02 Feb Are these fees taken from my brother’s estate legal?
Q. I’m a beneficiary to my brother’s estate in New Jersey. My younger brother, the executor, is also a real estate broker. When he sold two properties from the estate, he paid himself real estate commissions totaling about $75,000. He never accounted for the rents on the real estate for the two years he managed the properties. Can he do this and do I have any recourse?
— Older brother
A. It can get ugly when family members question how an estate is being handled by another relative.
Beneficiaries of a decedent’s estate are entitled to an accounting of the income, expenses, assets, liabilities and distributions of the estate, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.
She said prior to receiving a distribution, a beneficiary is usually asked to sign a “Refunding Bond and Release,” agreeing to make a refund to the estate should additional taxes or debts be owed and releasing the executor from any liability for actions taken during administration of the estate.
“If you are not satisfied with the administration of the estate and/or require additional information, you should not sign the Refunding Bond and Release or a similar document until you have the information and you are satisfied,” she said.
Romania said you ask for a formal or an informal accounting, but if the executor retains a professional to prepare the accounting, fees will be charged to the estate, therefore reducing the distribution ultimately made to the beneficiaries. The accounting will show the rents received and if it does not, and the executor fails to address the issue, you may need to consider a court action, she said.
Executors are entitled to a commission on both income (at the rate of 6%) and principal (5% on the first $200,000 then 3.5% on the next $800,000 and 2% on the excess over $1 million) which comes into the hands of the executor, including a commission on the sale of property held by the estate, Romania said.
“An executor may request additional fees on a showing to the court that unusual or extraordinary services were rendered by the executor for which the executor should receive extra compensation,” she said. “Similarly, the court may reduce a commission where an executor’s actual pain, trouble and risk were considerably less for a comparable estate.”
Depending on the facts, it is possible there are breach of fiduciary duties, self-dealing or other conflict of interest issues in acting as both the realtor and executor and taking both an executor’s commission and realtor’s commission, Romania said.
“In any event, if your brother took both a real estate commission and an executor’s commission, you could ask the court to reduce the executor’s commission as his real estate firm did the work and therefore substantially reduced his burden,” she said. “The issues to be considered are conflict of interest and the overall reasonableness of the total compensation.”
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This story was originally published on Feb. 2, 20201.
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