She Can Be Compensated as Her Mother’s Executor — But Taking the Payment Could Make Part of Her Inheritance Taxable

Being named executor is already a demanding job, but whether to accept the fee can create a tax result many heirs do not consider until the estate is ready to issue payment.

When a parent dies, the person named as executor takes care of the estate paperwork, and siblings may question whether that person should be paid for the work. In many cases, the answer is yes. State law generally allows executors to receive reasonable compensation from the estate. Some states, including California, use a statutory percentage formula for executor fees, while others rely on a reasonableness standard that a probate court can review.

Executor fees and inheritances are treated differently for tax purposes. A fee is taxable income, while the inheritance used to pay that fee generally is not. For an executor who is also an heir, accepting the fee can therefore convert money that would have passed to her tax-free into taxable income.

Why an Inheritance Can Turn Into 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 compensation is treated differently. IRS Publication 17 states that all personal representatives must include executor fees paid from an estate in gross income.

A one-time relative who serves as executor reports the fee on Schedule 1 (Form 1040), line 8z. Only someone who is in the business of serving as an executor reports it as self-employment income on Schedule C. The same IRS guidance also notes that the fee is not included in income if it is properly waived.

Comparing a Fee With a Waiver

Consider an example based on several assumptions. She files as single, and her other income already places her in the 24% federal bracket. The estate offers a $30,000 fee, and state income tax is ignored.

• If she is the sole heir, the $30,000 would have come to her tax-free as inheritance anyway. As a fee, it creates $7,200 in federal tax, leaving her with $22,800.
• If she is one of three equal heirs, the fee reduces each share by $10,000. After tax, she keeps $22,800, which is $12,800 more than if she had waived the fee.

How the Estate’s Deduction Can Affect the Outcome

The estate may deduct administration expenses that are allowed under state law, according to 26 U.S.C. § 2053(a)(2). Executor fees fall into that category, but the deduction matters only if the estate is subject to estate tax. For deaths in 2026, the basic exclusion amount is $15,000,000. IRS data show that 7,195 estate tax returns were filed in 2024, and 2,663 of them reported net estate tax owed.

If the estate earns post-death income, such as interest or rent, it may instead claim the fee as an income-tax deduction. Section 642(g) does not allow the same expense to be deducted on both returns. Using the income-tax deduction requires a statement giving up the estate-tax deduction.

When Accepting the Fee Can Make Sense

There are three common situations where taking the fee may be worthwhile. One is when she does far more work than siblings who inherit equally, and the fee helps balance that effort. Another is when the estate owes estate tax or has income that can absorb the deduction. The third is when she is not an heir, because then the fee is the only payment she receives from the estate.

How to Waive the Fee Before It Becomes Income

Timing is critical when waiving compensation. Under Rev. Rul. 66-167, waived fees can still be included in the executor’s gross income unless the waiver is made in time. A University of Michigan Law School analysis says no gift results when a fiduciary waives commissions before beginning services. The usual steps are:

1. The decision is best made early, ideally before the work begins.
2. The waiver should be written and signed, with copies provided to the heirs and, if required, the probate court.
3. An executor who plans to waive compensation should avoid actions that imply she intends to collect it, such as accepting partial payments or listing the fee on an estate accounting.

A late waiver can create a tax problem. The IRS could treat the fee as income received by the executor and then given to the other heirs as a gift.

Reimbursements and the Family Conversation Before Any Payment

Reimbursement for out-of-pocket estate expenses, such as filing fees, appraisals, or travel, is separate from executor compensation. Keeping receipts helps make that distinction clear. The estate can repay those costs without treating the reimbursement as income. Before any payment is made, siblings often discuss whether she will take a fee, how much it will be, or whether she will waive it in writing.

An estate attorney handling probate in the relevant state can prepare the waiver and confirm the local fee rules.