I recently met with Janice (not her real name) at my law office in Stittsville near Ottawa, Ontario. Janice had been appointed as executor of her uncle’s estate. She had been told by a friend that she could be paid for acting as an executor. Her uncle’s Will made no mention of executor compensation so Janice wasn’t sure whether she could be paid and, if so, how much.
I explained to Janice that unless the Will denies executor compensation (most Wills do not mention it at all), a person acting as an executor can be paid for doing the work of an executor. How much an executor can be paid depends on many factors.
Firstly, look at the Will. See if it specifies how executor compensation is to be determined. It may be a set amount, based on
percentages, or more generalized such as allowing a professional (lawyer, accountant, financial planner) to charge their usual hourly rates. The deceased may have also signed a fee agreement as is usually the case when a trust company is acting as executor. In Janice’s case, the Will was silent.
If the Will doesn’t say anything, I went on to advise Janice, then the common law applies which means looking at what courts have decided over many years. Unlike the compensation for POAs for property, there is no statute in Ontario that specifies how to calculate executor’s compensation. An executor is generally allowed 2½% of receipts (all value received by the estate including assets as of date of death), 2½% of disbursements (all payments out of the estate whether to pay liabilities or to distribute to beneficiaries) plus 2/5 (two-fifths) of 1% of the average annual value of the assets as a care and management fee).
If a judge reviews the proposed compensation, he or she will consider the following five factors:
- the magnitude of the trust/estate;
- the care and responsibility involved;
- the time occupied in performing the duties;
- the skill and ability displayed; and,
- the success which has attended its administration.
Janice also wondered when she could take her executor compensation. I explained that 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. However, it is usual 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.
As Janice had never acted an executor before, I did tell her that acting as an executor is a big job which comes with a lot of responsibility. The workload is definitely heaviest in the first couple of months as the executor locates assets, determines values, secures them, pays bills, finds and corresponds with beneficiaries, prepares and files tax returns, determines if prior year returns are up to date and if not, deals with them, responds to beneficiaries, creditors, and investment holders, etc. There is usually less work towards the windup stage of administering an estate while the executor is waiting for CRA to issue Notices of Assessment or Clearance Certificates.
I explained to Janice that executor compensation is taxable income and, if taken by a layperson (someone who is not in the business of handling estates), the estate must be issued a business number by CRA and all compensation is subject to income tax being withheld and other deductions made, t-slips issued, etc. It is CRA’s position that the estate is an ‘employer’ when an executor takes compensation.
If you have been appointed as an executor or have already begun acting, make an appointment to meet with one of our lawyers. We can help guide you through the process, ensure you understand all of your responsibilities, and assist in determining if you will take compensation and in what amount.
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.