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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Sometimes an executor or trustee is also a director of a company in which the estate or trust has an interest. We have written before about how acting as both a trustee and company director may create a conflict of interest, as each role includes inherent fiduciary duties that may conflict. Another issue that may arise once an individual has decided to act in both roles is whether a trustee may collect director’s fees in addition to the compensation received from the estate or trust for acting as executor or trustee.
The general rule is that a trustee may not put him or herself in a position in which his or her interest and duty conflict. The position of trustee must not be used to obtain a benefit: the trustee that obtains a benefit by virtue of his or her position of trustee will be required to account for the profit.
As explained in chapter 23 of Probate Practice, the heart of the issue is whether the trustee became director as a result of the trusteeship. If the trustee accepted the position of director by virtue of acting as trustee, he or she is not entitled to receive a salary in addition to remuneration received as trustee. If, on the other hand, the trustee’s position with the company is clearly independent from the position of trustee, he or she will likely not be required to account for any directors’ fees obtained.
A trustee/director need not expect to be under-compensated. Pursuant to section 67 of the Trustee Act, a testator or settlor may provide in the will or trust document that the executors or trustees may hold salaried positions in companies controlled by the estate or trust without being required to account.
Each case, of course, will turn on the particular facts. In certain instances, the Court may award a special fee when the duties of director are not otherwise appropriately compensated by the corporation (see: Bellomo Estate, Re, 36 ETR 123 (Ont Dist Ct)).
If the will or trust document does not include a provision as referenced above, the skill and time required to administer a trust that also requires the trustee to act as director of a company may be considered to increase the quantum of compensation the trustee receives. Section 61(1) of the Trustee Act provides that a trustee or executor “is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate.”
We have written before about how the courts determine what is “fair and reasonable.” Generally speaking, the skill and responsibility required by the trustee is directly commensurate with the quantum of compensation.
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When will an attorney for property be barred from making a claim for compensation? Is it proper for an attorney to seek compensation after the grantor’s death? The Ontario Superior Court of Justice addressed these issues in its reasons in Armitage v Salvation Army, 2016 ONSC 2043 (Canlii).
Mr. Wiltse died on February 5, 2013. He had named the applicant, Ms. Armitage, as his executor. The only beneficiary under the will was a charity. Ms. Armitage had been appointed as the deceased’s attorney for both property and personal care prior to the deceased passing away. She began acting as his attorney in 2006 upon his admission to a hospital and subsequently thereafter a nursing home. Ms. Armitage had submitted an amount for compensation on September 5, 2013 and proceeded to file a Notice of Application on January 30, 2015. The charity disputed Ms. Armitage’s entitlement to compensation, claiming that she had exceeded the time period within which a claim could be made under the Limitations Act, 2002. Specifically, it claimed that the provisions in the Substitute Decisions Act created a right to compensation each year, from which the two year limitation period began to run at year’s end.
The Court considered whether the use of the word ‘may’ in Section 40 of the Substitute Decisions Act created a corresponding limitation period to the right to claim compensation. Justice T.D Ray concluded that if the legislature had intended to create an annual limitation period, it could have easily used language to do so. Accordingly, the only applicable limitation period was the general two-year limitation period found in the Limitations Act, which was triggered upon Mr. Wiltse’s death.
The Court also considered Ms. Armitage’s reasons for refraining from making a claim until after Mr. Wiltse died. The estate held only modest assets and Mr. Wiltse’s father had lived past 90 years old. It was possible that if Ms. Armitage had claimed compensation, Mr. Wiltse might have lived long enough to not have been able to support himself.
In its reasons, the Court also affirmed the usual practice of an attorney making claims for compensation after a grantor’s death. There was no need to provide evidence of services and expenditures, as the process for this review is found within the Substitute Decisions Act.
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Being an Attorney for Property can be a difficult and thankless job. As a result of the long hours which are often involved in managing an incapable person’s property, many Attorneys for Property will begin to ask themselves whether they are entitled to be paid compensation for their work. The answer to such a question is not straightforward, and will depend on each specific circumstance.
The first place to look to in determining whether an Attorney for Property is entitled to be paid compensation is the Power of Attorney document itself, and whether the document sets a specific framework regarding compensation. If the Power of Attorney document sets out a specific framework for compensation, the Attorney for Property may be paid compensation in accordance with what is provided in the document. If the Power of Attorney document specifically bars the Attorney for Property from being paid compensation, the Attorney for Property will be unable to charge compensation for their work.
Presuming that the Power of Attorney document is silent with re
spect to the issue of compensation, the compensation which the Attorney for Property may be entitled to be paid is set by the Substitute Decisions Act (the “SDA“). Section 40(1) of the SDA provides:
“A guardian of property or attorney under a continuing power of attorney may take annual compensation from the property in accordance with the prescribed fee scale.”
The “fee scale” contemplated by section 40(1) of the SDA is set out in Ontario Regulation 26/95, section 1 of which provides that an Attorney for Property shall be paid in accordance with the following guidelines:
- 3% on capital and income receipts;
- 3% on capital and income disbursements; and
- 3/5 of 1% (i.e. 0.6%) of the annual average value of the assets under administration as a “care and management fee”.
