Estate trustee compensation
Acting as the executor of an estate, also known as an “estate trustee,” can require a significant commitment of time and effort. As such, executors are entitled to claim compensation for their administration of an estate. In Ontario, section 61(1) of the Trustees Act R.S.O. 1990, c. T.23, provides that executors are “entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate.”
How is a “fair and reasonable” amount decided?
The question of the executor’s compensation ought to be addressed at the estate planning stage. A properly drafted Will may include a clause that addresses the amount of the executor’s compensation. However, even if a Will does not refer to executor’s compensation, the executor is still entitled to it. Suppose compensation is not set out in a Will. In that case, the executor can, near the end of an estate’s administration, propose an amount of compensation and seek the beneficiaries’ consent. If the parties cannot come to an agreement, the matter of compensation may be brought before the Court.
Whether defined in a Will, agreed to by the beneficiaries, or imposed by the Court, executors in Ontario typically receive about 5% of the estate’s gross value. This figure is a rough approximation and is calculated in more detail based as follows:
- 2.5% of capital receipts;
- 2.5% of capital disbursements;
- 2.5% of income receipts;
- 2.5% of income disbursements; and
- 0.4% per annum for “care and management” (often expressed as 2/5 of 1%)
The amount of compensation may be adjusted above or below the standard 5% amount. The Courts in Ontario have developed a five-factor approach to assess the work done by the executor and determine whether compensation should be adjusted. The five factors are as follows:
- The size of the estate (the value of the assets);
- The care and responsibility, and risks assumed by the executor;
- The time spent by the executor;
- The skill and ability shown by the executor; and
- The success associated with the efforts of the executor
The Court may presume that a specific gift in a Will to an executor is compensation, and the executor may then not be entitled to also collect executor’s compensation. The gift must be specific in character and not one of residue. However, this presumption can be overcome with evidence that the testator intended the gift as separate from executor’s compensation.
Who gets the Executor Compensation?
If the executor retains professionals to assist in administering the estate, the estate pays the professional’s fees. If the executor pays the fees, the estate can reimburse the executor. However, where the professional performs some of the executor’s duties, it will be reasonable to reduce the executor’s compensation accordingly. Further, if two or more individuals act as joint executors, the amount of executor’s compensation is split between them. The amount may be split unevenly if one executor performs substantially more or less of the administration.
Are Guardians or Attorneys for Property Compensated?
Unlike executor’s compensation, if compensation is not set out in a Power of Attorney, the compensation for an attorney under a Power of Attorney is set out in a prescribed fee scale in the Substitute Decisions Act, 1992, S.O. 1992, c. 30. Currently, the fee scale is as follows:
- 3% on capital and income receipts;
- 3% on capital and income disbursements; and
- 0.6% per annum for “care and management” (often expressed as 3/5ths of 1%)
There is no compensation for acting as an attorney for personal care under a Power of Attorney.
If you are planning to prepare a Will and are wondering how to compensate the executor, or if you are named as an executor and have questions about the compensation you may be entitled to, contact the lawyers at Malicki Sanchez.
