In Daniel Estate (Re), 2019 ONSC 2790 (CanLII), the applicants applied to have their estate trustee and attorneyship accounts passed. As stated by the judge hearing the application, “Unlike many applications to pass accounts, this is a “good news” story.”
The applicants were the friends and former neighbours of a high net worth, elderly couple, Isabel and Wayne. For over 20 years, the applicants provided extensive personal assistance to the elderly couple. “In many ways, [the applicants] acted like loyal and dutiful family members.” In addition to completing simple neighbourly tasks, the applicants helped the couple in many other ways. They eventually became the attorneys for property and personal care for the couple. When Wayne died, the applicants took on the role of acting as his Estate Trustee.
The application to pass accounts was supported by an affidavit from Isabel, who indicated that she was content with the claim for compensation being made by the applicants. The application materials also included an accounting analysis prepared by a Chartered Accountant, who reviewed the accounts in detail, and also an analysis by a Certified Case Manager and Certified Canadian Life Care Planner, who assessed the value of the personal services provided by the applicants.
In the end, the court awarded the applicants compensation for administering Wayne’s estate of $129,775; compensation for acting as attorneys for property of $435,772.36 and compensation for acting as attorneys for personal care, for a total of $757,659.
With respect to costs, the court awarded the applicants their costs of $125,021 for the unopposed passing of accounts. According the judge, “While this amount seems at first blush high, I note the accounting report alone was worth $45,000. In my view of the detailed, thorough and helpful material filed and in view of the hours it took to assemble, digest and present the financial information provided, I find that the fees and disbursements claimed are reasonable.”
The court appears to have been impressed by the extent and quality of the assistance provided by the applicants to Isabel and Wayne. Further, the court appears to have been impressed with the detailed and extensive materials put before the court in order to justify the claims on the passing.
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When is it appropriate for a court to reduce estate trustee compensation? The Supreme Court of Nova Scotia addressed this issue in Atlantic Jewish Foundation v Leventhal Estate (“AJF”).
Before getting into the AJF decision, it is worthwhile to include the caveat that determination of estate trustee compensation in Ontario (a summary of which can be found in my paper here) differs somewhat as compared to Nova Scotia. Nonetheless, both provinces use 5% of the value of the estate, subject to the discretion of the court, as the starting point in determining the quantum of compensation. As such, AJF remains informative in Ontario.
The deceased left a Will naming his friend, who was also a lawyer, as his Estate Trustee. AJF was named as the residuary beneficiary. The Will was silent as to estate trustee compensation. As the estate was valued at over $15 million, the Estate Trustee sought compensation in the approximate amount of $896,000, being 5% of the gross adjusted value of the estate. AJF maintained that the amount was excessive and proposed compensation in the amount of $300,000.
In determining how much compensation the Estate Trustee should be entitled to, and applying an approach similar to Ontario’s ‘five factors’, the court made the following observations: the level of responsibility is often greater for higher value estates; the increasing level of responsibility does not necessarily rise in direct proportion to the size of the estate; the Estate Trustee arranged and supervised the funeral and burial, which was mainly handled by telephone; the Estate Trustee acted promptly in selling the house; many of the assets were already in the form of cash, and the Estate Trustee knew the banks the deceased used; the Estate Trustee was diligent, wise and prudent and had to be a hands-on executor; the Estate Trustee made no mistakes; a large part of the estate was made up of investments that were readily converted into cash for distribution; and, the estate was larger rather than complex.
The court noted that 5% should be reserved for estates where there are complicating features that require more than wise and careful planning to maximize the value of the estate. Therefore, the court awarded compensation in the amount of $450,000, being slightly more than 50% of the maximum amount that could be awarded. A larger amount of compensation would have the effect of reading into the Will a bequest to the Estate Trustee that the deceased did not intend to make.
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Although beneficiaries have a right to compel an accounting from an Estate Trustee, it is not always advisable to do so. The decision of Pochopsky Estate provides an example of such a situation.
Here, practically all of the deceased’s assets passed outside of the estate. Although, there was some concern as to whether a joint account held between the deceased and his sister was an estate asset, subsequent evidence was given to the Estate Trustee, including an affidavit from the bank, indicating that the account was not an estate asset. Accordingly, the Estate Trustee, a friend of the deceased, concluded that there was no money that passed through the estate.
The residuary beneficiaries nevertheless requested that the Estate Trustee proceed against the sister for the joint account and obtain a Certificate of Appointment. In addition, a formal passing of accounts was sought.
The Estate Trustee thought none of these steps were appropriate given the size of the Estate, and indicated that if forced to formally pass his accounts, he would seek his costs from the residuary beneficiaries.
