Executor Compensation and Fees (CO)Show Table of Contents
If the will does not specify how executor compensation should be calculated, CO estates must follow state compensation rules (see CO calculator below).
How Much Should an Executor be Paid in CO?
In Colorado, the estate executor is known as a "personal representative", or more generally, a "fiduciary".
In determining executor fees, the state of Colorado uses the commonly accepted principle of "reasonable" compensation. However, while some states say "reasonable" and leave it at that, Colorado statute goes out of its way to say that no approach should be determined unreasonable out of hand, and specifies a detailed, long list of factors that, if the court gets involved, must all be considered. Highlights include:
- Nature of the work involved (time, effort, difficulty, skills required)
- Compensation customarily charged (in the community for similar services)
- Nature and size of the estate (and the results and benefits obtained by the executor)
- Any litigation and results
- Any time limitations
- Adequacy of any relevant billing records
You don't personally need to consider all these factors: you just need to come up with an approach that's reasonable. For example, to keep things simple, you might set your fee to $10K (or $40K!), you might set it to 4% of the gross value of the estate, or you might tie it to the hours you put into settling the estate. It just needs to be reasonable for the circumstances of the particular estate. If you do end up in court, however, all of the above factors (and more) will be considered by the judge, and so regardless of the compensation approach you attempt to take, it would be wise to keep a detailed record of your activities in case you later need it:
- Nature of the task (e.g., Drove to bank to get medallion stamp for IBM stock)
- Amount of time spent (e.g., 2 hours)
- Hourly rate for the task (e.g., $35/hour)
- Results (e.g., sold the car for Blue Book value)
To make all this a little more concrete, you can see that according to the calculator below, a CO estate worth $500K that required 650 hours of effort might generate $19K in executor fees.
If the will specifies a specific compensation, and you do not have a contract in place to serve as executor, you may renounce the compensation specified in the will if you do so before officially being appointed executor, and hence be entitled to reasonable compensation as described above.
You do not need a court order to pay yourself this reasonable compensation, but it's a good idea to notify the heirs of your decision in advance and to try to minimize any issues.
See Colorado Revised Statutes §15-10-603 for all details.
CO Compensation Calculator
EstateExec provides the following executor compensation estimator for CO estates, but please keep in mind that there are no hard and fast rules for CO estates, and ultimately you must determine what would be reasonable for your particular circumstances. By using this estimator, you acknowledge that EstateExec provides any results as informational input only, not as legal advice, and cannot be held responsible for any inaccuracies for, or misunderstandings about, any given estate.
Below EstateExec provides two compensation approaches used in various incarnations throughout the United States: you can decide which, if either, is appropriate for you. The first uses a sliding percentage scale based on the total estate gross value (the larger the estate, the smaller the percentage); the second simply compensates the executor for the value of his or her time, and is probably the more common approach in CO. See estimation methodology for details.
See also Compensation for general remarks on executor compensation.
Executor Compensation Considerations
Timing: Generally, any executor compensation is paid during the final stages of estate distribution, as one of the last things the executor does. Be careful in situations in which there is not enough to pay yourself and all other outstanding debts, as this may expose you to legal issues. However, in most states, executor compensation has precedence over almost all other debts (for example, in NY, only funeral expenses have a higher precedence).
Communication: You may wish to discuss your compensation with the other heirs early during the process, so they don't end up surprised and unhappy when they notice their shares are somewhat less than expected. You may also want to leave the door open to modify your planned compensation as the process unfolds and you determine how much or how little work will actually be required on your part.
Optional: Keep in mind that collecting executor fees is optional. Even if the will specifies compensation, or if state laws support specific fees, the executor can choose to forego that compensation, and many do. That being said, serving as an executor is A LOT of work, and there's a reason that state laws support such compensation.
Tax Optimization: One reason an executor might choose to forego explicit compensation is that executor compensation is taxable, while inheritances are generally not taxable. Consequently, if the entire estate (or a large portion of it) is going to be inherited by the executor, you may end up with more after-tax value if you forego executor compensation.
Trusts: Note that trustee compensation for managing a trust is handled differently than that of executor compensation for settling an estate (see Trustee Compensation).
Expense Reimbursement: An executor is also entitled to reimbursement from estate proceeds for legitimate and reasonable estate administration costs, such as death certificate copies, notarization of documents, the EstateExec licensing fee, and even travel costs strictly associated with managing the estate. Once you have established an estate banking account, you can often pay for these costs directly from that account, so that no reimbursement is necessary, but you should keep good records in case you later have to justify your expenditures to the IRS or to estate heirs. Executor expenses can be reimbursed when desired, although certain probate proceedings may require prior approval. While executor expenses are generally not considered when calculating executor compensation (i.e., executor fees), if the executor incurs substantial costs paying for services that would normally be directly handled by an executor, a probate judge may sometimes require that the default executor fee be reduced accordingly.