject to 2313,” if the gross value of the trust exceeds $400,000 and there is more than one trustee, each trustee is entitled to full compensation for paying out principal allowed herein to a sole trustee unless there are more than three.
Effect of Multiple Trustees on Annual Commissions
A. Trust Principal $400,000 or more
SCPA § 2309(6)-(b) provides that, “subject to 2313,” if the value of the principal of the trust for the purpose of computing the annual commissions allowed amounts to $400,000 or more and there is more than one trustee, each trustee is entitled to a full commission allowed to a sole trustee unless there are more than three trustees. If there are more than three trustees, the compensation to which three trustees would be entitled must be apportioned among the trustees according to the services rendered by them respectively unless the trustees agree in writing to a different apportionment. However, no such agreement may provide more than one full commission for any one trustee.
B. Trust Principal Between $100,000 and $400,000
If the value of the principal of the trust is between $100,000 and $400,000, each trustee is entitled to a full commission unless there are more than two trustees, in which case commissions must be apportioned according to the services rendered, unless the trustees shall have agreed in writing otherwise and which shall not provide for more than one full commission for a single trustee.
C. Trust Principal Less Than $100,000
If the value of the trust principal amounts to less than $100,000, one full trustee commission must be apportioned among all trustees according to the services rendered.
IV. Tax Considerations
Although one serving as fiduciary is entitled to receive fiduciary commissions, doing so will result in taxable income. If the estate is not subject to estate tax, then the receipt of fiduciary commissions may create taxable income where such taxable income might otherwise not be required. Where the fiduciary is not a beneficiary, there would no reason for the fiduciary to waive commissions. However, if the fiduciary is also a beneficiary, then waiver of fiduciary commissions might make sense. The reason for this is that amounts received by reason of gifts or inheritance are not subject to income tax under IRC §101. Thus, bequests and legacies, either by reason of inheritance under a will, or as a beneficiary of a testamentary trust, will not be subject to income tax.
[Of course, income earned on the principal paid outright as a bequest after the death of the decedent will be subject to income tax. So too, income earned by a trust created by the will of the decedent will be subject to income tax either at the trust level or at the beneficiary level depending upon whether it is distributed to the beneficiary. Note also that the principal of a trust, or the principal distributed outright following the death of the decedent, will never be subject to income tax.]
On the other hand, commissions received by a beneficiary or any other person serving in a fiduciary capacity are subject to income tax. If the commissions are waived, then there is no commission to be subject to income tax. Since bequests and legacies are not subject to income tax, no work done by the fiduciary will be subject to income tax.
Although it is true that amounts paid to a fiduciary are deductible expenses that may be taken either on the estate tax return or on the fiduciary income tax return, there may be little or no benefit to taking these deductions, either because there is little or no estate tax, or the value of the deduction to the estate for fiduciary income tax purposes would be small. Where several children are the beneficiaries of an estate, and one is the fiduciary, consultation among the beneficiaries is the best way to resolve whether or to what extent executor or trustee commissions should be waived.
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