What is a fair interest rate for this debt I owe?
January 10, 2014 11:50 AM   Subscribe

I was the executor of my mother's estate after she died in February of 2006. The estate was discharged in March of 2007, and the assets distributed to my brother, my nephews, and me according to the terms of the will. All the assets, that is, except for $6,000 that I left in the estate's checking account as a hedge against unforeseen developments. There have been no further developments, and the money has sat in the checking account all these years. The account is non-interest-bearing. I've been remiss in waiting so long to disburse the funds, and in not obtaining any interest for them in the meantime. I want to make this right. How can I do so?

What occurs to me is to determine what kind of account would have been appropriate for the funds, and then to figure out how much interest would have accumulated over the term. I would then pay my brother and nephews their respective shares of that interest, in addition to their shares of the $6,000 principal. Can you tell me what would have been the appropriate type of account and how to calculate the interest?

Beyond the question of a fair interest rate, I'm thinking that I owe something more as an acknowledgment that I should have disbursed the funds sooner. Is that right? If so, how would I arrive at a number?

Thank you.
posted by saywhat to Work & Money (14 answers total)
Averages for money market accounts.

Saving accounts have paid next to no interest even since 2007, so I expect anything from 0% to 0.5% would be a pretty realistic market rate.

Using a compound interest calculator (or look upo the formulas yourself) - 7 years, .5%, quarterly compounding (use annual or monthly if you'd rather) it comes to about $6,214. Anything close to that is pretty much right.
posted by GuyZero at 11:59 AM on January 10, 2014 [1 favorite]

Is that right?

Nope. You performed a substantive amount of work by being the executor of your mother's estate, which makes up for any trivial amount of interest payments. You did the right thing by keeping a hedge against future developments. Although you probably should have put this in an interest-bearing account, you would not have earned more than a percent of so interest, which adds up to a couple hundred dollars. That's not worth worrying about, and it's absolutely not worth paying out of your own pocket. If any of your relatives even suggest being paid interest, you should consider discontinuing any future contact with those relatives.
posted by saeculorum at 11:59 AM on January 10, 2014 [21 favorites]

Rather than worry about hypothetical interest owed, why not remove yourself from the equation and remit equal portions of the funds to all other beneficiaries other than yourself?

Otherwise you have to start wondering if it would have been an investment account dependent on the fluctuations of the market or a standard savings account. The latter would, on average, have an interest rate under 2%. Off the top of my head that would likely give them less than the portion of funds you would be surrendering so it seems to work out well in that sense.
posted by elizardbits at 11:59 AM on January 10, 2014

I think you're overconcerned about this. Keeping money in a chequing account as a hedge against unforseen issues for 2 years is reasonable, so we're now talking about 5 years of record low interest rates, so let's say 1.5% per year, is about $460, $300 for 1% -- over 5 years. Just split the money according to the will and give your brother and nephews slightly nicer birthday gifts this year.
posted by jeather at 12:01 PM on January 10, 2014 [3 favorites]

I'm afraid this is probably something you're going to want to discuss with a local probate attorney. Estate administrators/executors are subject to slightly different duties in each state.

But IMHO, I wouldn't think you owe anything. As the administrator, you made a good-faith decision to keep a certain amount of money in cash as a hedge against unforeseen risk. I'd argue that was a reasonable thing to do. I'd further argue it was reasonable to keep that money in a checking account, even one that didn't bear interest, because the estate might have needed the liquidity.

It turns out the estate didn't need the money, but you had no way of knowing that ahead of time. As long as the initial decision was reasonable--and again, this may be something you want to ask your probate attorney about--you're fine.

And I really wouldn't think you owe any money out of your own pocket. If anything, the estate might owe you money for performing your duties as the administrator.

