Guest post by Jason Allan, Barrister and Solicitor
Yes. The executor has the right to charge a fee or “compensation” for managing an estate. 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.” While there is no set fee in the Trustee Act or elsewhere, the courts have developed “guidelines” for calculating the executor’s compensation as follows:
2 ½ % of the capital receipts
2 ½ % on capital disbursements
2 ½ % on revenue receipts
2 ½ % on revenue disbursements
2/5 of 1 % per year management fee on the gross value of the estate
It is important to note that the “guidelines” are just that, guidelines, and may be varied from in certain circumstances. For instance, the courts recognize that in some cases it may be appropriate for an executor to charge more compensation and in other cases, the guidelines may be too much. In this regard, the courts have historically considered the following five factors in determining the appropriate amount to compensate an executor if the “guidelines” are deemed inappropriate:
- The size of the estate
- The care, responsibility and risks undertaken by the executor
- The time spent by the executor managing the estate
- The skill and ability demonstrated by the executor in managing the estate
- The results obtained by the executor in managing the estate; i.e., the extent to which the estate was successfully administered
Of course, if the Will sets out the executor’s compensation, this amount will be followed and the guidelines and the above factors need not be considered. There is also a legal presumption which states that if the executor is left a specific bequest in the Will, this amount is intended to be his or her compensation (this “presumption” can be rebutted by the executor).
The funds paid to the executor as compensation are deducted from the “residue” of the estate. The term “residue” refers to the funds that are left over after all the estate debts, general legacies and other specific bequests have been paid. In many instances, the executor elects not to charge compensation because he or she is either the only residuary beneficiary or one of a few residuary beneficiaries (i.e., one sibling acting as the estate trustee on behalf of his or her siblings). The compensation is taxable income whereas the inheritance is not so it may be more tax-advantageous for an executor to forego compensation, depending on the number of beneficiaries.
Jason Allan is a Barrister and Solicitor with Allan Law in Aurora, Ontario. www.allanlaw.ca
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