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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One of an estate trustee’s duties in administering an estate is to satisfy any outstanding debts owed by the deceased person upon his or her death. An executor who is aware of an outstanding claim by a creditor, but nevertheless distributes the estate, may be personally liable to the creditor. Although there is no requirement in Ontario to advertise for creditors, it is generally advisable to do so in order to enjoy the protection afforded to estate trustees by s. 53 of the Trustee Act, R.S.O. 1990, c. T.23.
Section 53 provides that upon the expiration of due notice to creditors, the estate trustee may proceed to distribute the estate assets, and will not be held personally liable should there be later notice of a claim following such distribution. The notice does not extinguish the debt, but removes the personal liability of the estate trustee.
The Trustee Act does not specify the manner in which notice should be made, nor the length of time that should pass before the notice expires. One commonly accepted method is to advertise in the local newspaper in the location where the deceased lived, usually for 3 consecutive weeks, after which the estate trustee will generally wait at least 30 days before taking steps to distribute the estate. Another option has been to advertise in the Ontario Gazette, which publishes, among other things, legislative decisions and public notices.
However, the Ontario Gazette recently advised that as of January 1, 2017, it will no longer be accepting requests to publish private notices where there is not a statutory requirement to publish in the Ontario Gazette.
According to Widdifield on Executors and Trustees, the practice of advertising for creditors in the Ontario Gazette may, in any event, not have been the most effective manner of publishing a notice, as many people do not read it. On the other hand, Widdifield notes that if the creditors of a deceased person are located throughout Ontario, and are therefore unlikely to see a local advertisement, it may be prudent to advertise in the Gazette as well as the local newspaper. Accordingly, although the Ontario Gazette may not have been the most commonly used method of advertising for creditors, it did provide an option for publishing notices in a more far-reaching manner than the local newspaper, in situations where a more widespread notice is advisable.
We have previously blogged about an online service for publishing notices to creditors (here and here). The company notes that their website is search-engine optimized so that a Google search by a creditor will locate a notice posted with their service. This may provide an alternate option for an estate trustee who feels it is necessary to reach a broader geographical range than is generally reached by a local newspaper.
It has also been noted in Widdifield that, in Ontario, the cost of advertising is a relevant factor. Whether through the company mentioned above (which notes a cost of around $150.00 for a notice and a notarized affidavit of publication), or some other online service, it seems likely that an online advertisement may be more cost-efficient than a print publication.
Based on the convenience and cost-efficiency of online advertising, we may be able to avoid a significant disturbance in the process of administering estates due to the fact that the Ontario Gazette will no longer publish private notices. Change can be a good thing and if we can adapt accordingly, we may be able to establish a new and more efficient customary way of advertising for creditors.
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Last week we blogged on limited grants in the event that the executor is located out of the jurisdiction. There are two other types of limited grants to consider: grants where an original will or codicil is unavailable and administration durante animi vitio. Furthermore, it is important to consider making alterations in grants in the case of an error.
A limited grant may be necessary where an original testamentary document is unavailable or if there will be a delay in the production of certain codicils. The grant may be limited until the time when the original or the codicils are produced. This grant will allow an individual to act as administrator of the estate until such documents can be located. If the original will is with somebody abroad who is unwilling to produce it, it is possible to grant probate pending the receipt of the original. In a case of urgency, it is possible that a copy of an original will may be admitted, limited until the original arrives. If a copy is admitted, an individual must apply to the court by an order for directions under Rule 75.06 of the Rules of Civil Procedure.
Another type of limited grant is administration durante animi vitio, roughly translated as “administration for the use and benefit of a person under a disability”. If a person entitled to a grant of administration was of unsound mind at the time of the deceased’s death, or became of unsound mind after receiving the grant, administration for his or her use and benefit would be granted to someone else until the individual returned to sound mind. If a sole executor or administrator becomes incapacitated through mental or physical illness, the grant can be revoked and administration can be granted to his or her guardian.
