Just how are executors and trustees compensated, you might ask?
There is no set formula or amount but there are some guidelines
to be found from Ontario statute law and the common law or
previous court cases.
Section 61(1) of the Ontario Trustee Act, R.S.O. 1990, c. T.23,
provides that:
“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.”
But then the Act fails to give any rules as to the calculation
and amount of the compensation. So, over the years, the courts
have developed and applied a “rule of thumb” tariff. Only in
special circumstances will a court reduce or increase the
compensation or permit a special fee.
Here is the tariff or formula:
CAPITAL
- 2.5% to 3% of capital receipts;
- 2.5% to 3% of capital payouts;
INCOME
- 2.5% to 3% of income receipts;
- 2.5% to 3% of income payouts;
ONGOING TRUSTS – Care and Management
- 2/5 to 3/5 of 1% of the average annual market value of the
trust assets
- PLUS 5% to 6% of income generated by the trust.
If not specified in the Last Will and Testament, compensation to
Executors and Trustees is usually paid at the end of the
administration of the estate or trust. Since most people prefer
to be paid regularly, it is wise to include a clause in your LWT
to pay your Executor and Trustee on a regular basis. This helps
to avoid a heavy tax burden on the trustee and ensures a more
even cash flow in the estate.
If the tariff or formula approach above does not result in fair
compensation for the Executor or Trustee, the courts have
developed five factors to consider when awarding larger
compensation as follows:
(1) the magnitude of the trust;
(2) the care and responsibility arising from the trust;
(3) the time occupied in performing duties;
(4) the skill and ability displayed;
(5) the success in administering the trust.
Additionally, a judge will consider whether an extra allowance
should be made for management, based on special circumstances.
This process is not scientific nor is it intended to be. For
executors in estates, it is a search for an award which reflects
fairness to the executor in the unique circumstances of each
estate.
Recommendations:
- For executors and trustees, purchase a diary and write
down on a daily basis what you did for the estate and how much
time it took you to do. Ultimately, you will be surprised just
how much work it is to administer an estate, and a judge will
reward you appropriately.
- When making your Last Will and Testament, you may wish to
insert a special clause dealing with compensation of your
executors and estate trustees.
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