27 Oct Help for a disinherited grandchild

Q. I have a question about executor fees. What would happen if the executor takes the fee for the sole purpose of giving the money to a grandchild of the decedent who was left out of the will? How would that work related to the IRS or state?
— Trying to help

A. It’s generous of you to want to give the fee to the grandchild who was left out of the will.

Before you proceed, keep in mind that the person who died must have had a reason — whether or not you agree with it — to exclude that grandchild. You’re basically trying to go around the dead person’s wishes, and one might argue it goes against the spirit of the deceased’s estate plan.

If the executor receives a commission, he or she is responsible for reporting that fee in his or her income tax even if the executor subsequently gives the commission to a relative of the decedent who was admitted from the will, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

“If the amount that is gifted is in excess of the annual gift exclusion amount, then the executor will have to file a personal federal gift tax return, but no gift tax will be due unless the donor gifts more than the federal lifetime gift exclusion amount,” Whitenack said.

The exclusion amount is $5.45 million in 2016.

Whitenack said a better way to approach this situation would be to avoid the tax question entirely.

The executor could advise the beneficiaries under the will that he or she wishes to waive his or her fee and have that amount go to the disinherited grandchild, Whitenack said.

You should then enter into a written agreement.

Whitenack recommends the executor consult with a probate attorney if he or she wishes to explore that route.

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This post was first published in October 2016.