Calculating Executor Compensation in Kentucky: The 5% Rule Explained
In Kentucky, executor compensation is capped at 5% of the decedent's personal estate value plus 5% of all estate income collected during probate. Under Kentucky Revised Statutes (KRS § 395.150), real estate is excluded from the base unless the District Court approves extraordinary fees.
When a personal representative in Louisville, Lexington, or Bowling Green writes themselves a commission check based on the total gross value of an estate-including the family home-they risk a court-ordered surcharge, personal financial liability, and removal by a probate judge. Unlike states that use sliding-scale fee schedules tied to gross assets, Kentucky enforces a strict statutory ceiling based exclusively on probated personal property and collected estate income. Misinterpreting which assets count toward this percentage is one of the most frequent triggers for beneficiary objections and contested estate litigation across the Commonwealth.
Serving as an executor or administrator involves months of financial responsibility, from inventorying bank accounts to resolving creditor claims and filing state inheritance tax returns. While Kentucky law recognizes that fiduciaries deserve fair payment for this labor, personal representatives must follow strict accounting rules and secure approval from the District Court before paying themselves. Whether you are administering an estate in Jefferson County, Fayette County, or Kenton County, understanding how Kentucky courts calculate fiduciary fees protects both your compensation and your legal standing.
Understanding the Kentucky 5% Rule Under KRS § 395.150
In Kentucky, the compensation of an executor, administrator, or curator is governed by Kentucky Revised Statutes (KRS § 395.150). Subsection (1) of the statute establishes a two-part formula for standard fiduciary commissions:
- Up to 5% of the Personal Estate: The personal representative may request up to 5% of the fair market value of the decedent's personal estate passing through probate as of the date of death.
- Up to 5% of Collected Income: The personal representative may also request up to 5% of the gross income collected by the fiduciary on behalf of the estate during the administration period, such as stock dividends, interest payments, farm crop proceeds, or rental income deposited into the estate account.
A critical legal principle in Kentucky probate practice is that 5% is a statutory ceiling, not an automatic floor or guaranteed flat fee. In the landmark decision Clay v. Eager, 444 S.W.2d 124 (KY Court of Appeals 1969), and reaffirmed in Kentucky Bar Ass'n v. Profumo, 931 S.W.2d 149 (KY Supreme Court 1996), Kentucky's highest court held that Kentucky Revised Statutes (KRS § 395.150) fixes only the maximum threshold a probate court may allow for ordinary services. If an estate consists of a single $800,000 bank account that requires minimal effort to collect and distribute, a District Court judge has the discretion to award a smaller reasonable sum rather than the full $40,000 maximum.
Furthermore, the 5% calculation applies only to probate personal property. Assets that bypass probate altogether-such as life insurance policies payable to a named individual, 401(k) retirement accounts with designated beneficiaries, payable-on-death (POD) bank accounts, or property held in a revocable living trust-are excluded from the standard commission base.
| Asset Category | Included in 5% Base? | Statutory & Legal Treatment in Kentucky |
|---|---|---|
| Solely Owned Bank & Brokerage Accounts | Yes (Up to 5%) | Core probate personalty reported on the 90-day inventory and distributed by the executor. |
| Vehicles, Jewelry, Livestock & Equipment | Yes (Up to 5%) | Tangible personal property valued at date-of-death fair market value counts toward the base. |
| Dividends, Interest & Estate Rental Income | Yes (Up to 5%) | Qualifies as income collected by the personal representative during administration. |
| Kentucky Real Estate (Default Rule) | No | Title vests directly in heirs or devisees at death unless sold under a will mandate or court order. |
| Non-Probate Assets (POD, TOD, Life Insurance) | No | Transfers outside probate by contract; eligible only for extraordinary tax work fees if proven. |
Can Executors Charge a Commission on Kentucky Real Estate Sales?
One of the most common pitfalls for Kentucky executors is assuming they can take a 5% commission on the value of the deceased person's house or farmland. Under well-established Kentucky case law, including Slone v. Casey, 194 S.W.3d 336 (KY Court of Appeals 2006) and Turner v. Perry County Coal Corp., 242 S.W.3d 658 (KY Court of Appeals 2007), title to real property passes instantaneously by operation of law to the heirs-at-law (in an intestate estate) or to the named devisees (under a will) at the exact moment of death. Because real property does not pass through the personal estate by default, an executor cannot include the value of real estate distributed in-kind when calculating the 5% fee.
In Hale v. Moore, 289 S.W.3d 567 (KY Court of Appeals 2008), and its companion disciplinary ruling Kentucky Bar Ass'n v. Fernandez, 397 S.W.3d 383 (KY Supreme Court 2013), a personal representative calculated her commission using the decedent's gross estate-including substantial real property-rather than the personal estate alone. The appellate courts struck down the fee as unlawful and excessive under Kentucky Revised Statutes (KRS § 395.150), requiring the representative to refund the overcharge.
