Last week, I began working on the Last Will and Testament for a Metairie couple who were leaving their assets equally to their 3 children after they both passed. One of their biggest goals was compensating their daughter for her role as executor of the estate. They thought it would be appropriate for her to receive a little bit more than her two brothers because of the work she would have to take on as executor.
Typically you would lay out in your will that the executor gets a percentage of the estate (anywhere from 1 to 3%) as compensation. However, when this executor’s fee is described in the will as compensation, it becomes taxable income for the executor. Inheritances, on the other hand, are not considered taxable income.
So in order to avoid the daughter’s executor’s fee becoming taxable income, we disguised the executor’s fee as inheritance. We will not mention compensation for the executor in the will. Instead we will leave the daughter a little bit extra in inheritance. Instead of dividing the estate equally 3 ways, the daughter will receive 35%, and her two brothers will each receive 32.5%. This gives the daughter an extra 1.67 percent for her role as executor, but because it is not termed as compensation, the extra 1.67 percent will not be considered taxable income. If you are interested in learning more about this and other creative ways to structure your Louisiana Legacy, call (504) 274-1980 in the Metairie and New Orleans Area or call (985) 246-3020 in Mandeville, Covington, Slidell, Houma, Thibodaux, and surrounding areas.