Everything you need to know about executor fees in Tennessee

The death of a loved one can be a trying time. If you were a close relative or friend of someone who recently passed away, you may find yourself taking on the role of their estate executor. In Tennessee, a state executor is an individual named in a deceased’s will and appointed by the court to oversee the administration of a decedent's estate. The executor's role is to ensure that the decedent's debts are paid and that their assets are distributed in accordance with their wishes.

In order to be appointed as an estate executor, an individual must be at least 18 years of age and a resident of Tennessee. Additionally, they must not have been convicted of a felony in any state. Executors are necessary in order to ensure that the administration of a decedent's estate is handled in a professional and efficient manner.

Without an executor, the deceased’s estate would fall into disorder, debts wouldn’t be paid, the deceased’s wishes wouldn’t be honoured, and heirs wouldn’t receive their proper inheritance. Being an executor is hard work, which is why an executor is entitled to receive compensation for their role. This compensation, known as an executor fee, is paid out by the estate. This article covers what executor fees are, what fees an estate executor is eligible to receive in Tennessee, and how to minimize paying taxes on them.

What Are Executor Fees?

An executor fee is a professional fee that's charged by an executor for their work administering an estate. The executor fee is typically a percentage of the value of the estate and is paid out of the estate's assets.

Executor fees are regulated by state law, and vary from state to state. In some states, executor fees are capped at a certain amount, while in others there is no limit. Some states also have a specific percentage of the estate that an executor is entitled to. Other states, like Tennessee, have broader definitions: The court decides what an executor gets, and the only requirement is that the executor receives “reasonable compensation.” Executor fees are generally payable when the estate is distributed to the beneficiaries.

What Are the Executor Fees in Tennessee?

In Tennessee, a state executor is sometimes also referred to as a "personal representative." According to the Tennessee probate court, an executive is only entitled to "reasonable" compensation for their work settling an estate. The compensation is decided using several criteria:

• Nature of the settlement work (time, effort, difficulty)
• Compensation is customarily charged
• Size of the estate
• The relationship of the personal representative to the decedent
• The amount of work outsourced by the personal representative
• Experience and capabilities of the personal representative

What is considered "reasonable" also varies from county to county. For example, in Shelby County, the usual rates for executors are 1%-2% of the first $100,000, and then 0.5% to 1% on the next $900,000. In Davidson County, executors can expect the following:

• 4% on the first $300K
• 3% on the next $900K
• 2% on the next $300K
• 1% on anything more.

Moreover, extra compensation for "extraordinary" services may be allowed. Some of the most common interpretations of "extraordinary" services include oversight of the sale or lease of residential or commercial real estate, running a business, undertaking litigation, preparing tax returns, or handling tax audits. Since these tasks are typically quite complicated, time-consuming, and require a high degree of skill, estate executors may be entitled to extra pay for taking on these extraordinary tasks.

Are Executor Fees Taxable?

The compensation received by a personal representative for settling an estate in Tennessee is considered taxable income.

Is it possible to avoid executor fees as taxable income?

The only way to avoid paying taxes on executor fees is to waive your right to compensation and forgo taking a part of the estate as a fee. This is particularly encouraged if you’re also a beneficiary of the estate and will be receiving an inheritance. While the fee paid to a personal representative is taxed as regular income, a bequest given to a beneficiary isn't taxable. Tennessee is one of the many states that does not currently have an inheritance tax.

Making the Right Decision

Dealing with the death of a close friend or family member is already difficult without the added stress of settling their estate. It's hard to know what the best decision is unless you're well-versed in Tennessee law, especially when you're still grieving. If you feel overwhelmed by the process or have questions, ClearEstate is here for you. Our team of estate professionals can guide you through the probate process and help you navigate an executor’s responsibilities. Reach out today for a free consultation.