However, Kentucky law provides two specific avenues where an executor may be compensated for work involving real property:
- Mandatory Sale or Conversion into Personalty: If the Last Will and Testament explicitly directs the executor to sell the real estate and distribute the cash proceeds as part of the residuary personal estate (a legal doctrine known as equitable conversion), or if the personal estate is insufficient to pay debts and the fiduciary obtains an order from the District Court under Kentucky Revised Statutes (KRS § 389A.010) to sell the property, the net proceeds actually received and administered by the executor may become part of the personal estate base.
- Extraordinary Services Under KRS § 395.150(2): Under Kentucky Revised Statutes (KRS § 395.150) subsection (2)(b), if the executor performs additional services in connection with real estate-such as rehabilitating a dilapidated home, managing commercial tenants, resolving title defects, or overseeing property maintenance-the court may award fair and reasonable additional compensation upon itemized proof submitted to the judge.
How Co-Executors Split the Fee and Dual-Role Restrictions
When a testator names two or more siblings or family members to serve together as co-executors, each co-executor does not receive a separate 5% commission. Instead, the 5% cap under Kentucky Revised Statutes (KRS § 395.150) applies to the office of the personal representative as a single unit. Co-executors must divide a single commission pool-never exceeding 5% in total for ordinary administration-either by mutual written agreement or in proportion to the actual labor and responsibility each co-executor contributed.
Special rules also apply when an attorney serves as the executor of a Kentucky estate. In Kentucky Bar Ass'n v. Profumo, 931 S.W.2d 149 (KY Supreme Court 1996), the Kentucky Supreme Court strictly prohibited a lawyer from collecting both a full statutory executor's commission and separate hourly legal fees-a practice known as double-dipping-unless the testator's will expressly appointed the individual in both capacities as executor and estate attorney, demonstrating clear intent for dual compensation.
Step-by-Step Process for Claiming Executor Compensation in Kentucky
Whether you are filing in the Jefferson County District Court, Probate Division, Louisville, the Fayette County District Court, Probate Division, Lexington, the Kenton County District Court, Probate Division, Covington, or the Warren County District Court, Probate Division, Bowling Green, claiming your fiduciary commission follows a structured judicial process.
Step 1: Establish the Personal Estate Baseline on the 90-Day Inventory
Within 90 days of your appointment, Kentucky Revised Statutes (KRS § 395.250) requires you to file Form AOC-841, Kentucky, Administrative Office of the Courts, Inventory and Appraisement of Estate. Because your ordinary commission cap is tied directly to the value of the personal estate, you should clearly separate probate personal property (bank accounts, stocks, vehicles, household goods) from real property on the inventory schedules.
Step 2: Maintain Contemporary Time Logs and Income Ledgers
Even if you intend to request a standard percentage commission under Kentucky Revised Statutes (KRS § 395.150) subsection (1), Kentucky probate judges frequently evaluate whether a percentage fee is reasonable by comparing it against the time actually expended. Keep a detailed log recording dates, tasks performed, hours spent, and out-of-pocket expenses (such as mileage, postage, and court costs, which are reimbursed separately from your commission). If you plan to request extraordinary compensation under subsection (2) for real estate management, business liquidation, or preparing complex inheritance tax filings, itemized time records are mandatory.
Step 3: Disclose and Request Approval in the Estate Settlement
An executor should never write themselves a commission check early in the probate process without beneficiary consent or court authorization. Instead, the commission is formally claimed when settling the estate after the mandatory six-month creditor period expires under Kentucky Revised Statutes (KRS § 396.011):
- Informal Final Settlement: If all beneficiaries agree to the commission and sign Form AOC-851, Kentucky, Administrative Office of the Courts, Affidavit of Waiver of Formal Settlement pursuant to Kentucky Revised Statutes (KRS § 395.605), the executor may pay the agreed fee and close the estate using Form AOC-850, Kentucky, Administrative Office of the Courts, Informal Final Settlement: Affidavit, Motion, and Order.
- Formal Final Settlement: If waivers cannot be obtained or if you are requesting extraordinary fees above the 5% cap, you must file an itemized accounting on Form AOC-846, Kentucky, Administrative Office of the Courts, Settlement of Estate under Kentucky Revised Statutes (KRS § 395.610), supported by an affidavit detailing your services and calculation for the District Court judge to review and approve.
Are Executor Fees Taxable Income in Kentucky?
Yes. Under the federal Internal Revenue Code (26 U.S.C. § 61) and Kentucky income tax provisions under Kentucky Revised Statutes (KRS § 141.020), all compensation received for serving as an executor or administrator is taxed as ordinary income in the calendar year it is paid. By contrast, money received as a bequest or inheritance is generally excluded from federal gross income under Internal Revenue Code (26 U.S.C. § 102), and Class A beneficiaries (surviving spouses, parents, children, grandchildren, and siblings) are completely exempt from Kentucky inheritance tax under Kentucky Revised Statutes (KRS § 140.080).
Because of this tax gap, if an executor is also the sole beneficiary (or one of several Class A family beneficiaries sharing the estate equally), taking an executor commission often converts a tax-free inheritance into taxable ordinary income. However, if the estate owes Kentucky inheritance tax because assets pass to Class B or Class C beneficiaries (such as nieces, nephews, cousins, or non-relatives), executor commissions are an allowable administration deduction on Form 92A200, Kentucky, Department of Revenue, Kentucky Inheritance Tax Return filed with the Kentucky Department of Revenue, Frankfort, as well as on Form 1041, Federal, IRS, U.S. Income Tax Return for Estates and Trusts.