If a certificate of appointment has been issued, but there is a defect in the document, it is important to alter or amend the document. If an error is a bona fide mistake and is not of significant importance to require the revocation of the grant, the amendments may be made based on satisfactory evidence. These types of amendments include minor details such as the name of the executor, or the date of death. This will result in the execution of a new bond. When an error is discovered, an affidavit should be filed confirming the mistake on the original and attesting to the correction, and the registrar will then make any changes required. If property is discovered after the grant of probate or administration and was not originally included in the application, the executor or administrator must deliver a true statement of the property verified by oath to the registrar in Ontario. This may result in the individual having to pay an increased surety to account for the extra value of property.
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There are a number of limited grants that are important to consider for succession planning purposes. We have previously blogged about a type of limited grant, a durante minore aetate, which grants administration duties to a guardian if a minor is named as executor of an estate. Other types of limited grants include administration durante absentia and grants to attorneys, both of which deal with administrators located outside of the jurisdiction.
A grant of administration durante absentia is a grant necessary where the person entitled to a certificate of appointment is absent from the jurisdiction. The grant will be effective until the entitled individual returns to the jurisdiction. Today, these grants are made by passing over the absent individual and by appointing a person who the court sees as appropriate in the circumstances. The grant may last for longer than the named individual’s absence from jurisdiction.
A grant of administration durante absentia is usually made by the next of kin pursuant to section 13 of the Estates Act which states:
- Where application is made for letters of administration by a person not entitled to the same as next of kin of the deceased, an order shall be made requiring the next of kin, or others having or pretending interest in the property of the deceased, resident in Ontario, to show cause why the administration should not be granted to the person applying therefor; and if neither the next of kin nor any person of the kindred of the deceased resides in Ontario, a copy of the order shall be served or published in the manner prescribed by the rules of court.
This provision is further governed by Section 14 of the Estates Act which states:
- (1) If the next of kin, usually residing in Ontario and regularly entitled to administer, is absent from Ontario, the court having jurisdiction may grant a temporary administration to the applicant, or to such other person as the court thinks fit, for a limited time, or subject to be revoked upon the return of such next of kin to Ontario
(2) The administrator so appointed shall give such security as the court may direct, and has all the rights and powers of a general administrator, and is subject to the immediate control of the court. R.S.O. 1990, c. E.21, s. 14 (2).
Furthermore, a grant to an attorney may be made if the person solely entitled to a grant as estate trustee with or without a will is out of the jurisdiction. Pursuant to section 5 of the Estates Act, letters of administration, except by resealing, can be granted only to a resident of Ontario. However, the case of Armstrong Estate, Re, 2010 ONSC 2275, held that if a non-resident is applying for a Certificate of Appointment of Estate Trustee with a Will, and the applicant has the consent of a majority of the persons resident in Ontario who are otherwise entitled to apply, and where security is in place, the grant may be issued to the non-resident.
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When dealing with the administration of an estate, there is the possibility that a bequest will be left to a minor, resulting in the need for it to be held in trust until the minor reaches the age of majority. It is also possible to have a situation where the executor named in a will is a minor at the date of death of the testator, pursuant to section 26 of the Estates Act. This will result in a Certificate of Appointment of Estate Trustee being issued to the guardian of the named executor, until he or she turns 18. The guardian acting as executor is called durante minore aetate, which translates to “during the minority”.
Pursuant to section 26 of the Estates Act:
(1) Where a minor is sole executor, administration with the will annexed shall be granted to the guardian of the minor or to such other person as the court thinks fit, until the minor has attained the full age of eighteen years, at which time, and not before, probate of the will may be granted to the minor
(2) The person to whom such administration is granted has the same powers as an administrator has by virtue of an administration granted to an administrator during minority of the next of kin.
The powers of durante minore aetate to act in the place of a minor are not limited. As per Re Cope, (1880), 16 Ch. D. 49 (Eng Ch Div) at 52:
The limit to his administration is no doubt the minority of the person, but there is no other limit. He is an ordinary administrator: he is appointed for the very purpose of getting in the estate, paying the debts, and selling the estate in the usual way; and the property vests in him.
