Executors Fees: How to Figure Out What to Pay Yourself
Are you like Jack? He wanted to handle an estate as an executor. He expected to take a fee for his services. But helping yourself to big fees can get you into hot water. The will can specify what your fees are. But what if it does not? Here are some pay guidelines for administering an estate.
Executors need professional advice to prevent mistakes and overcharging. Estate beneficiaries can give you a major headache if they think you are gouging them.
Executors also are known as estate trustees in Ontario. As an executor, by law you can receive payment for your time and services. This is so even if the will does not mention your payment.
The Percentage Formula for Executor Compensation
Your compensation is not based only on a percentage or dollar value of the estate. In most estates, the percentage approach to calculation may be fair and reasonable. In other provinces, a different fixed fee formula may exist.
The actual Ontario percentages represent the following:
• 2.5% of all capital receipts and disbursements and
• 2.5% of all revenue receipts and disbursements.
This 2.5% is the standard approach used to calculate compensation in most estates.
However, it is only the starting point. Judges can reduce or cancel compensation for executor delay, mistakes or misconduct.
Estate Management Fees
You may also claim a management fee. This would mean you managed an estate and did not distribute it immediately.
You calculate this fee as 2/5 of 1% of the average value of the gross assets you administer. A management fee is not always appropriate or allowed. You must be able to show you actively managed estate assets.
Co-Executors Share Fees
You share your compensation among all estate trustees. You should agree how to share workloads and compensation with co-estate trustees.
You should have a contract or written agreement among co-estate trustees. This specifies who does what.
I always recommend you start with this agreement at the outset.
Have you never acted as estate trustee? You will need legal advice to understand the workloads and time commitments.
Executor Reimbursement for Expenses
You can also claim reimbursement for your expenses. These include your legal costs and out-of-pocket expenses.
Your expenses must be reasonable and properly incurred.
The Five-Factor Compensation Guidelines
The above percentages are not the only factors you need to consider on compensation. In Ontario, the courts also consider the five factors. You consider these five factors to crosscheck the percentage amounts.
The five-factor test considers:
1. The Size of the Estate
Large dollar values may make the estate simple to handle. Some estates may be small but complex. These may require more time and skill.
2. Your Responsibility
How difficult was the estate to administer? Did you operate a business until it was sold? Are there unusual instructions or estate assets? What were the challenges in the estate?
3. Time Spent
This is only one of the factors affecting compensation. You normally spend more time if you:
• deal with assets in other jurisdictions
• are involved in a probate dispute
• handle lawsuits for the estate
4. Your Skill
You may be a professional or have unique skills for to work with? assets or beneficiaries.
5. Your Success
Avoiding unnecessary delays, paying taxes and avoiding penalties and interest add value to the estate.
Compensation is Taxable Income
All compensation is taxable income in your hands. Speak to your tax advisor about what deductions are required and how to report this income.
Learn more about compensation for estate trustees: Ontario Executors Require Answers to Questions: How Much Do Executors Get Paid?
Need a consultation about executor fees? Contact me now.
About Ed Olkovich
I am a Toronto estate lawyer, author and editor of Carswell’s legal guide Compensation and Duties of Estate Trustees, Guardians and Attorneys. I am a Certified Specialist in Estates and Trusts Law. I have successfully resolved many estate disputes for spouses. These have included elections under the Family Law Act and dependant’s relief under the Succession Law Reform Act. I have handled estate disputes and probate problems since 1978. © 2016