What to Do If Beneficiaries Object to the Requested Commission
When a formal settlement is filed on Form AOC-846, Kentucky, Administrative Office of the Courts, Settlement of Estate, the court clerk publishes a notice of the proposed settlement in the local newspaper under Kentucky Revised Statutes (KRS § 395.620). Any beneficiary or creditor who believes the requested executor fee is miscalculated or excessive may file written Exceptions to the Settlement before the confirmation hearing date pursuant to Kentucky Revised Statutes (KRS § 395.617).
Once exceptions are filed, an adversarial dispute arises. Under Kentucky Revised Statutes (KRS § 24A.120) and the jurisdictional rule established in Lee v. Porter, 598 S.W.2d 465 (KY Court of Appeals 1980), District Courts only have jurisdiction over uncontested probate matters. If a fee objection turns into an adversarial estate settlement action under Kentucky Revised Statutes (KRS § 395.510), the dispute may be litigated in the Circuit Court, such as the Jefferson County Circuit Court, Louisville or the Fayette County Circuit Court, Lexington. If you are facing a fee dispute-either as a personal representative defending your hard work or as an heir challenging an inflated commission-you can browse our directory of experienced Kentucky probate lawyers to find local legal counsel to represent your interests in court.
Typical Costs and Timelines for Approving Executor Commissions
- Formal Settlement Filing & Advertisement Fees: Filing a formal settlement (Form AOC-846, Kentucky, Administrative Office of the Courts, Settlement of Estate) typically costs $25 to $50 in court costs and mandatory newspaper publication fees, whereas an informal settlement (Form AOC-850, Kentucky, Administrative Office of the Courts, Informal Final Settlement: Affidavit, Motion, and Order) carries no publication fee.
- Probate Attorney Fees: Kentucky probate attorneys generally charge between $225 and $425 per hour (or a negotiated flat fee) to prepare estate accountings, calculate lawful commissions, and draft petitions for extraordinary fees. Legal fees are paid from estate funds as an administration expense subject to court review.
- Approval Timeline: An informal final settlement with signed beneficiary waivers is typically approved by the District Court within 1 to 3 weeks. A formal settlement must lie over for at least one month to allow for publication and the exception period under Kentucky Revised Statutes (KRS § 395.620), taking roughly 30 to 60 days for final confirmation if uncontested, or 6 to 12 months if contested in Circuit Court.
Frequently Asked Questions (FAQ)
What if a Kentucky will specifies a different executor fee than KRS § 395.150?
If a Last Will and Testament sets a specific dollar amount or a lower percentage for executor compensation, that provision generally binds the executor unless they formally renounce the will's compensation clause before qualifying or shortly after appointment and elect to be compensated under Kentucky Revised Statutes (KRS § 395.150). Conversely, a will clause cannot override the court's authority to prevent unconscionable fees if creditors or statutory heirs are harmed.
Are out-of-pocket expenses deducted from the executor's 5% commission?
No. Legitimate out-of-pocket expenses advanced by the personal representative-such as court filing fees, fiduciary bond premiums, certified mail costs, property insurance, and reasonable travel expenses-are reimbursed 100% from the estate as administrative expenses on top of any statutory commission earned for services.
Does the 5% cap apply to gross personal estate value or net value after debts?
Under Kentucky Revised Statutes (KRS § 395.150), the 5% ceiling is calculated on the value of the decedent's probate personal estate actually received and administered by the fiduciary, prior to deducting unsecured creditor claims paid by the executor. However, if personal property is subject to a specific pledged lien or margin loan where only the net equity comes into the executor's hands, courts typically calculate the fee on the actual funds handled.
How do I waive my executor fee in Kentucky to avoid paying income tax?
To avoid constructive receipt of taxable income under Internal Revenue Service rules, an executor who wishes to serve without compensation should sign a formal written waiver of compensation early in the administration-ideally at appointment or when filing the 90-day inventory-and indicate on the final settlement that no fiduciary commission was claimed or paid.
Can a Kentucky probate judge forfeit an executor's commission entirely?
Yes. If a personal representative engages in self-dealing, commingles estate funds with personal accounts, misses statutory inventory or settlement deadlines without good cause, or causes financial loss to the estate, the court has the equitable authority to reduce or completely deny fiduciary compensation and surcharge the executor personally.
Does Kentucky's 5% executor fee rule also apply to trustees of a living trust?
No. As clarified in Hale v. Moore, 289 S.W.3d 567 (KY Court of Appeals 2008) and Kentucky Revised Statutes (KRS § 395.001), testamentary trustees and living trust trustees are not governed by the 5% probate cap in Kentucky Revised Statutes (KRS § 395.150). Instead, trustee compensation is governed by the terms of the trust instrument or the reasonable compensation standard under the Kentucky Uniform Trust Code.
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