Executor &
Trustee Fees
Executors and trustees can usually be paid for their work, but for a family member who is also inheriting, the fee is taxable income while the inheritance is not. Whether to take it, and when to decide, is mostly a tax question.
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Can the executor or trustee be paid?
Yes. Executors and trustees are generally entitled to reasonable compensation for their work, set by the will or trust document, by state law (some states use a percentage of the estate), or by the court. Family members who serve often wonder whether they should take a fee at all, and the answer is mostly a tax question.
The tax trade-off
A fee is taxable income to the person who receives it. An inheritance is not. When the executor is also a beneficiary, taking a fee turns part of what would have been a tax-free inheritance into taxable income. On the other side, the estate can deduct the fee, which only helps if the estate has taxable income or owes estate tax.
Taking the fee vs. waiving it
| Take the fee | Waive the fee | |
|---|---|---|
| For the executor | Taxable income | Nothing taxable; they receive their share as an inheritance, which is not income |
| For the estate | Deductible on the estate’s income tax return or the estate tax return, not both | No deduction |
| Where the money goes | To the executor, before the estate is divided | Divided among all beneficiaries under the will |
| Tends to make sense when | There are several beneficiaries, the estate owes estate tax, or the estate has high taxable income | The executor is the only or main beneficiary and no estate tax is due |
Decide early
If the executor or trustee plans to serve without pay, the decision should be made and documented early, ideally before much of the work is done. The IRS has ruled that a timely waiver showing an intent to serve without pay is neither income nor a gift. Waiting until the fee is fixed, or taking it and later handing it back, can be treated as income to the executor followed by a gift to the other beneficiaries.
How the estate or trust deducts it
- An estate can deduct the fee on its income tax return (Form 1041) or on the federal estate tax return (Form 706), but not both
- If no estate tax is due, the income tax return is usually where the deduction helps, and only to the extent the estate has income
- A trust deducts trustee fees on its Form 1041; they are among the trust expenses that are fully deductible
- In a final year, unused deductions like fees can pass through to the beneficiaries
If you take the fee
The fee is reported on your own tax return in the year you receive it. A family member serving once generally reports it as other income, not as self-employment income. Keep records of the time spent and the work done; they support the fee if another beneficiary or the court ever questions it.
What we handle
- Comparing the total tax with and without a fee before the decision is made
- Documenting a timely waiver
- Choosing whether the estate deducts the fee on Form 1041 or Form 706
- Reporting the fee on the estate’s and the executor’s returns
- Passing unused deductions through to beneficiaries in the final year
Frequently Asked Questions
Should I take an executor fee if I am also inheriting?
Often not. The fee is taxable income to you, while your share of the estate is a tax-free inheritance. If you are the only or main beneficiary and the estate owes no estate tax, taking a fee usually just adds income tax. A fee makes more sense when there are several beneficiaries and it fairly pays you for the work, or when the estate’s deduction for the fee saves more tax than you pay on it.
Is an executor fee taxable?
Yes. Executor and trustee fees are taxable income to the person who receives them. A family member serving as executor generally reports the fee as other income on Schedule 1 of Form 1040. A professional executor reports it as self-employment income on Schedule C.
Can I waive the fee after the estate is finished?
It is better to decide early. The IRS has ruled that a waiver made in a timely way, showing an intent to serve without pay, is not income or a gift. Taking the fee and giving it back later, or waiting until the fee is fixed, can be treated as income to you and then a gift to the other beneficiaries.
Does the estate get a deduction for paying the executor?
Yes. The estate can deduct the fee on its income tax return (Form 1041) or on the federal estate tax return (Form 706), but not both. If no estate tax is due, the income tax deduction helps only to the extent the estate has taxable income.