Key Takeaways:
- When a partner serves as executor, whether the fee belongs to the firm or individual depends primarily on your partnership agreement—most agreements require all professional income to be contributed to the firm, but fiduciary roles often create exceptions
- Estate law firms should establish clear written policies on fiduciary appointments before partners accept executor or trustee roles, as ambiguity creates partnership disputes and potential conflicts of interest
- Proper tracking and billing systems are essential for transparently managing executor fees separate from legal fees—which typically cannot be claimed together for the same work under most state ethics rules
Picture this: Your senior partner just accepted an appointment as executor for a longtime client’s $4 million estate. The statutory executor fee alone could exceed $80,000. Now comes the awkward question nobody wants to ask at the next partner meeting: Who keeps that money?
If you’re running a mid-sized estate law firm and this scenario gives you pause, you’re not alone. The intersection of executor compensation, partnership economics, and professional ethics creates one of the more nuanced financial questions in estate practice—and getting it wrong can lead to partner disputes, tax complications, and even ethics violations.
Let’s untangle this knot once and for all.
The Dual Role Dilemma: Understanding Attorney-Executors
Before diving into the money question, it’s essential to understand why this situation even exists. Estate planning attorneys frequently find themselves named as executors or trustees in the documents they draft. According to the ACTEC Foundation, this happens for legitimate reasons: clients trust their long-standing attorney, want professional administration, or simply lack suitable family alternatives.
The ABA Model Rules of Professional Conduct don’t prohibit this arrangement. Rule 1.8, Comment 8 specifically notes that lawyers may be named as executors or trustees, though such appointments remain “subject to the general conflict of interest provision in Rule 1.7 when there is a significant risk that the lawyer’s interest in obtaining the appointment will materially limit the lawyer’s independent professional judgment.”
The critical ethical requirement? Full disclosure to the client about the nature and extent of the lawyer’s financial interest in the appointment, as well as the availability of alternative candidates.
But here’s where it gets interesting: When a partner in your firm accepts the executor role, they’re suddenly wearing two hats—and potentially earning two separate streams of compensation.
Breaking Down the Revenue Streams
When a partner serves as executor, two distinct compensation categories emerge:
Attorney Fees: Compensation for legal services rendered to the estate—drafting pleadings, appearing in probate court, preparing tax returns, advising on asset distribution. These fees are earned in the attorney’s professional capacity and typically flow through normal firm billing.
Executor Fees (or Fiduciary Commissions): Compensation for serving as executor—marshaling assets, paying creditors, making distributions, keeping records, filing accountings. These are non-legal services that any qualified executor could perform, whether attorney or not.
Here’s the critical distinction: In most states, an attorney who serves as both executor and attorney for the estate cannot receive compensation for both roles when performing the same work. California’s Estate of Parker decision established this principle clearly—public policy precludes the conflict of interest that arises when an executor-attorney “employs himself” to perform legal services.
This doesn’t mean dual compensation is prohibited—it means the work must be clearly segregated and separately documented.
Where Does the Money Go? Firm vs. Individual
Now we arrive at the central question. When a partner earns executor fees, do those fees belong to the partner personally or must they be contributed to the firm?
The honest answer: It depends almost entirely on your partnership agreement.
The Default Partnership Rule
In the absence of specific provisions, general partnership law creates a presumption that all income earned by partners in connection with partnership business belongs to the partnership. Partners have a fiduciary duty to account for profits derived from partnership activities.
A landmark Canadian case, McKnight v. Hutchison, examined this exact issue. The partnership agreement contained language allowing partners to “conduct business, other than the practise of law, upon notice to the other partners, and receive remuneration separately therefrom.” The agreement specifically listed “acting as executor of an estate” as an activity that could qualify for separate compensation—except where the appointment occurred “by reason of succeeding another partner or previous partner due to the membership in the partnership.”
The court’s analysis hinged on whether the executor appointment arose from the partnership relationship. If the partner was appointed because of their role at the firm, the compensation belonged to the firm. If the appointment was truly personal and independent, the partner could retain the fees.
Common Partnership Agreement Approaches
Most well-drafted law firm partnership agreements take one of three approaches:
Approach 1: All Income to the Firm
Some agreements require all professional income—including fiduciary fees—to be contributed to the partnership. The rationale: The partner likely obtained the appointment through firm resources, client relationships, and firm reputation. This approach provides simplicity but may create resentment among partners who take on significant executor work.
Approach 2: Fiduciary Fees to the Individual
Other agreements carve out fiduciary appointments as personal to the partner. This recognizes that executor work often involves significant personal time outside normal firm hours and carries personal liability. The partner accepts the appointment individually and retains the compensation.
Approach 3: Hybrid Arrangements
The most sophisticated agreements use formulas—perhaps splitting executor fees 50/50, or allowing individual retention after the partner hits certain revenue targets, or treating differently appointments that arise from firm clients versus personal relationships.
The Revenue Recognition Challenge
Regardless of which approach your firm takes, proper tracking is essential. Executor fees must be:
- Clearly distinguished from legal fees in firm records
- Tracked for the individual partner if retained personally
- Properly reported for tax purposes
- Documented to demonstrate compliance with ethics rules separating executor and attorney work
This is where robust legal billing software becomes invaluable. You need systems capable of tracking time against different compensation categories and generating reports that demonstrate the separation of legal and fiduciary services.