In Monsell v Armstrong, (1872) LR 14 Eq 423 at 426, the court held there is “no distinction between a common administrator durante minore aetate as regards the exercise of a power of sale.” Along with the power of sale, it seems too that an administrator for the use and benefit of a minor may also assent to a legacy and may be sued for the debts of the deceased.
An application for a certificate of appointment for the use and benefit of a minor should be in Form 74.4, 74.4.1, 74.5, or 74.5.1 (forms can be found here) and should include an explanation stating that the executor named in the will is not the applicant due to the minority of the named executor. Once the application is filed, the matter will be referred to a judge. If the judge orders a certificate of appointment of estate trustee with a will, it will include the phrase “Right of (name of minor executor) to be appointed estate trustee on attaining 18 years of age is reserved.”
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A recent decision of the Ontario Superior Court of Justice, The Estate of Ingrid Loveman, Deceased, 2016 ONSC 2687, considered a passing of accounts, and specifically considered whether the Estate Trustees in this case, among other things, met the requisite standard of care in administering the Estate.
The Court briefly reviewed the case law with respect to the standard of care of Estate Trustees, noting that an estate trustee is a fiduciary to the beneficiaries of an estate, must exercise the degree of diligence that a person of prudence would exercise in the conduct of his or her own affairs, and may not prefer his or her own interests over the interests of beneficiaries.
Pursuant to the Deceased’s Last Will and Testament dated July 12, 2006 (the “Will”), two of her seven children, Peter and Heidi, were named as Estate Trustees. The Will provided, in part, that a house (the “House”) was to be retained for six months, at which time Peter had six months to exercise an option to purchase it for 70% of its fair market value as of the date of death. Should he exercise that option, the proceeds were to be divided into six equal shares, with each of four of the Deceased’s children (David, Heidi, Douglas, and Dirk) receiving one share, and the two remaining shares to be equally divided amongst her four grandchildren, and kept in trust.
Peter exercised the option to purchase the House within the twelve month time period. However, he only gave notice of his decision to purchase it; he did not actually act on the decision, nor complete the transaction within the time limit. He claimed that he delayed the purchase as he did not have access to the funds required in a way that was most economical for him. However, the Court found that postponing the sale in this manner was convenient to Peter, but not to the Estate nor to the beneficiaries, and he therefore breached his fiduciary duty.
There was also a delay in obtaining probate, which the Court concluded was likely due to Peter delaying the application until he deemed it necessary, being when he decided to exercise his option to purchase the House. The Court found that Peter accordingly placed his interests before those of the Estate and the beneficiaries. Furthermore, the Court found that, had the Estate Trustees adhered to the time frames stipulated by the Will, it is likely that litigation involving a claim by one of the Deceased’s grandchildren would have been avoided.
Although the Estate Trustees in this case did not act in a malicious or egregious manner, the mere fact that there was a delay related to the preference of an Estate Trustee was sufficient for the Court to find that Peter had breached his fiduciary duty. Fiduciaries are required to act with utmost good faith. This is an extremely high standard, and therefore, the interests of beneficiaries should never be anything but a trustees’ first and foremost priority.
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It is well-known that executors and estate trustees have fiduciary obligations. We have discussed some estate trustee liabilities and obligations on this blog before. Although it may seem obvious that estate trustees must act selflessly and in the best interests of the beneficiaries and the estate, a recent decision from the Ontario Superior Court of Justice provides an instance where estate trustees were held liable for failing to carry out the terms of a will and self-dealing, even by passively standing by.
In Cahill v Cahill, 2016 ONSC 2863, the named estate trustees of an estate were held jointly and severally liable for failing to establish a trust pursuant to the Deceased’s will. The relevant facts are as follows: The Deceased left a Last Will and Testament naming two of his adult children, Sheila and Kevin, as Estate Trustees. The terms of the Will provided that Sheila and Kevin were to set aside $100,000.00 in a trust fund for the benefit of another of the Deceased’s adult children, Patrick, and that he would receive $500.00 per month from the trust until his death or until the principal was reduced to nil. The funds to set up the trust came from the sale of the Deceased’s home, and were put into a Non-registered Investment Plan with London Life (the “London Life Plan”), owned by Kevin.