The amounts contemplated above are subject to reduction on a subsequent Application to Pass Accounts. To this effect, while the SDA does not require that an Application to Pass Accounts be commenced prior to the Attorney for Property being entitled to pay themselves compensation, the Attorney for Property should be prepared to later justify any amount taken in compensation on a later Application to Pass Accounts. In the event that on such a subsequent Application to Pass Accounts it is determined that the Attorney for Property has been overpaid for their work, they may be required to return any overpayment.
In Ontario, the courts have held that personal care compensation must be “reasonable”. To determine what is “reasonable” the courts must take into consideration the specific circumstances in each case. Factors to be considered were set out in the hallmark case Re Brown,  O.J. No. 5851, 31 E.T.R. (2d) 164, which include:
- the nature and extent of the services provided;
- the need for the service;
- the qualifications of the person providing the services;
- the value of such service; and
- the period over which the services were provided.
In the recent case Childs v Childs, 2015 ONSC 4036, Justice Tranmer was asked to determine whether a child of an incapable woman should be awarded compensation for providing care to her mother. In doing so, Justice Tranmer considered not only the factors set out in Re Brown but also identified additional factors that should be considered when the court is called upon to make an order for personal care compensation in the context of a parent and child relationship.
Eileen Childs has four adult children: Michael, Andrew, Peter and Caroline. She raised all of them from birth with her late husband. As Eileen’s battle with Alzheimer’s dementia and other health challenges got progressively worse, it became clear to her children that she could no longer manage her property and care for her person. Although Eileen had significant liquid assets available to cover the cost of proper homecare, her children could not agree on the care their mother was to receive.
It was Eileen’s wish to remain living in her own home. To grant this wish her daughter, Caroline, moved into her mother’s home to provide full-time in-house care and support. Eileen’s sons, Michael and Andrew also provided some care to their mother for a short period of time.
The issue to be addressed by Justice Tranmer was whether Caroline was entitled to be compensated for the in-house care that she provided to her mother.
In granting Caroline a $500 monthly stipend for compensation, Justice Tranmer makes it clear that “a child should not be paid to care for an ailing mother” but nonetheless acknowledged the principle that a guardian or attorney for personal care may be reasonably compensated for personal care provided to an incapable person. In considering the reasonableness in this case, he identified three additional factors that should be considered by the court, namely:
- the financial circumstances of the incapable person at the time the request for compensation is made;
- whether the payment of compensation poses a risk to the incapable person’s finances; and
- any sacrifices made or losses suffered to undertake the care of a parent.
In light of Justice Tranmer’s decision it appears that when a child is making a claim for personal care compensation they must keep in mind that they may not be entitled to receive compensation for the care that they provide if the payment of compensation would have a negative consequence on their parent’s finances.
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An estate trustee’s right to compensation is a creature of statute in Ontario. Prior to the enactment of a statutory right to compensation, an executor or administrator could draw compensation from an estate only when authorized to do so by the will, by agreement with all of the beneficiaries, or by court order. In Ontario, compensation for estate trustees is governed by the Trustee Act, which permits “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”.
One question that arises frequently is the question of whether an estate trustee can pay his or her compensation out of the estate before it is approved by a court. Some older texts had indicated that pre-taking compensation without passing accounts was once a common practice for estate trustees. However, the Ontario Surrogate Court indicated its disapproval of the practice in the 1982 case of Re Knoch,  O.J. No. 2516, 12 E.T.R. 162, 1982 CarswellOnt 622 (Surr. Ct.). Justice Dymond took the view that pre-taking of compensation is a breach of a trustee’s fiduciary duty to the beneficiaries because it places the trustee in a fundamental conflict of interest between his or her obligations to the beneficiaries and his or her own interests, and because a fiduciary is not supposed to personally profit from his or her position. It also deprives the beneficiaries of the interest that would have been earned on the compensation, had it not been pre-taken.
There have been some cases where the Courts have been more forgiving. In Re William George King Trust, the prohibition in Re Knoch against pre-taking was described as a “general rule”, but that in cases where the administration of the trust is ongoing, the trustees are paying themselves for services already rendered, and the amount taken is fair, pre-taking might not only permissible but should be encouraged in order to avoid the expense of a passing of accounts. Courts have since disapproved of this statement, however.
Whether an estate trustee pre-takes or not, compensation is reviewable on a passing of accounts. A trustee who takes compensation without a court order, authorization in the will, or agreement from the beneficiaries risks being ordered to repay interest to the estate, or to have his or her compensation reduced for having acted improperly. The estate trustee may have to reimburse the estate for excess compensation taken if it is found that the fair and reasonable amount is less than what was pre-taken.
Although no discussion of this appears in the case law, it is interesting to speculate as to whether the decisions in these two cases were influenced by interest rates. At the time of the decision in Re Knoch in 1982, interest rates were very high. In 1994, when the King Trust case was decided, they were much more modest and the consequences of pre-taking were quantitatively smaller. This is purely speculation on my part, however.
In any event, subsequent cases have returned to the position in Re Knoch and it now seems that the weight of authority is against unauthorized pre-taking. If the will doesn’t allow for it, and the consent of all of the beneficiaries cannot be obtained, pre-taking of compensation will generally be improper and is to be discouraged.