Wednesday, May 23, 2012
Personal Representative Compensation and Renunciation of Fee
If you were to ask someone who has served as a personal representative of an estate, you would probably learn that it was a significant, sometimes stressful, effort. It is not surprising, then to learn that personal representatives are entitled to “reasonable compensation” for their services (see A. R. S. § 14-3719). In fact, even if the will spells out the amount of compensation to be received by the personal representative, if that amount is not “reasonable,” then the personal representative can, by renouncing that provision of the will, and thereby become entitled to “reasonable compensation” (see A. R. S. § 14-3719). Of course, if the personal representative is otherwise contractually obligated to perform the services for a specified amount of compensation, a renunciation of a provision in the will does not void the contract (see A. R. S. § 14-3719).
In some cases, however, despite the fact that the law allows the personal representative to receive reasonable compensation for services, the personal representative may be better off by renouncing the right to such compensation. For instance, if the personal representative is the sole devisee or heir to the estate, it makes little sense to compensate the personal representative from the funds that will eventually go to him or her by inheritance. Among other things, income received for services as a personal representative are taxable income, whereas money received as an inheritance isn’t taxable income.
If a personal representative prefers not to be compensated, or prefers to receive less than the amount that would be considered to be reasonable compensation, he or she may renounce the right to receive all or any portion of such compensation (see A. R. S. § 14-3719). In addition, a written renunciation of fee may be filed with the court. AvidLaw Probate includes such a renunciation.
On the other hand, if the personal representative opts to receive reasonable compensation for services, the personal representative must keep detailed records that can substantiate the reasonableness of the fees. These records should account for such factors as the types of services provided, the time and skills required to accomplish the services, the novelty or difficulty of issues encountered, the impact of service as personal representative on other opportunities for compensation, fees customarily charged in the area for similar services, the size of the estate and its income, potential liabilities associated with the service, results obtained for the estate, time constraints imposed by various circumstances, the personal representative’s experience, reputation, diligence and ability, and the reasonableness of the efforts expended.
The Bond Requirement
In order to protect the interests of heirs, devisees and creditors against the possibility that the personal representative might mishandle the estate, A. R. S. § 14-3603 requires the Personal Representative to file a bond. However, because such risk is often minimal, the statutes also provide several exceptions to this bond requirement. In fact, the exceptions are such that the filing of a bond in an informal probate is relatively uncommon. In cases where a bond is required, the amount of the bond can be provided in the will (see A. R. S. § 14-3604(A)) or, if not, it will generally not be less than the amount of the Personal Representative’s estimate of the value of the estate (less encumbrances), together with the annual income expected to be earned by the estate (see A. R. S. § 14-3604(A)). Several other factors, mentioned below, can also affect the bond amount.
Exceptions to the Bond Requirement
There are three exceptions to the bond requirement that often apply to an individual personal representative in an informal probate. In a testate probate, the bond requirement can be expressly waived in the will (see A. R. S. § 14-3603(A)(1)). Even if the will doesn’t expressly waive the bond requirement, this requirement can be waived by writings signed by all of the devisees (see A. R. S. § 14-3603(A)(2)). Similarly, in an intestate probate, the bond requirement can be waived by writings signed by all of the heirs (see A. R. S. § 14-3603(A)(2)).
Certain entities are exempt from the bond requirement when they serve as personal representative. These include most banks, savings and loans, title insurance companies, and certified trust companies (see A. R. S. § 14-3603(A)(3)).
The final exception to the bond requirement applies in the limited situation in which the estate is small enough to qualify for summary administrative procedures under A. R. S. § 14-3973 and the surviving spouse is either applying to serve as personal representative or is nominating someone to serve as personal representative.
Although there is generally no bond requirement under these exceptions, A. R. S. § 14-3603(A) provides that the court may still require a bond if an interested party petitions for a bond requirement, providing reasonable evidence that the interested party’s interest in the estate “in danger of being lost because of the administration of the estate.” Such a petition can even be filed by a party who earlier waived bond.
Reductions in the Bond Amount.
In cases where bond is required, the registrar may permit the amount of the bond to be reduced by the value of assets deposited in a restricted account with a domestic financial institution (see A. R. S. § 14-3604(A)). On petition by the personal representative or another interested party, the registrar may further reduce the bond amount, eliminate it altogether, or even increase it (see A. R. S. § 14-3604(A)).
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