For a period of time, Patrick received the payments of $500.00 per month, until the summer of 2014, when several of his cheques were returned for insufficient funds. He then discovered that in May 2012, Kevin had withdrawn the principal remaining in the London Life Plan, which was approximately $92,000.00 at the time, as a mortgage with respect to some commercial premises purchased by him for his business, and lost the funds when his business failed and the bank realized on the property.
The Court found that both Kevin and Sheila were in breach of their fiduciary obligations to the beneficiaries of the Estate, as they had failed to carry out the instructions set out in the Will. In fact, the Court found that the trust fund provided for by the Will was never actually set up. Even though Kevin opened the London Life Plan with the $100,000.00 amount, and he was noted as the legal owner, his application for the London Life Plan did not mention a trust, Patrick was not disclosed as a beneficiary, and Patrick therefore did not have equitable title to the Plan. The Plan therefore did not meet the requirements for a trust. The court held that Kevin’s self-dealing by using the funds for his personal benefit was a “wrongful and deliberate misappropriation of the funds” and that he had breached his fiduciary obligations by his conduct in this respect.
Throughout these events, Sheila had been quite passive. She claimed that she had relied on Kevin to do most of the work required to administer the Estate, as he had expertise in the field of financial management. However, the court held that the case law is clear that there is no distinction between sophisticated and unsophisticated individuals in fulfilment of the obligations of Estate Trustees. As such, if Sheila was not confident in her knowledge of the role, she should have either obtained the necessary guidance, or renounced as Estate Trustee. Furthermore, she failed to discharge her obligations by failing to ensure that all proper steps were taken to set up the trust fund. If it had been set up, Kevin was to be the sole trustee, but as the court found that it was not, in fact, established, there was never a point at which Sheila was relieved of her obligations as Estate Trustee.
Ultimately, the court held that Kevin and Sheila were jointly and severally liable and were required to fund the trust in accordance with the terms of the will. It is therefore vital to always keep in mind the seriousness of the duties and obligations of estate trustees.
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Being an executor is a lot of work and a job that can be trying at times, particularly where disputes arise among the beneficiaries and/or the deceased’s family members in relation to the assets of the estate.
If you are appointed an executor and you do not wish to act, you may execute a Form 74.11 “deed of renunciation” through which you may effectively give up the rights and responsibilities that come along with the role. This form of renunciation, however, is generally only available before any steps have been taken by the executor to administer the estate or apply for probate. A named executor, who has taken active steps to administer an estate and/or apply for probate will, in most cases, be required to apply to the Court to be removed. Upon such application, the Court may order that he or she complete the job.
This is precisely what occurred in the recent case, Dueck v. Chaplin. The facts of that case are as follows:
Prior to his death, the deceased executed a Last Will and Testament that named his solicitor and his sister as the executors of his estate, and his children and his sister’s children as the beneficiaries of his estate.
The deceased had executed a prior Will many years earlier, in which he had named his wife as both the executor and sole residuary beneficiary of his estate.
At the time of his death the deceased was estranged from but still legally married to his wife, with whom he had been in the midst of contentious litigation regarding the division of their assets and custody of their children.
Following the deceased’s death, the deceased’s solicitor and the deceased’s sister, being the executors named under the deceased’s Last Will, began the process of gathering the deceased’s assets and paying the deceased’s outstanding liabilities. They also filed an Application for probate.
The deceased’s wife subsequently filed a Notice of Objection challenging the validity of the deceased’s Last Will.
Both the deceased’s solicitor and the deceased’s sister sought to renounce from their role of executor on the basis that they were conflicted given their involvement in the drafting and execution of the deceased’s Last Will. (The deceased’s solicitor had met with the deceased and had drafted the deceased’s Last Will, and the deceased’s sister had accompanied the deceased to his various meetings with the solicitor.)
