Executor and Trustee Compensation
Executors and trustees are entitled to compensation for their efforts; however, the quantum of such compensation can often become a contentious issue where the beneficiaries perceive the amount claimed by the executor or trustee to be excessive.
If the Will granting the executor his or her authority does not expressly outline the extent of the compensation claimable or the means by which any compensation should be calculated (and most wills do not) the executor will be required to turn to statute and case law for guidance and in support of his or her claim for compensation.
Section 61(1) of the Trustee Act states that a “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”.
However, unlike guardian and attorney for property compensation, which has a calculation expressly provided for in section 40 of the Substitute Decisions Act and section 1 of Regulation 26/95 (as amended), there is no statute in Ontario that specifically outlines how executor compensation must be calculated.
As a result, a percentage tariff calculation has been developed through case law, which now serves as the baseline for the calculation of executors’ compensation. The tariff sets claimable executor’s compensation at 2.5% of the value of each of the capital receipts, income receipts, capital disbursements and income disbursements, and also permits an overall care and management fee of 2/5 of 1% of average annual value of the assets.
However, estates can vary widely depending on the type and value of assets, the number and location of beneficiaries, whether there are claims against the estate and the expertise required of the executor. As the tariff percentages do not consider the actual time and efforts exerted by the executor, sole use of the tariff percentage calculation can result in inadequate compensation in the case of a complex estate or disproportionate compensation in the case of a simple estate.
Therefore, in determining whether the tariff calculation is in fact “fair and reasonable”, the courts will generally have regard to the five factors set out in Re Toronto General Trust v. Central Ontario Railway Co. (1905), 6 O.W.R. 350 which provides a factual analysis of the actual work completed by the executor or trustee. These factors include:
- the size of the trust,
- the care and responsibility involved,
- the time occupied in performing the duties,
- the skill and ability shown by the executor or trustee, and
- the degree of success resulting from the administration.
Potential challenges to proposed executor or trustee compensation are much less likely to arise if the amount of compensation is thoughtfully considered. Executors should consider both the percentage tariff and the above noted five factors before proposing his or her compensation to the beneficiaries in order to ensure the amount claimed is truly fair and reasonable.
Thank you for reading,