What is Executor's Compensation in Ontario?
When someone agrees to be an executor of an estate, they are agreeing to take on a very arduous task. Being an executor is a job with many responsibilities. As with most jobs, people ought to be financially compensated for their efforts. Every estate is different; some estates are very complex; while others are comparatively easy to administer. How does an executor determine the amount of compensation for all of their work? Unfortunately, there is no statute in Ontario that sets out exactly how much an executor ought to be compensated.
It is possible for the Will to have a clause that sets out how the executor ought to be compensated. Unfortunately, most Wills do not have this sort of clause. In other cases, there is no Will at all.
If there is no agreement that outlines how to calculate the executor’s compensation, the Trustee Act allows a judge to award “…such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate…” You would be forgiven if you think that this quote from the Trustee Act is not very helpful.
In Ontario, lawyers and judges have come up with a generally accepted way of calculating executor’s compensation. Executor’s compensation is usually calculated as 2.5% on all estate receipts, plus 2.5% on all estate disbursements. It is an over simplification to say that executor’s compensation is 5% of the value of the estate; however, I have heard many people explain it this way. There is also a care and management fee of 2/5 of 1% (.04%) of the average value of the assets under administration each year.
In my experience, most beneficiaries agree with this way of calculating executor’s compensation. However, if there are beneficiaries that object to this compensation, the executor must get court approval for the compensation claimed. This is done by a passing of accounts. A passing of accounts can be a very time consuming and expensive process.
When determining if the amount of executor’s compensation claimed is reasonable for that particular estate, a judge will consider five factors:
1. The trust’s magnitude,
2. The care and responsibility springing therefrom,
3. The executor’s time occupied in performing their duties,
4. The executor’s skill and ability displayed, and
5. The success that attended its administration.
These factors give judges a very wide discretion to determine the amount of executor’s compensation. This can result in very different amounts of executor’s compensation for estates that appear to be very similar.
In many cases, beneficiaries simply agree to the amount claimed and the matter of executor’s compensation is done.
It is very important to point out that all executor’s compensation is taxable like any other income. This should be more evidence that being an executor is a job.
If you have any questions about executor’s compensation, please do not hesitate to contact my office.