CONTRIBUTED CONTENT: Should your executor get paid? What Idaho law says about fiduciary fees
Robert J. Green, Esq.
When clients name a son or daughter to settle their estate, they rarely ask whether that child will be paid. When the child later starts the work, it’s often one of the first questions they ask me.
The answer under Idaho law is yes, they can be paid. Whether they should take a fee is a different question, and the tax rules often settle it.
What Idaho Law Allows
Idaho Code § 15-3-719 states a personal representative is entitled to reasonable compensation for their services. Idaho has no statutory percentage or fee schedule, as some states do. What is “reasonable” depends on the estate’s size and complexity, the time involved, and the skill the job required.
Trustees are treated the same way. A successor trustee settling a living trust is also entitled to reasonable compensation.
There are guardrails. Under Idaho Code § 15-3-721, an interested person can ask the court to review a personal representative’s compensation, and anyone paid too much can be ordered to refund the excess. Idaho Code § 15-7-205 provides a similar review for trustees. Out-of-pocket expenses such as filing fees, postage, and travel are reimbursed separately from any fee.
The Tax Math Most Families Miss
An inheritance generally isn’t subject to federal income tax. A fiduciary fee is.
According to the IRS, every personal representative must include fees paid to them by the estate in their gross income. A family member serving on a one-time basis usually doesn’t owe self-employment tax on the fee, but it is still taxed as ordinary income. The estate or trust may be able to deduct the fee, but that deduction helps only if it offsets income or tax the estate would otherwise owe.
Consider an only child who inherits everything. Paying herself a $20,000 fee simply turns $20,000 of tax-free inheritance into $20,000 of taxable income. In that situation, waiving the fee usually makes sense. Her CPA can confirm whether the estate’s own income changes the math.
When a Fee Is Fair
The calculation changes when the work and the inheritance are uneven. Common examples:
• One sibling does all the work. Three children inherit equally, but one spends a year clearing out the house, managing the sale, and handling the paperwork. A fee recognizes that effort.
• The estate includes a business or rentals. Running an operating business or managing tenants is real, ongoing work.
• The trust continues for years. A trustee managing a trust for a minor or a beneficiary with special needs may serve for decades.
• The fiduciary isn’t a beneficiary. A friend or more distant relative who receives nothing else should almost always be paid.
Professional fiduciaries, such as bank trust departments and licensed professional trustees, charge set fees, often an annual percentage of assets plus additional charges for extraordinary work.
Planning Tips
• Address compensation in your documents. Your will or trust can provide for a flat fee, an hourly rate, the fiduciary’s standard rate, or no fee at all. A clear provision prevents arguments later.
• Require good records. Whoever serves should keep a simple log of hours and tasks, especially if they plan to take a fee.
• Talk to your family. Siblings are far less likely to resent a fee they knew about in advance.
• Choose the right person first. Compensation doesn’t make an unsuitable fiduciary suitable.
Settling an estate is real work. With a little planning, you can make sure the person doing it is treated fairly and the rest of the family understands why.
My law firm is currently offering free telephonic, electronic, or in-person consultations concerning probating estates or creating estate planning documents.
• • •
Robert J. Green is an Elder Law, Trust, and Estate Planning Attorney and the owner of Kootenai Law Group, PLLC in Coeur d’Alene. If you have questions about estate planning, probates, wills, trusts, or powers of attorney, contact Kootenai Law at 208-765-6555, [email protected], or visit www.KootenaiLaw.com.
This has been presented as general information and not as legal advice. Do not engage in legal decision-making without the advice of a competent attorney after discussion of your specific circumstances.