Serving as a personal representative takes a lot of time. As a result, some personal representatives consider charging the estate for their time as permitted under Minn. Stat. 524.3-719.
As appealing as that can be, the attorney should help the personal representative consider all the consequences of that decision. One consequence that is often overlooked is that fees paid to the personal representative are taxable and must be included in their gross income. As a result, the estate may be required to generate a 1099.
Additionally, self-employment taxes may apply. Professional personal representatives always pay self-employment tax. Non-professional personal representatives do not pay self-employment tax unless the following conditions are met:
- a trade or business is included in the estate’s assets;
- the personal representative actively participates in the business; and
- the fees are related to the operation of the business.
See IRS Publication 559 for more information.
As a footnote, always remember to include fees paid to the personal representative on the final account as required by Minn. Stat. 525.48.