State Fee Structures: What’s Actually at Stake?
Understanding the financial magnitude helps frame the importance of getting this right. Executor compensation varies significantly by state:
Statutory Fee States (specific percentages set by law):
- California: 4% of first $100,000, 3% of next $100,000, 2% of next $800,000, declining thereafter
- New York: 5% of first $100,000, 4% of next $200,000, 3% of next $700,000, 2.5% of next $4 million, 2% above $5 million
- Florida: 3% of first $1 million, 2.5% of next $4 million, 2% of next $5 million
Reasonable Compensation States (court discretion):
- Connecticut, Delaware, Colorado, and approximately 20 other states use “reasonable compensation” standards
- Courts typically look to customary fees in the locality—often landing around 1.5% to 3%
For a $2 million estate in New York, the statutory executor fee would be approximately $58,000. In California, about $53,000. That’s not trivial income—and it’s why clarity about entitlement matters.
Ethical Guardrails and Conflicts of Interest
The ethics analysis doesn’t end with partnership economics. Partners serving as executors must navigate several additional considerations:
The Self-Employment Rule
In states like California, an attorney-executor generally cannot receive compensation for legal services rendered to an estate they’re administering. The only exception: where the will specifically provides for double compensation. This rule prevents executors from essentially hiring themselves and approving their own legal bills.
Disclosure Requirements
Under ABA Model Rule 1.8, a lawyer seeking to be named as a fiduciary in documents they’re drafting must provide the client informed consent. This requires disclosure of:
- The nature and extent of the lawyer’s financial interest
- The availability of alternative candidates
- Any implications for future legal fees
Beneficiary Considerations
Attorneys serving as executors may owe fiduciary duties not just to the estate but potentially to beneficiaries. Several courts have adopted the “fiduciary exception” to attorney-client privilege, holding that beneficiaries have rights to disclosure of legal advice as it relates to estate administration.
The Illinois Appellate Court put it plainly: “Given that the relationship between an administrator and a beneficiary is fiduciary in character and the primary duties of the administrator are to collect and pay debts and distribute any remaining assets to a decedent’s heirs, it perplexes this court how any attorney retained to assist in that purpose would not correspondingly owe a duty of care to that estate.”
Tax Implications: Another Layer of Complexity
Executor fees come with their own tax considerations that affect both the individual partner and potentially the firm:
For the Executor: Executor fees are ordinary income, fully taxable. Unlike inherited assets, there’s no basis step-up or exclusion. If the partner is also a beneficiary, they might be better off waiving the executor fee and simply receiving their inheritance tax-free.
Self-Employment Tax: For professional executors (which likely includes any attorney), executor fees are subject to self-employment tax in addition to income tax. Revenue Ruling 58-5 establishes that professional fiduciaries are always considered to be in the trade or business of being fiduciaries.
Partnership Tax Treatment: If executor fees flow to the firm, they become partnership income and must be allocated according to your partnership agreement—potentially affecting multiple partners’ tax situations.
These considerations underscore the importance of involving your accountant in policy discussions about fiduciary fee treatment.
Building a Policy That Works
Based on industry practices and the considerations we’ve explored, here’s a framework for developing your firm’s approach:
Step 1: Audit Your Current Agreement
Pull out your partnership agreement and answer these questions:
- Does it specifically address fiduciary appointments?
- Does it distinguish between appointments arising from firm relationships versus personal relationships?
- Does it require notice to other partners before accepting appointments?
- Does it specify how fiduciary compensation should be handled?
If the answers are unclear or the agreement is silent, you’ve identified a governance gap that needs attention.
Step 2: Evaluate Your Firm’s Philosophy
Different philosophies are legitimate—but you need alignment among partners. Consider:
- Does your firm view executor appointments as firm business or personal practice?
- How much executor work do your partners actually perform?
- What’s the relationship between executor appointments and ongoing legal work for estates?
- How do you handle the time commitment and liability exposure?
Step 3: Draft Clear Policies
Whether you amend your partnership agreement or adopt a separate policy, address these elements:
Disclosure and Notice: Require partners to disclose potential fiduciary appointments to the firm before acceptance.
Conflict Review: Establish a process for evaluating whether the appointment creates conflicts with firm clients or between partners.
Fee Treatment: Specify whether fiduciary fees belong to the firm, the individual, or some hybrid arrangement.
Billing and Tracking: Require separate tracking of fiduciary time versus legal time, with clear documentation supporting the allocation.
Ethics Compliance: Build in safeguards ensuring compliance with state ethics rules on dual compensation.
Step 4: Implement Supporting Systems
Your time tracking and billing systems should be configured to:
- Create separate matter types for executor/fiduciary work versus legal representation
- Track time with sufficient detail to demonstrate work segregation
- Generate reports showing the allocation of partner time and revenue by category
- Maintain documentation supporting any dual compensation arrangements
This is where integrated legal billing software provides significant value—you need the ability to track complex compensation arrangements while maintaining the documentation that satisfies both ethics requirements and partnership accounting needs.
