After being appointed as estate trustee or executor of an estate, it can be unclear how much compensation can be claimed for administering the estate. In addition, beneficiaries often object to the amount claimed. How is executor compensation determined?
In some cases, the will itself outlines the amount of compensation that may be claimed or the manner in which compensation can be calculated. However, most wills do not provide any such guidance. In those cases, executors must turn to statute and case law to determine the amount of allowable compensation.
While the right to claim compensation for acting as a trustee is confirmed by statute, the legislation only offers guidelines for calculating the amount of compensation allowable. Section 61(1) of the Trustee Act, RSO 1990, c T.23 states that a trustee is entitled to “such fair and reasonable allowance for his care, pains and trouble, and his time expended in or about the estate, as may be allowed by a judge of the Superior Court of Justice.” Given this lack of specificity in the legislation, courts have attempted to set down more precise rules in case law.
Over time, a percentage tariff system has become the default method for calculating executor compensation. Under the percentage tariff system, compensation is calculated as follows:
-2.5% of the value of every payment into or out of the estate, and
-A care and management fee of 2/5 of 1% of the average annual value of the estate’s assets. The care and management fee may be charged after the first year of administration.
Despite the widespread use of the percentage tariff system, it is not always an appropriate method of calculating executor’s compensation. In some cases, its application may lead to unfair or unreasonable results. For example, applying the tariff system to a large yet straightforward estate may result in compensation that is disproportionate (or a “grossly excessive allowance”) relative to the care, pains, and time actually expended (see Atkinson Estate, Re, 1951 CanLII 101 ON CA 404). In contrast, an executor responsible for administering a smaller but complex estate might be under-compensated using the percentage tariff system; the demands made upon their care, time, and skill may not be reflected in the percentages calculated in such cases.
Accordingly, the percentage tariff system is viewed as a starting point and not an absolute determination of the amount of an executor’s compensation. In reviewing the amount of compensation claimed by the executor in order to ensure that it is fair and reasonable, courts will consider the following five factors (first established in Toronto General Trusts Corp. v. Central Ontario Railway, (1905, 6 O.W.R. 350, Ont. H.C.)):
- the size of the trust;
- the care and responsibility involved in managing the trust;
- the time spent performing trustee duties;
- the skill and ability shown by the trustee during the administration; and
- the success of the administration.
While the percentage tariff system remains the most commonly used method for determining executor compensation, every estate and claim for compensation may be judged differently. As a result, disputes between beneficiaries and executors over the amount of compensation claimed are common. If the executor and the beneficiaries are unable to reach an agreement between themselves, the dispute may be escalated to the courts. To help minimize this risk, executors are encouraged to keep detailed records when performing their duties, provide regular updates to the beneficiaries, and carefully consider whether the amounts claimed are fair and proportionate in the circumstances.