Upon hearing the case, the Honorable Justice Goodman referred to paragraph 66 of the decision of the Ontario Court of Appeal in the Estate of Herbert Washington Chambers, deceased, 2013 ONCA 511 in which Justice Gillese stated:
Renunciation is generally not available if a party has already “intermeddled” with the estate. Intermeddling is the term used to describe the acts of a person who deals with an estate without having been formally recognized as the estate trustee. As Kennedy J. explained, “while executors may renounce at any time, (a right which is usually exercised before applying to probate) the courts have been reluctant to allow an executor to renounce after having intermeddled in the estate, or after having applied for probate”: Stordy v. McGregor (1986), 42 Man. R. (2d) 237 (Q.B.), at para. 9. Even a slight act of intermeddling with a deceased’s assets may preclude an executor from afterwards renouncing: see Cummins v. Cummins (1845), 8 I. Eq. R. 723 (Ch.), at pp. 737-38.
Following this precedent, Justice Goodman found that the executors’ intermeddling precluded them from renouncing, and that they were in fact the most appropriate individuals to propound the Last Will given their involvement in the drafting and execution of the testamentary document.
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Ian Hull and Laura Betts
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.
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Just what to call the person administering an estate in Ontario can be somewhat confusing. A number of terms have been used over the years. The same person can be referred to in a number of different ways by different pieces of legislation. In some cases, there are real differences in the legal effect of these different titles. I thought it worth taking a brief look at the legal distinctions between the various names that are given to estate trustees.
An executor is a person nominated by the testator in a will to carry out its terms. There is a feminine form, “executrix” (pl. “executrices”), however the term “executor” is commonly applied to either gender. An executor’s authority comes from the will itself, and he or she generally has authority to administer the estate with or without an appointment from the court.
If there is no will, there can be no executor. Upon application, a court will appoint an administrator to handle the affairs of the intestate estate. There is also a feminine form, “administratrix” (pl. “administratrices”), but again, “administrator” tends to be applied in a gender-neutral way. An administrator’s authority to act is derived solely from his or her appointment by a court.
If there is a will but no executor, (e.g. where the will does not name an executor or where the named executor is unable or unwilling to act), the court can appoint an administrator to carry out the terms the will. This person is called an “administrator with the will annexed”. Like other administrators, an administrator with the will annexed derives authority from court appointment.
One key difference between executors and administrators is that there is a “chain of executorship”. If an executor, Y, obtains a certificate of appointment for estate X and later dies, the executor of Y’s estate becomes the executor of X’s estate as well. This chain can continue indefinitely. However, an administrator’s authority to administer an estate is not heritable in this way and his or her grant of authority dies with the administrator.
Some of our legislation uses the term “personal representative”. The Trustee Act, for example, defines a “personal representative” as an executor, an administrator, or an administrator with the will annexed. The Rules of Civil Procedure use the term “estate trustee”, also defined as meaning an executor, administrator, or administrator with the will annexed. Further, an executor or an administrator with the will annexed can be called “estate trustee with a will”, and administrator where there is no will can be called “estate trustee without a will”.
To make things trickier, many wills create trusts. Usually the executor/estate trustee with a will/personal representative is also named as the trustee of any trusts created under the will (although a will can appoint different trustees). When this happens, the estate trustee is also a trustee. While trustees and estate trustees are generally treated similarly under the law, there are some significant differences For example, section 2 of the Trustee Act provides a mechanism for a trustee to retire if there are three or more. The section states that it does not apply to executors or administrators, however, who can only be removed by a court. Some cases have treated the two offices separately as well, holding that a person can resign or be removed from one office while retaining the other. An estate trustee can be removed as trustee but still be estate trustee.
I hope that this helps to disambiguate some of the many names that are given to a person who is in the role of administering the assets of a deceased person. Although many of these terms overlap, it is sometimes important to appreciate the distinctions where they exist.