At our law firm in Stittsville (Ottawa), we focus on wills, estates, trusts and related work. Because of this focus, we work with a lot of people who have been appointed as the executor (also called an ‘estate trustee’) of an estate.
As executors quickly find out, acting as an executor can be a big job. Some executors are surprised to learn that an executor can be paid for the estate administration work that the executor does. Others know about executor compensation but decide not to take it for one reason or another. In a few cases, the Will of the person who died sets out how compensation is to be calculated. In rare cases, the Will states that the executor cannot be paid compensation at all. So the first place we look is the Will assuming there is one.
If you are an executor and are thinking of paying yourself executor compensation, here are some tips about how to calculate what you might be owed and other things to consider. If you have looked at the Will carefully and there is no mention of executor compensation, you won’t find any help by looking at Ontario legislation. There is no mention about how to calculate executor compensation in any Ontario statute. Instead, a number of court cases over a long period of time are all that guide us in determining how to figure out executor compensation.
Calculations can be tricky as it depends on so many factors. In simple terms, an executor can usually charge 2.5 % on assets or income (also called ‘revenue’) coming into the executor’s hands and 2.5% on all payments out of the estate (‘disbursements’). Think of disbursements as money being paid out forever and not coming back into your hands as executor. If assets or money simply changes form such as when cash is used to buy an investment for the estate or when an investment is cashed out and the money is deposited into the estate’s bank account, you don’t get compensation on those switches between the investment account and the bank account. You also don’t get compensation on a refund that occurred as a result of a payment made during the administration of the estate. This can happen when, for example, you overpay a tax bill and a refund is received.
If estate administration takes longer than a year, which can happen with the long waits for tax clearance certificates, an executor may also charge a care and management fee. The usual formula is 2/5 of 1% of the average annual value of the estate assets. To calculate, first determine the average annual value. For example, add the value of the estate assets on the first anniversary of the date of death to the value of the estate one year later. Divide this number by 2. This is the average annual value.
Next, multiply the average annual value by .01 then multiply by 2 and divide by 5. Here is an example:
| Value at one year anniversary of date of death: | $450,000 |
| Value one year later: | $510,000 |
| Average annual value: | $960,000 / 2 = $480,000 |
| 1% is: | .01 x $480,000 = $4,800 |
| 2/5 of 1% is: | $4,800 x 2/5 = $1,920 |
As executor of an estate is accountable to the residue beneficiaries of the estate. Residue is what’s left over after payment of all estate liabilities and any cash bequests. An executor may also be accountable to creditors of the estate if it appears that there are not enough assets to pay all liabilities. An executor needs to be prepared to provide a detailed accounting of all receipts and disbursements of the estate and how he or she has managed the estate assets including investment details and so on. If as executor you submit your report to Court for approval, this is called “passing your accounts”.
Detailed accounting is also the basis for determining the amount of compensation an executor can take. The amount of compensation must be approved by the residue beneficiaries or the Court. If the Court approves the compensation, you do not need the approval of anyone else unless there are beneficiaries who are minors (under the age of 18) or mentally incapable adults. If there is a mentally incapable adult beneficiary, the Office of the Public Guardian and Trustee will also need to approve your accounting.
During a passing of accounts, a judge can reduce the amount of executor compensation for any number of reasons. If all adult capable beneficiaries who form a majority of the beneficiaries of the estate approve an executor’s accounting and agree with the compensation calculation, a passing of accounts is often not done. In that case, it is not reviewed by a judge.
If you are acting as an executor, make an appointment to meet with one of our lawyers. You can reach us at 613.836.9915 or info@personalawgroupw.com. While discussing your many duties and responsibilities as an executor, we will make sure you understand the detailed records that you are required to keep and we can help you figure out the amount of executor’s compensation.
Reproduction of this blog is permitted if the author is credited. If you have questions or if you would like more information, please call us at 613 836-9915. This blog is not intended to be legal advice but contains general information. Please consult a lawyer or other professional to determine how the information in this blog might apply to you.
Blog posts pre-dated December 1, 2015 were originally published under Neff Law Office Professional Corporation.
