To continue our discussion of executors from last week, let's talk about how executors are paid for what they do.

But, first, let's review the executor's job, as described by the New York City Bar (see tinyurl.com/2p8vhe6n):

-- Locating and making an inventory of all your property and transferring it to the estate;

-- Paying your bills and taxes;

-- Collecting debts owed to the estate;

-- Investing and managing your assets during the probate proceeding;

-- Distributing your property to those who you chose to receive it at the end of the probate proceeding.

The executor continues until the job is done and the estate is officially closed by the probate court. "Estates may be closed when the executor has paid all debts, expenses and taxes ... and has distributed all assets on hand," according to the American Bar Association's "Guidelines for Individual Executors & Trustees" (tinyurl.com/4tmfw4n2).

That can be a time-consuming process, depending on the size and complexity of the estate, and executors do get paid for their time and effort.

Some states set executor fees by statute. For example, New York's "executor's commission" is calculated based on the size of the probate estate using this formula, which is tied to "receiving and paying out" sums of money:

-- First $100,000 is 5%;

-- Next $200,000 is 4%;

-- Next $700,000 is 3%;

-- Next $4,000,000 is 2.5%;

-- The remaining amount greater than $5,000,000 is 2%.

The formula is found in Section 2307 of the New York Surrogate's Court Procedure (see tinyurl.com/2au2k5je).

The "value of the estate" excludes assets passing outside of the estate, such as IRAs or joint and survivor accounts or trusts.

For example, take a $10 million estate, of which $6 million is an IRA whose beneficiary is the daughter of the decedent. The IRA is a non-probate asset. The commissionable probate estate would be $4 million, not $10 million. The commission would be $109,000. If the entire $10 million were commissionable, the executor's fee would be $234,000. That's a big difference.

There is a handy calculator that you can use to estimate the New York executor commission at tinyurl.com/2mmwvc96. The calculator is provided by EstateExec.com.

If the estate is a Connecticut estate, there is no statutory formula. Instead, a "reasonableness" standard applies based on case law.

Nine factors come into play, based on a 1923 case called Hayward v. Plant (tinyurl.com/52s2nn3a). The factors are:

1. Size of the estate;

2. Responsibilities involved;

3. Character of the work required;

4. Special problems and difficulties met in doing the work;

5. Results achieved;

6. Knowledge, skill and judgment required;

7. Manner and promptness in which the matter was handled;

8. Time required;

9. Other relevant and material circumstances.

While these factors are unique to each situation, EstateExec.com provides this guidance: "A rule of thumb used by many Connecticut probate judges is that a fiduciary's fee of less than 4% of the gross estate is presumed reasonable, and many people believe that anything on the order of 3-5% is okay" (tinyurl.com/4fkzvwzh).

Time spent will be an important element.

If you live in another state, Executor.org provides an interactive map that shows the executor fees per state (tinyurl.com/3n27xt7r). (Be sure to double-check with your local lawyer.)

What can one expect in terms of time to settle an estate? While there really is no such thing as an average estate, based on research EstateExec conducted in 2018, think in terms of 16 months (tinyurl.com/3hmk62kk). Larger estates take longer -- $5 million-plus estates take an average of 42 months, according to EstateExec, while estates in the range of $50,000 to $250,000 take about 14 months.

Next week, we'll talk about additional resources. We'll also address two subjects that you might want to consider:

1. The conflicts of interest that might arise when asking your attorney to serve as your executor;

2. Why it's important to understand executor and trustee fees early in the estate planning process.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

In my practice as investment counsel to high-net-worth families, one of my roles is to help clients plan for family and charitable legacies. That involves integrating financial and estate planning, a subject I've written about from time to time. (If you would like a digital download of an article I wrote in connection with "The Discerning Investor," published by the American Bar Association, here is a link: tinyurl.com/2ujxrwzx.)

Over the years, I've seen what works and what doesn't in both large and small estates, and I'm happy to share some insights.

The first subject to tackle is the role of the executor, which opens up two issues: If you are chosen to serve in that capacity, should you? And, if you are an executor, where do you get help?

The executor's job is to move an estate through the probate court process to make sure the deceased's assets are transferred to heirs after paying the decedent's debts, including any federal and state estate taxes that may be due.

The job can be easy if there are few assets and debts and a simple legacy -- or daunting if the deceased's life and legacy wishes were not only complicated, but also disorganized.

A simple situation might be a single elderly individual who sold his home before moving into a long-term care facility, with a single brokerage account worth less than $1 million, and a single heir, an only child.

A much more complex estate is a very wealthy business owner of a private company whose current spouse and children will share assets with children born of prior marriages along with two charities. The individual has multiple homes in different states, multiple brokerage accounts, complex financial holdings (including illiquid holdings), a valuable art collection, tax-deferred assets with multiple custodians but no beneficiary designations, a few old 401(k) plans held with prior employers, and ongoing contractual obligations, including private jet services.

