As we focus exclusively in the area of wills and estates at our law office in the Kanata-Stittsville area of Ottawa, we meet with a lot of people who have been appointed as executor (formally called an ‘estate trustee’) of a loved one’s estate. Many executors aren’t sure whether they can be paid and, if they can, how much and when. Here are some of the most common questions we are asked by executors about executor compensation.
Can I be paid for the work that I do as an executor?
In most cases, yes. Unless the Will of the person who died denies executor compensation, a person acting as an executor can be paid for doing the work of an executor.
How much can I be paid for acting as an executor?
Many people think an executor is entitled to 5% of the value of the estate. But determining if compensation is payable and how much might be payable is actually more complicated than that.
The first place to look is the Will itself. Although most Wills do not mention compensation at all, sometimes the Will sets out how compensation is to be calculated. It may be a set amount or based on percentages or some other formula. It may also specify that a professional can charge their usual rates.
In rare cases, a Will states that the executor is not to be paid any compensation. This may occur if the deceased thought the executor would not expect to be paid or the executor is receiving enough as a beneficiary. In other cases, the deceased may have given the executor money or other gifts during his or her lifetime in anticipation of the executor handling the estate in the future.
If the executor is also to receive a specific gift under the Will, it is important to check whether the executor is to be paid compensation over and above the amount of the gift. If certain wording is missing, that gift might be all the executor gets as compensation!
If the Will says nothing about how executor compensation is to be calculated, we turn to the law. At this time, 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 what guide us in 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 amounts the executor pays out of the estate (‘disbursements’). Disbursements can be thought of as money being paid out forever and not coming back into the executor’s hands.
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, the executor doesn’t get compensation on those switches between the investment account and the bank account. An executor also doesn’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, too much tax is paid and a refund is received.
What is a ‘care and management fee’ and when can an executor charge it?
It is not uncommon for the administration of an estate to take longer than a year. If this happens, 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 (the end of year two of the estate). Divide this number by 2. This is the average annual value.
For example, an estate with an average annual value of $500,000, the annual care and management fee would be $2,000.
When can I be paid for my work as an executor?
Unless the Will allows for ‘pre-taking’, the executor may have to wait for the approval of the beneficiaries or the approval of the Court on a passing of accounts (see our brochure entitled Passing of Accounts) to take his or her compensation. ‘Pre-take’ does not mean being paid before doing the work. Rather it means being paid before the amount of executor compensation has been approved. It is usual, however, for an executor to be paid for out-of-pocket expenses when those expenses are incurred for things like mileage, legal fees and so on.
If I am paid for acting as executor, do I have to pay tax on it?
Compensation is taxable income. If paid to an executor who is a layperson and who is not in the business of handling estates, the estate should have a business number with Canada Revenue Agency (CRA) and compensation is subject to withholding tax and other deductions, t-slips must be issued, and so on.
Are you an executor who needs help?
If you are acting as the executor of a loved one’s estate and have questions about executor compensation, call (613.836.9915) or email ([email protected]) our office to make an appointment to meet with me. We will review your situation, discuss what executor compensation you may be entitled to, and how and when it may be paid. Although our office is in Ottawa (in the Kanata-Stittsville area), we can assist executors anywhere as long as he or she is dealing with assets of an Ontario estate.
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.
