She’s the Executor of Her Mother’s Estate and Can Be Paid for It. Taking the Fee Turns Money She’d Have Inherited Tax-Free Into Taxable Income

When a parent dies, the person named executor handles the estate paperwork, and siblings sometimes raise whether the executor should be paid for that work. Most of the time, she can be. Under state law, executors are generally entitled to reasonable compensation from the estate. Some states, including California, set executor fees by a statutory percentage schedule (California Probate Code Section 10800). Others leave it to a “reasonable” standard that a probate court can review.

Executor fees and inheritances are taxed differently. The fee counts as taxable income, while the inheritance it’s paid out of generally doesn’t. So for an executor who’s also an heir, taking the fee can turn money she’d have inherited tax-free into taxable income.

How Tax-Free Inheritance Money Becomes Taxable Pay

Federal law excludes inheritances from income. Under 26 U.S.C. § 102(a), gross income “does not include the value of property acquired by gift, bequest, devise, or inheritance.” Executor fees go the other way. IRS Publication 17 says, “All personal representatives must include in their gross income fees paid to them from an estate.”

A relative serving one time reports the fee on Schedule 1 (Form 1040), line 8z. Only someone in the trade or business of being an executor reports it as self-employment income on Schedule C. The same publication adds one more line: “The fee isn’t includible in income if it’s waived.”

A Fee Versus No Fee, Side by Side

Here’s an example built on a few assumptions. She files single, and her other income already puts her in the 24% federal bracket, which starts at $105,700 in 2026. The estate offers a $30,000 fee. State income tax is left out.

• If she’s the only heir, that money would reach her tax-free as inheritance anyway. As a fee, it carries $7,200 in federal tax, leaving her $22,800.
• If she’s one of three equal heirs, the fee cuts each share by $10,000. She keeps $22,800 after tax, which is $12,800 more than if she waived it.

When the Estate’s Deduction Changes the Math

The estate can deduct administration expenses allowed under state law, under 26 U.S.C. § 2053(a)(2). Executor fees fall in that category, as the deduction helps only if the estate owes estate tax. For people who die in 2026, the basic exclusion amount is $15,000,000. IRS figures show 7,195 estate tax returns filed in 2024, and 2,663 of them owed net estate tax.

An estate that earns income after the death, such as interest or rent, may be able to deduct the fee on its income tax return instead. Section 642(g) bars deducting the same expense on both returns, though. Claiming it against income means filing a statement that gives up the estate tax deduction.

Cases Where Taking the Fee Adds Up

The fee makes sense in three situations. One is when she does far more work than siblings who inherit equally, and the fee evens that out. Another is when the estate owes estate tax or has income the deduction can offset. The last is when she isn’t an heir, since then the fee is the only money she gets from the estate.

How to Waive the Fee Before It Counts as Income

Timing is the main factor in a waiver because, under Rev. Rul. 66-167, waived fees remain includible in the executor’s gross income unless the executor executes the waiver in time. A University of Michigan Law School analysis notes that no gift results when a fiduciary waives commissions before commencing his services. The usual sequence looks like this:

1. The decision is usually made early, ideally before the work starts.
2. The waiver must be in writing and signed, with copies sent to the heirs and, if local rules require it, the probate court.
3. A declining executor generally avoids anything that suggests she plans to collect, like taking partial payments or listing the fee on an estate accounting.

A late waiver can create a tax issue. The IRS could treat the fee as income she received and then handed to the other heirs as a gift.

Reimbursements and the Talk to Have Before Anyone Is Paid

Reimbursement for her own out-of-pocket estate costs, like filing fees, appraisals, or travel, is a refund and separate from the fee. Keeping receipts makes that clear. The estate can reimburse out-of-pocket costs without it being income. Before the estate pays anyone, siblings sometimes discuss whether she’ll take a fee, how much, or whether she’ll waive it in writing.

An estate attorney handling probate in the state can draft the waiver and confirm local fee rules (many of these executor concerns trace back to paperwork decisions made years earlier, which is the whole point of our free estate checklist: Die With a Plan).

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