1. say nothing

If your will is silent on executor compensation, your executor is still entitled to claim a fee at the time that he or she asks the beneficiaries to approve the estate administration. This is also when the executor asks the beneficiaries to sign a release that releases the executor from liability in administering the estate up to that time. Typically the approval-and-release happens right before the beneficiaries receive the final distribution of their share of the estate.

Provincial legislation provides guidelines for the appropriate compensation of an executor and trustee, and there are also a number of court cases that provide direction as to how the guidelines should be applied. Those cases use language like the arcane phrase we mentioned above, highlighting the fact that each estate is unique, meaning that although the compensation needs to be within a reasonable range, it also can be much higher or lower depending on the work actually done in administering this particular estate.

Factors often referred to in an analysis of an executor’s proposed fee include the:

1. magnitude of the estate;

2. care, responsibility and risks assumed by the executor;

3. time spent by the executor in carrying out his or her responsibilities;

4. skill and ability required and displayed by the executor; and

5. results obtained and degree of success associated with the efforts of the executor.

As suggested by these five factors, time-consuming and delicate challenges such as litigation, conflict among the beneficiaries, or very difficult assets (such as an active business or farm) can result in more compensation being requested and justified by the executor. In other situations, the appropriate fee will be less, for example, if the estate was large but its assets are mostly in a liquidated form (cash and a stock portfolio).

To assist with the subjectivity of this topic, over time the courts have developed a more objective guideline for executor compensation: up to five percent of the value of the estate. But it is important to keep in mind that when a will is silent on the compensation, the requested fee (and its approval) really is subject to the factors set out above, such as the work actually done by the executor.

2. specifically exclude compensation

We stated above that every executor is entitled to claim a fee, but when you are preparing your will, you can eliminate that possibility by stating explicitly in your will that the executor shall not receive compensation for carrying out this role. Estate lawyers usually recommend against this approach because really none of us know what will be involved in our estate administration and ruling out the possibility of compensation seems a little heavyhanded. Yes, your favourite niece may in usual circumstances carry out the work without a fee, but if litigation arises and the estate administration drags on for years, it may be that even your loving niece would think that the time and energy devoted to the estate is worth something.

If you decide to specifically exclude the possibility of your executor getting paid, you’d be wise to mention that when you are asking your executor to agree to being named to act in your will. On reading the will at your death and learning that there is no possibility of a fee, it may be that your chosen executor says Ciao to the job before starting it, if he or she feels that a fee is required. (As we discuss more in Mistake #40, even if the executor you ask agrees to be named in your will, he or she can still renounce, or decline, the job once the death has occurred. In other words, just because someone has agreed to be named, he or she may step aside when the work actually needs to be done.)

3. specifically provide for compensation

If you appoint a trust company to be your executor, the planning process will include a review of the fee agreement, which is attached to the will. This brings the issue of compensation right out in the open. Usually a trust company will not charge any fees for the planning work done with the clients and their lawyers; rather their fee will be collected only after the estate is administered. Depending on the age and health of the client, a number of years often pass between the planning of the will and the client’s death and estate administration. During this time, a client will often be contacted by the trust company every few years to see if any significant changes have taken place requiring a will update. At that time you will have another opportunity to review and consider the fee agreement.

The fees charged by the trust companies in Canada are all very similar, with approximately 4.5 percent being charged on the first $500,000 of estate value, and then on a declining sliding scale on the additional estate value.

The clarity about the executor’s fee when a trust company is appointed can be achieved even if you appoint an individual person. One estate lawyer advised us that people doing will planning usually don’t put a lot of time or energy into the compensation issue, stating something like, “She won’t take compensation, and if she wants to, let her sort it out with the beneficiaries.”

A better approach may be to take control of the issue, build it into the will by providing a formula for calculating the fee, or stipulating an hourly rate or a flat fee.

You will also want to think about the timing of the fee. The law prevents an executor from “pre-taking” a fee, meaning paying him or herself before the estate administration is completed, but if you want your executor to have a partial fee as the work is done, this can be stated in the will.

4. leave a gift to the executor or provide for professional fees to be billed

An important point to keep in mind is that executor compensation is taxable. If your executor is a trust company, it will of course include its fees in its income, but you will want to think about the taxation issue for an individual named as your executor and ideally discuss it with him or her. It may be satisfactory to that person to have his or her compensation clearly set out, even though it will then be reported as income in his or her tax return. On the other hand, if the named executor is your adult child or niece or nephew, you may decide instead to give them a gift in your will or a larger share of the estate than they would have otherwise received. Ironically some people, having made this decision, then go on to word such a clause with the preamble, “In lieu of compensation, I leave my executor a gift of $10,000.” Well, uh, don’t say that. The taxation authorities will very likely read such a provision as paying, yes, compensation.

If your named executor is a professional advisor, such as your accountant, whom you are naming primarily because of his or her business acumen and knowledge of your affairs, consider providing in the will that he or she can charge the estate for the work on an hourly rate, according to his or her regular rate.

recourse for beneficiaries

At this point, you might be wondering where the estate and its beneficiaries are left with all of this. What if the will doesn’t mention a fee but then, as we have explained, the executor charges a fee and it is exorbitant? Or what if the amount is nicely set out in the will but the executor does a poor job, dragging the estate along for years as a little pet project?

The beneficiaries’ opportunity to complain about the fee claimed by the executor arises when the estate is completed and they are requested by the executor to sign the release. At this stage, disgruntled beneficiaries can request what is called a passing of accounts, a court process during which the executor sets out the accounts, meaning what was done, how long everything took and the results achieved.

points to take away

• Executors of an estate are entitled to a fee and the time when you are planning your will and appointing one or more executors is a good time to think about their compensation.

• Appointing a trust company typically means that your will clearly states the fee methodology or attaches a compensation agreement binding your estate. Your opportunity to ask questions about the fees and how they will be assessed is during the estate-planning process or a followup will review. Don’t hesitate to raise any questions or concerns you have at those times.

• If your executors are your friends or family, it is still important to at least think about the work they will be doing and whether to specify the payment of either compensation (referred to as such) or a gift. A gift will not be taxable whereas a fee or compensation will need to be reported as such by the executor.