Few issues in estate administration generate as much tension as trustee compensation. Executors and trustees often spend countless hours managing assets, resolving disputes, and navigating complex tax and legal obligations – and naturally they expect fair payment for their efforts. Beneficiaries, on the other hand, may view trustee fees as excessive or unjustified, particularly when the trustee is also a family member or a professional charging for related services.
The question of what fair compensation is can quickly become a flashpoint in estate litigation. Understanding how Ontario courts assess trustee compensation, and how to effectively justify or challenge those fees, is essential for estate practitioners.
1. The Legal Frameworks: Discretion and Judicial Oversight
Trustee compensation in Ontario is guided by both statute and case law. Section 61(1) of the Trustee Act provides that a trustee “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.”
The leading authority remains Toronto General Trusts Corp. v. Central Ontario Railway (1905), which established five factors that courts consider in assessing compensation:
- The size of the estate;
- The care and responsibility involved;
- The time occupied;
- The skill and ability displayed; and
- The success resulting from the administration.
While these factors remain foundational, they are applied flexibly. There is an often quoted “2.5% guideline” which outlines 2.5% on capital receipts, 2.5% on capital disbursements, 2.5% on income receipts, and 2.5% on income disbursements. But the 2.5% guideline is just that, a guideline, not a rule. Courts will adjust compensation upward or downward depending on the circumstances of the present case.
2. When and Why Disputes Arise
Disagreements over compensation usually surface during the passing of accounts under Rule 74.18 of the Rules of Civil Procedure. Beneficiaries can object to the trustee’s proposed compensation, and the court ultimately decides what is reasonable.
Disputes commonly arise from issues such as perceived overbilling or fee duplication, for example, when a professional trustee charges both professional fees and a percentage-based trustee fee. A lack of transparency or inadequate record-keeping can also prompt beneficiaries to question how time was spent. Family dynamics frequently contribute to conflict, especially when one sibling serves as executor while others are beneficiaries. Delegation of duties can be another source of contention, as beneficiaries may argue that much of the work was performed by solicitors, accountants, or agents. Finally, the complexity of the estate itself, particularly in high-value, contentious, or cross-border cases, often attracts increased scrutiny.
In Re Assaf Estate, 2009 CanLII 11210, Justice Strathy emphasized that a trustee claiming compensation bears the onus of justifying it through records and evidence of work performed. Without proper documentation, even an honest executor risks having fees reduced.
3. For Trustees: Building a Strong Justification
From a trustee’s perspective, the best way to justify compensation is to keep detailed, up-to-date records that clearly show the value of their work. Courts expect trustees to maintain their records with the same level of care and accuracy as any professional who bills for their time.
In Larwill v. Larwill, 2022 ONSC 6145, the court reduced the estate trustee’s compensation claim to zero due to their abject failure to complete their duties. The failures included not keeping proper accounts and being grossly indifferent to her fiduciary obligations, which warranted denying their compensation entirely.
4. For Beneficiaries: Challenging Excessive or Unjustified Fees
Beneficiaries have the right to challenge a trustee’s compensation when the accounts are presented for approval. While the burden is on the trustee to justify their fees, beneficiaries can strengthen their case by pointing out specific issues. These may include gaps in the trustee’s records or vague descriptions of work performed, such as entries labeled simply as “administrative tasks” or “emails.” Beneficiaries may also highlight unexplained delays or a lack of progress in administering the estate, instances where work delegated to others is billed as the trustee’s own effort, and any evidence of self-dealing or conflicts of interest, such as the trustee using estate funds for personal benefit.
In Laing Estate v. Hines, 1998 CanLII 6867 (ON CA), the court reduced the trustee’s compensation after determining that the estate had been managed inefficiently and with inadequate documentation, resulting in unnecessary litigation and expense. This decision underscores that courts regard trustee fees as compensation for effective administration, rather than as a reward simply for holding the position.
Conclusion
Executor and trustee compensation lies at the intersection of fairness and fiduciary responsibility. While the law acknowledges that trustees are entitled to reasonable compensation for their efforts, such compensation is warranted only when the work performed is transparent, necessary, and demonstrably beneficial to the estate. For practitioners, assisting clients in thoroughly documenting their activities and maintaining open communication with beneficiaries serves as the most effective safeguard against costly disputes. As Ontario courts have consistently emphasized, trustee compensation is not an automatic entitlement, but rather a matter to be determined by principles of equity.
Thank you for reading
David Morgan Smith and Jason Avsenik (student-at-law)