Executor and Estate Trustee Compensation
Executors and trustees are entitled to be compensated for their work in the administration of estates, as provided in Ontario’s Trustee Act, R.S.O. 1990, c. T.23 (“Trustee Act”), s. 61(1), which says: “A trustee, guardian or personal representative is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Superior Court of Justice.”
Unfortunately, the Trustee Act does not have any specific rules as to how an Executor or Trustee should calculate the amount of compensation he or she is entitled to. In Ontario, as in other Canadian jurisdictions, there is no tariff that has been specifically legislated that can be applied to the estate to determine an amount of compensation. However, that does not mean there is no guidance at all for Executors and Trustees. The reality is that over the years, the courts have used a general rule as to the percentages to be used when calculating the amount of compensation that an Estate Trustee is entitled to, and it is departed from only in special circumstances. In such cases, the court will reduce or increase the compensation or may permit a special fee. Otherwise, the case law generally uses the percentages below, called the tariff to determine the amount of compensation that the Estate Trustee is entitled to.
The tariff at its present level is often calculated as follows:
(a) 2.5% to 3% of capital receipts;
(b) 2.5% to 3% of capital disbursements;
(c) 2.5% to 3% of income receipts;
(d) 2.5% to 3% of income disbursements; and
(e) for ongoing trusts, 2/5 of 1% or 3/5 of 1% of the average annual market value of the trust assets as the fee for ongoing care and management, and 5% to 6% of income generated by the trust.
The percentage has become so standard that it is almost automatically used by advisors to Executors and Trustees to help them determine an appropriate amount of compensation to claim for their work in manager the trust assets – work that is often time consuming and emotionally draining.
Another method that is used in practice in estates because it is practical and quick is to take a calculation based on 5% of the value of the assets and the income receipts for the estate. This avoids having to take extra time to set up the accounts to provide totals for each of the above 5 categories and it also should amount to a similar number to the total of items (a) to (d), though whether it will is not guaranteed. One of the benefits of this formula is that it avoids having to re-work the estate account information so that it is properly set up into the above 4 categories which can be time consuming. In that way, it can avoid further delay in being able to make a distribution to the beneficiaries to use this usually simpler but formula to arrive at an amount for the Estate Trustee’s compensation.
Ultimately the court could, if the matter were put before it, reduce or increase the amount of compensation proposed regardless of the formula used. The five factors used to decide that are (a) the size of the trust; (b) the care and responsibility involved; (c) the time occupied in performing the duties; (d) the skill and ability shown; and (e) the success resulting from the administration.
Compensation amounts for an Executor (also called Estate Trustee) can also be set in the will. This can be very helpful especially for an Executor who is not a beneficiary who might otherwise be left with a fight from the beneficiaries who not uncommonly expect the Executor to do all of the work and assume all of the liability of being an Executor for free or at least for a small amount. Beneficiaries do not always agree that Executors are entitled to compensation or if they do, they may disagree on the amount creating frustration and heart ache for the Executor, damaging relationships and sometimes resulting in additional legal fees.
This article is intended to provide general information only. For a determination of the appropriate amount of compensation in each particular case, specific research and analysis regarding what the proper amount of compensation is needed as well as a full understanding of the specific circumstances of the case. If you are concerned about a compensation amount for an Executor or Trustee, you should consult your own lawyer.