As you can imagine, the job of serving as executor for the simple situation is going to be ever so much easier to handle than the second. The choice of executor for the simple estate can easily be the only child or a friend. For the much more complex situation, the executor could be the spouse or a professional executor -- or both.

If you are asked to serve as executor of the simpler situation and you have the time to devote, there are some tools to get you organized.

To get a feel for the tasks involved, take a look at EstateExec's sample task sheet (tinyurl.com/3be5sav7), which lists more than 60 items -- from notifying people and companies about the person who passed away to finding and claiming assets and paying property taxes.

Another website, Executor.org, leads you through a few questions to produce a free, customized "Duties of an Executor" checklist with 100-plus steps (tinyurl.com/mr3bw2jb). Among the questions are "Is the person who appointed you as executor alive and able to discuss the estate with you?" and "Did/does the will writer own real estate? (typically home, condo, farm, etc.)"

These resources will get you going and prepare you to work with a probate attorney if you choose to engage one. Most lawyers will recommend that you do retain a lawyer, but that is not necessary in most states. The key is complexity and size of the estate. With any size estate, the software and tools can help you get organized, which will save time and potentially reduce legal fees. Lawyers will be essential resources for larger and more complex estates.

In the end, serving as an executor requires dedication and attention to detail. Organization is the key. I will be following up on this topic in a future column.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

Thank you to those readers of this column who took the Financial Industry Regulatory Authority (FINRA) quiz that I wrote about a few weeks ago (“FINRA Survey Shows Investors Need More Knowledge”). The quiz, with 11 questions, was part of the National Financial Capability Study, which is conducted every three years by the FINRA Foundation. (A special congratulations for those who achieved a perfect score!)

If you are a quiz taker, there is another, lengthier FINRA test that you might want to tackle, especially if you are either a do-it-yourself investor or a student who is interested in getting a job on Wall Street. Called the Securities Industry Essentials (SIE) Exam, the test has 75 multiple choice questions. To pass, you need to answer 70 questions correctly.

The nice thing is you can take a free practice test online, get scored and review your answers.

Let me share a few questions; I’ll give you the correct answers at the end of this column.

1. UTMA accounts are opened under the tax ID of the

A. Minor

B. Donor

C. Parent

D. Custodian

2. Which of the following stakeholders has first claim priority in a Chapter 11 proceeding?

A. Equity holders

B. Secured debt holders

C. Unsecured debt holders

D. Preferred stockholders

3. What is the cost basis of an inherited mutual fund?

A. The net asset value (NAV) of the shares when the owner dies

B. The NAV 30 days after the owner’s death

C. The same cost basis as the deceased

D. The same cost basis as the deceased plus capital gains distributions

To test your mettle, try the free SIE practice test (tinyurl.com/4bh334jd), which is the source of the above questions.

You can also sign up to officially take the test, which you might want to do if you have an interest in working in the financial services industry. Unlike other FINRA tests (example: Series 7), you do not need a financial firm to sponsor you. There is a cost ($80); scores are retained by FINRA for four years.

That part is easy. I would recommend, however, that you take your time to study for the test. Here’s why.

While the exam contains the types of easy questions we reviewed together, it also assesses financial industry knowledge. The SIE “is an introductory-level exam that assesses knowledge of basic industry information, including fundamental concepts such as types of products and their risks; the structure of the markets and regulatory agencies and their respective functions; and prohibited practices,” explains Alexandra Toton, Director of CRED (Credentialing, Registration, Education and Disclosure) Testing and Continuing Education at FINRA.

So, study first.

By the way, passing the test is only the first step into the industry. There are other qualification exams related to the securities business. But, importantly, the SIE is a way to set yourself apart from other candidates.

Toton explains that “because the SIE is required for many of the registrations, passing the SIE is a way for students to differentiate themselves from other candidates when seeking internships or jobs.”

If you are on that track, the FINRA website (tinyurl.com/4yteahkf) provides an overview section for enrolling for the test, as well as the exam’s downloadable content outline, which includes a breakdown of the exam’s categories. According to FINRA, 33 questions involve “Understanding Products and Their Risks,” followed by “Understanding Trading, Customer Accounts and Prohibited Activities” (23 questions), “Knowledge of Capital Markets” (12 questions) and “Overview of Regulatory Framework” (seven questions).

The correct answers for the questions above? 1) A; 2) B; 3) A. If you decide you want to test your knowledge, email me at readers@juliejason.com to let me know your results.

On another note, I invite attorneys to join me for a virtual presentation: “SEC Disclosure Tool (Form CRS) Helps Attorneys With Their Due Diligence When Referring a Financial Adviser to a Client,” on Feb. 28 at noon EST. Register at tinyurl.com/kauvrha6.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION