Under section 61 of the Ontario Trustee Act, an estate trustee is normally entitled to compensation in an amount that is “fair and reasonable”. There is a sound body of case law regarding the proper quantum of compensation, but it generally applies only where the will is silent as to compensation. Usually, it’s clear whether a will addresses compensation or not, but sometimes it can be a little bit tricky if the will also includes a gift to the estate trustee.
At law, where the will also leaves a legacy to an estate trustee, there is a presumption that the legacy is intended to be in lieu of compensation. However, this generally arises only when the gift is made to the estate trustee in his or her capacity as estate trustee. Additionally, this presumption will give way to even a slight indication that it was not intended to be in lieu of compensation.
For example, in the B.C. case of Canada Permanent Trust Co. v. Guinn, the will appointed a trust company and Ms. Guinn to be the executors. The will also left a bequest of $40,000 to Ms. Guinn. The trust company took the position that she was entitled to her $40,000 and nothing further in terms of compensation. Looking first to the will, the Court determined from the wording of the clause appointing the executors that Ms. Guinn’s role was meant to be nominal and that the primary responsibility for administering the estate was intended to fall to the trust company. Paired with that, the bequest to Ms. Guinn was thought to be disproportionately large for her limited role and was also disproportionate in that the legacy to her was double that left to any blood relative of the deceased. These facts were sufficient to convince the Court that the legacy to Ms. Guinn was not to be in lieu of compensation.
Interestingly, the Court noted that extrinsic evidence of the surrounding circumstances would be admissible for the purpose of determining this question.
This issue does not arise very often, but when it does, it touches upon some interesting questions about the interpretation of wills and the origins of an estate trustee’s entitlement to compensation. Before the enactment of statutory provisions entitling an executor or administrator to remuneration, he or she would not have been entitled to any compensation at all unless the will or trust provided for it or unless the beneficiaries agreed to it. While compensation has been the norm in Ontario for a very long time, there are other jurisdictions that still adhere to the traditional rule that compensation can only be claimed where allowed under the will or by the beneficiaries.
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,
On Tuesday, I blogged on the recent Ontario Court of Appeal decision of Aragona v. Aragona, 2012 ONCA 639.
There, the application judge denied the guardian compensation. In so doing, the application judge noted the guardian’s failure to keep proper accounts. The Court of Appeal stated that a guardian has, by statute, a fiduciary obligation to carry out his or her obligations with honesty and due care and attention. “The core of these obligations includes the duty to be in a position at all times to prove the legitimacy of disbursements made on behalf of the estate.”
Further, the application judge went on to find that “the conduct [of the guardian] has been shocking. He has literally helped himself to many thousands of dollars from his mother’s estate, at a time when his mother had Alzheimer’s and was unable to look after her own affairs.”
Together, these two factors led to a denial of compensation: a conclusion that was said to be clearly in the discretion of the application judge.
In denying compensation, both the Court of Appeal and the court below relied on the decision of Zimmerman v. McMichael Estate, 2010 ONSC 2947. This decision clearly sets out the obligations of a trustee, including the obligation to account. The application judge found that because significant funds disappeared from the estate without adequate explanation, it was appropriate to award no compensation. The application judge contrasted this with the situation in Re Assaf Estate, 2009 CanLII 11210. There, there was wrongdoing found, but no harm was said to have resulted to the estate. In that situation, compensation was reduced by 50%, but not disallowed completely.
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Paul Trudelle – Click here for more information on Paul Trudelle.
In my blog yesterday, I mentioned that on April 27, 2011, I had the pleasure of presenting a paper at the LSUC’s Six Minute Estates Lawyer program. My topic was Conflicts involving the Role of Estate Trustee and Estate Solicitor. While my paper dealt with the lawyer who acts as estate trustee and estate solicitor, the case of Bott v. Macaulay,  O.J. No. 3493, 76 O.R. (3d) 422, was of interest as it is also instructive on the manner of compensating an estate trustee and the estate trustee’s solicitor.
In Bott, a solicitor assisted an executor with his duties as estate trustee. The solicitor ultimately sent two invoices, the first for his services as estate solicitor (for legal work), and the second charging a value amounting to five percent of the value of the estate, plus GST for services on behalf of the executor (even though the solicitor was not the executor). The solicitor wished to have the second account addressed on a passing of accounts.
The Judge held that the estate trustee, and not the estate, was the solicitor’s client and was personally liable to the solicitor. The Judge further held that should the estate trustee wish to challenge the solicitor’s legal fees, the proper avenue was through an assessment procedure pursuant to the Solicitor’s Act, except in the case where the beneficiaries have called into question the reasonableness of the accounts as an expense of the estate trustee on a passing of accounts, or unless the estate trustee desires an order approving the right to an indemnity or reimbursement.
These principles also were said to apply in cases where solicitors perform executor’s work. In such instances, the estate trustee cannot claim compensation for that work done; compensation will be reduced accordingly. Ultimately, the Judge held that the solicitor in the Bott case was not permitted to charge a fee amounting to compensation that might be awarded to the estate trustee (the 5% approach by the solicitor was disapproved) and that any amount to be awarded as a fee for the services intended to be covered by the second invoice must be determined on a quantum meruit basis. Even if there had been an agreement as between the estate trustee and estate solicitor regarding the payment of services rendered in such a manner, which there was not, such an agreement would bind only the estate trustee and not the “estate” or the beneficiaries.
Thanks for reading this week.
Craig R. Vander Zee – Click here for more information on Craig Vander Zee.
Trustees often run into difficulties when they pay themselves compensation prior to passing their accounts. They are said to have "pre-taken" compensation, meaning having paid themselves compensation prior to passing their accounts. Fortunately for guardians of property (and attorneys), section 40 of Ontario’s Substitute Decisions Act allows guardians to pay themselves compensation at intervals during the guardianship before passing their accounts:
(2) The compensation may be taken monthly, quarterly or annually.
Amounts taken monthly or quarterly could be divisions of a calculated "annual" amount, but this provision contains no element requiring equal divisions. Regardless of how the property guardian takes compensation, any payment is subject to court approval. Clients applying for guardianship should always be advised specifically of this point: if the court later disagrees with the compensation taken, the guardian may have to repay such amounts. This holds true even where the Management Plan pursuant to which the guardian is managing the incapable person’s property authorizes the compensation the guardian has taken.
This raises another important consideration for lawyers in the application for guardianship stage. Any compensation taken, or claimed later on a passing of accounts, should not be inconsistent with the provisions of the Management Plan. Because the right to compensation is statutory, as are the prescribed percentages (though subject to discretionary reduction by the court), there is no need to declare an intention to take compensation in the Management Plan. But if the Management Plan contains a provision disclaiming compensation, for instance, no compensation should be taken during the guardianship.
Have a great day,
Christopher M.B. Graham – Click here for more information on Chris Graham.
Compensation is a factor in every estates file. The Divisional Court recently confirmed in Church v. Gerlach (2009) Court File No.: DC-07-0038-00 (Div.Ct.) that compensation for an estate trustee during litigation ("ETDL") is determined by the same principles as compensation for executors generally. Compensation for an ETDL is not determined by applying a solicitor’s hourly rate to the time spent.
In Church v. Gerlach, the ETDL was appealing the trial judge’s fixing of compensation at $13,000 inclusive of GST. The ETDL asked for $23,203,54 plus costs. The ETDL had originally claimed $35,805.30 plus $2,973.30 for the costs of the application.
The general provision authorizing compensation to ETDLs is s. 28 of the Estates Act: the ETDL "shall receive out of the property of the deceased such reasonable compensation as the court considers proper". Section 61 of the Trustees Act authorizes "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."
According to Ontario’s Court of Appeal in Liang Estate v. Hines (1998) CanLII 6867 (ON C.A.), 41 O.R. (3d) 571, the proper approach is to start by applying percentages to the estate (customarily 2.5% of capital receipts and disbursements, 2.5% of income receipts and disbursements, and an annual care and management fee of 0.4% of gross value of the estate). Then, each percentage is considered against five factors enumerated in Re Toronto General Trusts Corporation and Central Ontario Railway (1905), 6 O.W.N. 350 (H.C.):
1. the magnitude of the trust;
2. the care and responsibility springing therefrom;
3. the time occupied in performing its duties;
4. the skill and ability diplayed; and
5. the success which has attended its administration.
Applying this approach, the ETDL was awarded half of the usual percentages: he ought not to be fully compensated as if he was required to perform all of the functions of an Estate Trustee, and the reduction also took into account the complexity of the estate.
As a general practice note on costs of appeals, while the ETDL had paid his lawyer more than $15,000 to prepare the appeal, given the amount in dispute, the relatively simple issues on appeal and the reasonable expectation of the appellant ETDL, costs were fixed at $5,000 all-inclusive.
The Divisional Court also noted that the standard of review for appeals under s. 10 of the Estates Act on a question of law is correctness.
Have a great day,
Listen to Deductions from Compensation.
This week on Hull on Estates and Succession Planning, Ian and Suzana finish up the discussion on the question of accounting by reviewing deductions from compensation and briefly sum up the procedure of the passing of accounts.
Listen to The Question of Compensation and Complaints.
This week on Hull on Estates and Succession Planning, Ian and Suzana discuss the question of compensation and complaints regarding compensation.
Cases for Increasing and Decreasing Compensation – Hull on Estates and Succession Planning podcast #122
Listen to Cases for Increasing and Decreasing Compensation.
This week on Hull on Estates and Succession Planning, Ian and Suzana discuss cases for increasing and decreasing compensation.
Listen to Compensation for work done by estate trustees and solicitors.
This week on Hull on Estates, Paul Trudelle and Diane Vieira discuss compensation for work done by estate trustees and estate solicitors.
Rooney Estate v. Stewart Estate 2007 WL3019262 (Ont. S.C.J.), 2007 CarswellOnt 650