North Carolina courts have provided that a “fiduciary relation” exists in all cases where there has been a special confidence reposed in one who in equity and good conscience is bound to act in good faith and with due regard to the interests of the one reposing confidence. Furthermore, North Carolina courts provide that a fiduciary duty can arise by operation of law or based on the facts and circumstances. In the case of estate planning and estate administration, we are speaking of clearly defined fiduciary roles which arise as an operation of law. The primary examples are agent and principal under a power of attorney, personal representative and heir or devisee of an estate, and trustee/s and beneficiary/ies of a trust. Over the course of a three-part blog series, I will discuss these three relationships and how the principal, testator and settlor can approach compensating their fiduciaries.
As a general matter, N.C.G.S. § 32-54 provides some factors which should be considered in determining the reasonableness of compensation for all three of these fiduciary roles, to wit:
- The degree of difficulty and novelty of the tasks required of the trustee.
- The responsibilities and risks involved.
- The amount and character of the trust assets.
- The skill, experience, expertise, and facilities of the trustee.
(5) The quality of the trustee’s performance.
(6) Comparable charges for similar services.
(7) Time devoted to administering the trust.
(8) Time constraints imposed upon the trustee in administering the trust.
(9) Nature and costs of services delegated to others by the trustee.
(10) Where more than one trustee is serving, the reasonableness of the total fees paid to all
trustees.
Probate Estates: Personal Representative Compensation
A Personal Representative is a person, upon application, to whom the Clerk of Court issues letters of appointment to oversee the portion of a decedent’s estate under Chapter 28A of the North Carolina General Statutes. A fiduciary relationship exists between the Personal Representative and the heirs or devisees of the estate. When a child is acting as the Personal Representative for a deceased parent’s estate, compensation may or may not be desired. In other cases, such as a professional acting as Personal Representative or a corporate fiduciary, it may be clearly appropriate or part of an agreed upon arrangement. Of importance, I always inform my clients that naming an individual as a fiduciary in their estate planning documents does not typically create a legal obligation for the nominated fiduciary to serve. Although you may have discussed it with the nominated person, circumstances change. Considering and ensuring adequate compensation in your estate planning can provide an incentive for the person you have nominated in your documents to serve especially in cases where they are not entitled to inherit from your estate.
N.C.G.S. § 28A-23-3 outlines compensation for Personal Representatives. As expected, if a Will specifies a particular compensation structure for an Executor, then such compensation shall apply. Theoretically, a Will could also prohibit compensation for an Executor but there are few, if any, circumstances where this would be a good idea. Additionally, if all heirs or devisees consent in writing to a particular compensation then such will generally apply.
In the absence of the above, Personal Representatives are entitled to commissions to be fixed in the discretion of the clerk of superior court not to exceed five percent (5%) upon the amounts of receipts, including the value of all personal property when received, and upon the expenditures made in accordance with law. Generally, each county has a specific percentage they will allow which is typically less than the statutory maximum. Most Clerks only allow the statutory maximum with consent of all the heirs or devisees. Unless specified otherwise in a Will, the Personal Representative must petition the court if they seek commission. It is also important to understand that only certain assets are commissionable, and real estate is not one of them in many probate estates, so supplemental incentive through a specific gift to the person should be considered in some cases.
When making a Will, the Testator should speak with the drafting attorney about compensation. If the desire is to ensure adequate compensation for their Executor and make it as easy as possible, it may be appropriate to provide a particular percentage and allow such compensation without court approval. In other cases, leaving it at reasonable compensation and requiring the Executor to go through the normal procedures may be appropriate.
Conclusion
In summary, along with the many other considerations to discuss with your estate planning attorney, compensation of your fiduciaries is of critical importance. There is no right or wrong approach, and your estate planning attorney can help you determine the approach the makes the most sense given your circumstances.
To start your estate planning, call our offices.