Executors (now called estate trustees) often have many questions about their compensation. These are a few of the most common questions that we are asked regarding estate trustee compensation:
What is a ‘care and management fee’?
Where the administration of an estate takes longer than a year, 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 assets of the estate. 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. The care and management is 2/5 of 1% of this value.
When can I be paid?
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 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 (mileage, legal fees, etc.) when those expenses are incurred.
Is it taxable income?
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 CRA and compensation is subject to withholding tax and other deductions, t-slips must be issued, etc. An executor should work with an experienced accountant should he or she wish to take compensation.
