Yes, seems Totten Trust and POD/beneficiary work the same way.
Based on further reading, I think the difference is just intent. My synopsis - It’s an way to earmark a chunk of money you want to give/oversee for somebody during your lifetime, bequeath to them after you death. Probably no relevance for the various estate planning needs we’ve discussed in this group.
I’m executor for my dad’s estate, and also one of four beneficiaries. I was thinking about taking a fee, because it’s going to be incredibly complicated, but I’ve just read that if I take a fee (reducing the overall inheritance), that’s taxable, whereas the inheritance $$ is not.
So I guess I’ll just file expenses and that’s it.
I was in the same situation when my father passed away. As per the advice of our lawyer, I didn’t take the fee since it would be taxable.
My parents have both passed so I am just asking this to learn something…
If you had accepted a fee, would the fee have been taxable or would your share of the inheritance be taxable? (I suppose I could google that.)
Only the fee would have been taxable. There were no federal taxes due on the inheritance since it was below the $11 million federal exemption. However, our state imposes a 4.5% inheritance tax on estates (unless it is going to a surviving spouse), so that was due no matter what. But the 4.5% state inheritance tax was less than the income tax I would have paid to take an executors fee.
Thanks! I was just trying to figure out if for some strange reason an inheritance became taxable simply by taking an executor’s fee. I figured that couldn’t be the case or I would have read about it somewhere.
Sounds like the inheritance was small or the executor’s fee was huge!
What I meant was that the fee would have been taxed at our regular income tax rate, which is much higher than just paying the 4.5% state inheritance tax.
In my case I was the sole beneficiary, (minus a couple named charities), so it didn’t make any sense to take a fee and pay income tax on it. Maybe if I were the executor to a complicated estate that involved a lot of beneficiaries, I would consider taking the fee. It would probably depend on how much inheritance I’d be getting out if the estate.
I think the fee/no fee for a relative also depends on what the relationship is like with the other heirs (if there are any). If every expense is going to be scrutinized, and every decision becomes a dialogue (pay for another 10 death certificates even if you might only need 8) I’d be sorely tempted to take the fee. If it’s a cordial, loving, trusting relationship, then doing it “for the sake of the estate” without charge feels like a nice thing to do.
Also depends on whether the executor needs the money and how big the estate is, imho. If there aren’t many assets, the executor may try to be more frugal than if there are significant assets that s/he can reimburse out of while still leaving the bulk for beneficiaries.
I took the fee because things were very complicated with one person written out of the will and threatening to contest, and another who died without a will before his share was distributed.
I really needed the money and no one begrudged me the fee. My income was so minimal that year (having spent almost all of my time taking care of father and stepmother) that there was no income tax on it.
For my SisIL’s estate, the executor was husband of a cousin and did a lot of support and caregiving of my SIL. He also made excellent spreadsheets of all the assets and how they were distributed and made sure all ended up where they belonged. We were all fine with approving his fees and the estate attorney agreed the fees were reasonable. We knew my SIL would be happy he got some compensation for all his time and effort and H and BIL still had the large bulk of the remaining assets to share.
We live in HNL and my BIL works full time. None of us had time, energy and skills to do all that executor did and SIL specifically wanted the person she appointed to handle everything and he did an excellent job. He has been executor several times before plus he has a law degree and knew hope to get everything handled efficiently.
I know an elderly, low income lady (no kids) with multiple medical challenges who will likely be on Medicaid soon… or maybe already is. I do feel bad for the distant nephew. There will be a lot of expenses dealing with the last years and executor duties, but probably no money left to cover it.
The thing to remember is being an executor IS WORK. As such, executor IS entitled to receive compensation that may be set by statute. Of course executor can opt to waive compensation but IS entitled to receive up to statutory amount.
Right, but in my case, why take it if it’s going to reduce my inheritance and be taxed to boot? I think I’m making the right choice…?
It’s a judgment call executor gets to make. In many cases, s/he may opt to waive, especially if s/he is a beneficiary.
It is correct that income/fees paid to executor are taxed as ordinary income of executor while inheritances are NOT taxed as income.
In other cases though if many (x) beneficiaries, executor fee is full cut rather than 1/x.
Yup, that’s why it’s a judgment call of executor.
In one case that I know of (I’m close to the executor AND the other siblings) he opted to take the fee. He did not need the money, and because he’s savvy about taxes, investments, etc. was the right choice for executor.
But his siblings bugged him mercilessly about stupid things. “Why didn’t you sell Dad’s desk instead of donating it to Habitat for Humanity” when the desk might have gotten $30 on Facebook Marketplace and would have taken weeks of hassle. So he opted to take the fee-- so he could remind his siblings when they were getting really petty and into the weeds-- “I’m charging the estate an hourly fee, so ask yourself if you really want to have this conversation with me”. It worked (more or less… it’s easy to criticize when you are out of state and not responsible).
Dare I ask how much lawyers charge to be an executor?
16 posts were merged into an existing topic: How do you deal with scanning & archiving family photographs/videos?