compensation / Sorbetto

This article appears in the October 2021 issue of Advisor’s Edge magazine. Subscribe to the print edition, read the digital edition or read the articles online.

Many executors accept their role out of personal duty to a family member or friend who has died, expecting no payment for the work. Nevertheless, all executors are entitled to compensation for administering an estate, though the rules governing executor fees vary by province.

“Even if the will is silent on executor fees, that right to be compensated is part of our legal system, whether it comes down through common law or through statute,” said Tom Junkin, senior vice-president of personal trust services with Fiduciary Trust Canada, part of Franklin Templeton.

If a testator appoints a trust company as executor, the parties typically agree to compensation during the testator’s lifetime, with the details sometimes included “by reference” in a clause in the will. Corporate executor fees typically range from 4% to 5% of the estate’s value, Junkin said, though the fee is lower with larger estates.

When a family member or friend is the executor, it’s common to include a broadly worded clause in a will indicating that the testator expects and permits them to be compensated, Junkin said. Such wording may “remove any doubt, or any stigma, that the executor might feel about charging [a fee].”

Nevertheless, some personal executors choose not to take a fee, particularly if they’re a beneficiary and view their gift under the will as effective payment, said Sanjana Bhatia, director of tax and insurance planning with Sun Life Financial in Waterloo, Ont.

Executor fees are treated as taxable income, Bhatia noted, whereas gifts by will are not.

Where a will doesn’t address compensation, then provincial statutes, case law or set guidelines govern how much an executor can receive.

In Ontario, courts allow executors to charge up to 2.5% on both the amounts received and paid out of an estate, resulting in an effective rate of 5%. In B.C., by statute, an executor is entitled to no more than 5% of an estate’s gross aggregate value. In Alberta, courts use a tiered fee guideline that adjusts with the size of the estate.

The amount of compensation awarded remains the same regardless of the number of executors, Junkin said.

If an executor has sought professional help to perform some of their work, their compensation may be reduced if a court determines they could have reasonably done the work themselves, Bhatia said.

For example, “if an executor retains someone to go through the deceased’s home and pick up the utility bills, then that executor’s compensation fees would likely be reduced,” Bhatia said.

Compensation is typically addressed near the end of an estate’s administration, when the executor presents the estate accounts to beneficiaries. Executors should ask beneficiaries at the time to sign a release indicating they’re satisfied with the accounts and the proposed compensation. “That’s what would happen in a non-contentious case, which is most of the time,” Junkin said.

However, if beneficiaries aren’t satisfied, they can ask for a “passing of accounts” in court.

Courts will look at five factors to determine fair and reasonable compensation: the size of the estate, the care and responsibility involved in administering the estate, the time required of the executor, the skill and ability demonstrated, and the degree of success achieved in administering the estate.

A court can decrease or increase the executor’s compensation, Junkin said.

In Atlantic Jewish Foundation v. Leventhal Estate, a 2018 Nova Scotia court decision, an executor sought compensation of nearly $900,000, representing 5% of the estate’s value (the legal limit).

The estate’s beneficiary argued the requested fee was excessive and proposed a commission of $300,000, or 1.67%, instead. The will had not addressed executor compensation.

Applying the five factors, the court found that the executor, who was the deceased’s lawyer and friend, had “admirably performed his duties.” However, the court also found that the estate, though substantial, had not been overly complex or contentious to administer. The court awarded compensation of $450,000, or 2.5%.

The decision is notable, Bhatia said, because the court awarded half the top allowable compensation in the province, even though the executor administered the estate in a diligent manner. “It just goes to show that if a testator wants someone to receive 5%, they should specifically say so in the will,” she said.