Again, if you really want a definitive answer here, talk to your probate attorney. Otherwise, disburse the money and call it a day.
posted by valkyryn at 12:02 PM on January 10, 2014 [5 favorites]

"What occurs to me is to determine what kind of account would have been appropriate for the funds..." As the executor, you decided that a checking account was appropriate. This might not have been the optimal decision, but based on what you said, it doesn't seem like an unreasonable one. Just send out the money.
posted by Mr.Know-it-some at 12:05 PM on January 10, 2014 [4 favorites]

Honestly, I took my money out of my "interest bearing" account, because there was a monthly fee and I was barely breaking even with rates the way they are. And I had about the amount you're discussing.
posted by Frowner at 12:05 PM on January 10, 2014 [1 favorite]

I'm assuming that neither your brother nor your nephews have inquired about this money, or you would have recognized your lapse and distributed the funds some time ago. In that case, my instinct would be to reach out to the other heirs with a mea culpa about having let the money sit without collecting interest. Then ask them if they'd like you to increase their respective shares by whatever amount the money would have earned had it been in a savings account. Unless your relationships with the other heirs are rocky, or they're particularly hard up for money, my guess is they will say no. But either way, your conscience is clear.
posted by DrGail at 12:13 PM on January 10, 2014

Also, consider this: if you send them a sum of money with interest attached, you are simply begging them to raise the question "Is this the right amount of interest? Could I have done better with it in my own account?" even if the answer is no, some of them will think it is yes and that may cause a problem for you.

If you just matter of factly tell them what happened, that you kept a small portion as a hedge against unforseen claims or expenses, and then explain that they're receiving their portion of that hedge money, you're not inviting additional speculation.

If someone does ask about interest, simply explain that the account was not interest bearing, so there was no interest to distribute.

Frankly, unless you bring up the issue of interest, I doubt most of them are going to look a gift horse in the mouth.

I would definitely not be paying interest out of pocket that the account may or may not have generated if you had made a different decision 8 years ago. I'd say that, ethically, you don't owe anyone anything additional other than the inheritance money.
posted by toomuchpete at 12:15 PM on January 10, 2014 [6 favorites]

How nice of you to be the kind of person who is approaching it in this fashion, instead of trying to keep extra money for yourself. Disburse "the remainder of the funds" to everyone based on the appropriate percentages, and if anyone does follow up with "what about the interest?" feel free to simply state that you held it as a hedge against unforeseeable circumstances, in an account that minimized risk and expense but accrued no interest, and if they want to see the account statements you'll be happy to share them (99% of people will stop asking if you offer the paperwork.) For that 1%, show it if you have to, and if they start in with what you should have done, don't engage it.
posted by davejay at 12:22 PM on January 10, 2014 [1 favorite]

If you just matter of factly tell them what happened, that you kept a small portion as a hedge against unforseen claims or expenses, and then explain that they're receiving their portion of that hedge money, you're not inviting additional speculation.

Hell, you don't even need to tell them that. Just say "This is the last of the estate money. Here you go."

If they want an accounting, by all means give them one, but you're probably not required to do it without them asking for it.
posted by valkyryn at 12:30 PM on January 10, 2014 [1 favorite]

A lot of good advice above, but I want to emphasize that 8 years isn't too long for that sort of thing, at least in my limited experience. My grandmother died in the early 1990's and I got a check out of the blue for the final distribution of her estate sometime in the 2000's. At least ten years later and several years after the original executor (my father) had himself died. I have no idea if it even included interest but it was kind of an unexpected (and not very big) windfall so I didn't even think to find out. By all means consult an attorney if you are uncomfortable with the situation but it doesn't sound like there is much to stress over here.
posted by TedW at 1:03 PM on January 10, 2014

In addition to all of the above I want to gently suggest you go easy on yourself. This isn't "a debt you owe" -- you didn't borrow the money and you didn't mishandle it. You were charged with a difficult job and you made a decision in good faith. There's nothing to "make right."
posted by payoto at 1:10 PM on January 10, 2014 [7 favorites]

In addition to not owing anyone interest or any kind of guilt money, you should know that in every state in the US, you are entitled to be paid as the executor. Sure, you don't want to charge the estate for your services and you don't have to, but you could... in which case your brother and nephew would likely not see a dime of this money.

Cash it out, divvy it up, and rest easy. You did not fuck up.
posted by DarlingBri at 1:30 PM on January 10, 2014 [5 favorites]

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