Real-World Best Practices from Leading Firms
Estate planning firms that handle this well typically share several characteristics:
Transparency: Partners discuss fiduciary appointments openly. There’s no sense that anyone is hiding income or capturing firm opportunities for personal benefit.
Fairness: The economic arrangement reflects the reality of the work. If executor appointments bring significant business development value to the firm, the firm participates in the economics. If appointments create personal liability and time burdens without firm benefit, partners retain more of the compensation.
Documentation: Every step is documented—the engagement letter, the fee petition, the time records, the partnership allocation. When questions arise, answers exist.
Compliance: Ethics rules are followed meticulously. Legal fees and executor fees are never conflated for the same work. Disclosures are made. Conflicts are identified and addressed.
When Things Go Wrong: Cautionary Tales
The cases that generate disputes share common patterns:
The Silent Agreement: Partner accepts executor appointment without firm knowledge, pockets $75,000 fee, firm discovers later. Result: Partnership dispute, potential breach of fiduciary duty claim.
The Double-Dip: Attorney-executor bills estate hourly for “legal services” that overlap substantially with executor duties. Result: Fee objection, court reduction, potential ethics complaint.
The Tax Surprise: Firm treats executor fees as partnership income but fails to properly report or withhold. Result: Partner tax liability, potential penalties.
The Beneficiary Complaint: Executor takes maximum statutory fee while delegating all substantive work to firm associates billed at full rates. Result: Beneficiary surcharge action, fee reduction.
These scenarios are avoidable with proper policies and procedures in place.
The Bottom Line
The question of whether executor fees belong to the firm or the individual partner doesn’t have a universal answer—but it absolutely requires a clear answer within your firm.
The firms that handle this well treat the issue systematically: They have written policies, they track time properly, they separate fiduciary work from legal work, and they ensure everyone understands the economic arrangement before appointments are accepted.
The firms that struggle ignore the issue until it creates conflict, fail to document the allocation of work, or assume that whatever approach they’ve been using is fine without actually examining their partnership agreement or ethics rules.
For mid-sized estate law firms, getting this right matters. Executor appointments can represent significant revenue streams—and significant liability exposure. Your partners deserve clarity about the economics, your clients deserve compliant service, and your firm deserves systems that capture and allocate revenue appropriately.
Start with your partnership agreement. Add clear policies. Implement proper tracking systems. And don’t let the first conversation about executor fees be the one that happens when partners disagree about $80,000.
Frequently Asked Questions
Q: Can a partner receive both attorney fees and executor fees from the same estate?
A: In most states, yes—but only if the work is clearly segregated. An attorney-executor cannot charge legal fees for work that constitutes executor duties. States like California have established that dual compensation requires explicit will provisions and genuine separation of roles. Best practice: Maintain detailed time records distinguishing legal work from fiduciary administration, and consider having another firm attorney serve as estate counsel if conflicts become significant.
Q: What happens if our partnership agreement is silent on executor fees?
A: In the absence of specific provisions, general partnership principles likely apply—meaning income earned in connection with partnership business belongs to the partnership. The analysis will depend on whether the appointment arose from the firm relationship or was truly personal to the individual partner. To avoid disputes, amend your agreement to address this specifically.
Q: Should executor fees be reported as firm revenue or individual income?
A: This depends entirely on your partnership agreement and chosen approach. If fees belong to the firm, they’re partnership income allocated according to your agreement. If fees belong to the individual, they’re personal income (subject to self-employment tax for professional fiduciaries). Either approach is legitimate—but the characterization must be consistent and properly documented for tax purposes.
Q: How do we handle situations where the executor appointment comes through the firm but the partner wants to retain the fee?
A: This requires transparent discussion among partners. Some firms allow individual retention but require the partner to pay a “desk fee” or revenue-sharing percentage. Others maintain that client-sourced appointments are firm business regardless of who does the work. The key is having the conversation before the appointment is accepted, not after the fees are earned.
Q: What documentation should we maintain to support dual compensation?
A: Keep contemporaneous time records showing: (1) time spent on legal services (court appearances, document drafting, legal advice), and (2) time spent on fiduciary services (asset marshaling, creditor payment, beneficiary communication). Maintain separate billing entries or matter numbers for each category. If you bill both categories, be prepared to justify to a court or ethics committee why the work genuinely falls into separate roles.
Sources
- ABA Model Rules of Professional Conduct, Rules 1.7, 1.8, 5.4
- California State Bar Standing Committee on Professional Responsibility, Formal Opinion 1993-130
- Estate of Parker (1926) 200 Cal. 132
- McKnight v. Hutchison, 2013 BCCA 340 (Canada)
- New York Surrogate’s Court Procedure Act § 2307
- ACTEC Commentaries on the Model Rules of Professional Conduct
- IRS Revenue Ruling 58-5, 1958-1 C.B. 322
- Texas Disciplinary Rules of Professional Conduct, Rule 1.04
- ABA Formal Opinion 02-426
- New Hampshire Bar Ethics Opinion 2008-09/01