The residuary beneficiaries obtained an ex-parte Order for the Estate Trustee to pass his accounts. Although not mentioned in the decision, for an interesting read on the appropriateness of ex-parte motions, Justice Brown’s decision in Ignagni Estate (Re), is a good one.
On the passing, the Court found that the objections raised by the residuary beneficiaries were ‘ill-founded’, and that they fell into a pattern of aggressively criticizing the Estate Trustee no matter what he did. Given the size of the estate, the Court ordered that the residuary beneficiaries personally pay the costs of the Estate Trustee in the amount of $17,445.60, and that no costs would be payable to these beneficiaries.
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On Monday, Jordan Atin chaired the 2017 Wills and Estates Practice Basics CPD program and presented a paper, “Drafting Protection of Trustees”. His paper provided an important reminder of some ways a testator and drafting solicitor can protect a trustee from litigation ahead of time. Trustees are often friends or relatives of the testator, with no particular expertise in estate administration. The testator may wish to protect such trustees from liability and ensure they are compensated for their time and effort. Sometimes, more sophisticated individuals or trust companies will require certain protective provisions before accepting appointment as trustee.
Trustee compensation is an issue that commonly leads to litigation. Section 61(1) of the Trustee Act states:
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.
Usually, trustee compensation is based on 2.5% of receipts and disbursements, subject to the court’s exercise of discretion. Testators may wish to include provisions in the will that provides certainty and protection for their trustees. Testators can control how much trustees receive as compensation by fixing compensation or making a legacy in lieu of compensation.
Testators can make a provision determining the exact amount of compensation a trustee will receive. Such provisions must be carefully drafted so that s. 61(1) does not apply. If there is any ambiguity in the provision, trustee compensation will be subject to the court’s exercise of discretion. Testators can also fix compensation by properly incorporating a previously executed compensation agreement into the will. The requirements for incorporation by reference can be found here.
Testators can also make a legacy to the estate trustee and specify that the estate trustee is not to receive compensation. Such an approach will avoid the estate trustee “double-dipping” by claiming both compensation and a legacy. There is, however, no certainty that a legacy that is made apparently independent of compensation will survive scrutiny from CRA. Simply put, if the legacy is considered by CRA to have been given in exchange for services, it may nonetheless be considered as income and taxable in the hands of the estate trustee.
The full text of Jordan’s paper can be found in the CPD materials on the LSUC website.
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However, in calculating compensation, there are certain expenses that will be deducted from the compensation to which an estate trustee would otherwise be entitled. As a general rule, expenses paid to a third party for tasks that are properly a part of the main duties and expected expertise of the estate trustee (i.e. “executor’s work”) will be deducted from compensation.
Tasks that are Generally Deducted from Compensation
Generally, the determination of whether the amount will be deducted will depend on the complexity of the task and the circumstances of the particular estate.
If an estate trustee delegates any of his or her general duties to professionals, it is usually a personal expense for which he or she will not be compensated. Examples of this may include preparing the estate tax return, investing the estate assets, and preparing accounts.
Maintaining proper accounts is the primary duty of a trustee and the preparation of accounts has generally been deducted from estate trustee compensation. If an estate trustee acted improperly, the fees to have accounts prepared will be deducted. While accounts are specialized and the argument has been made that an estate trustee may not have the requisite knowledge to prepare proper accounts, the preparation is still excluded from estate trustee compensation.
An estate trustee is not entitled to be compensated for legal fees paid for their own personal benefit; however, the case of Geffen v Goodman, 1991 2 SCR 353, established that an individual may be compensated for any legal fees incurred to defend the interests of the estate.
If an estate trustee’s actions resulted in a loss to the estate through mismanagement of the estate assets, the amount will likely be deducted from compensation. An example of mismanagement is if the estate trustee fails to prudently invest the estate assets.
Tasks that are Generally Not Deducted from Compensated
In Young Estate, 2012 ONSC 343, the court found that investment management was beyond the skill of an estate trustee, and it was proper to retain and pay private investment counsel out of the assets of the estate. An investment or financial manager may be necessary to hire and pay through estate assets if the expertise is reasonably outside the expertise of the average estate trustee.
An estate trustee can also hire consultants, investment managers, property managers or operating managers if an estate has a corporation as an asset, and can pay their fees out of the estate if it would not be reasonable to expect an estate trustee to have reasonable knowledge of the topic.
In summary, it bears repeating that whether an expense is deducted from compensation will depend on the particular circumstances of the estate and the particular expertise of an estate trustee.
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