Wednesday, September 2, 2009

Executor compensation - how do we know how much he/she can have?

It's fairly common knowledge that someone who acts as the executor of an estate can charge a fee for doing that job. What is less well known is how we can tell how much the person can charge.

When the deceased person has stated in the Will how much his or her executor is to receive for being the executor, the situation is clear. The amount stated in the Will is the appropriate amount. It can be expressed as a dollar amount or as a percentage of the estate. Unless something very unfortunate happens to the estate, such as being caught up in a lawsuit, the executor will be entitled only to the amount stated in the Will.

Executor's fees are over and above the reimbursement of out-of-pocket expenses incurred by the executor (I will post again on executor's expenses later, as there is often confusion about what expenses should be reimbursed).

If the executor is a trust company, the person making the Will will agree on a fee schedule with the trust company at the time the Will is made. The Will should state that an agreement was signed. That way, it is clear to all parties involved how much the person making the Will wanted the trust company to receive in fees.

Most Wills don't say how much an executor can charge. That being the case, the executor will have to claim his compensation near the end of his work as executor, as he is preparing to send the beneficiaries their shares of the estate. The executor will prepare financial statements showing all transactions in and out of the estate, along with a statement that sets out how he proposes to distribute the assets to finish the estate. Part of that proposal is his request for fees for himself. The residuary beneficiaries (that is, the beneficiaries who share in the residue of the estate) are asked to agree to the amount he has requested.

Most provinces and territories don't use a specific formula that tells executors how much they can charge. Most rely on statutes that use phrases such as "fair and reasonable compensation". This leaves the concepts of "fair"and "reasonable"open to interpretation. Quite often, the executor and the beneficiaries don't see eye to eye on the amounts.

In Alberta, the accepted range of compensation is between 1% and 5% of the deceased's estate. Where an given executor falls within that range will depend on how complicated the estate is, whether there were any unique legal situations, the value of the assets, the amount of responsibility handled by the executor, how much time he or she put in, and other factors.

If the residuary beneficiaries think the claim is reasonable, they will agree in writing and the executor will take the proposed fee. If even one residuary beneficiary disputes the amount and it can't be negotiated to everyone's satisfaction, the amount may have to be set by a judge. If that happens, the estate pays for the lawyers to go to court and ask the judge to set the fee.

I encourage people making their Wills to think about including a clause stating how much your executor is to be paid. Talk to your lawyer about it if you want to discuss what is fair in your particular case. Remember that an experienced Wills lawyer will be able to give you ideas about how to handle pretty much any situation arising from an estate.

27 comments:

  1. Hi Lynne. You write in good clear non technical English. Your info has helped 4 Bennies in the Uk to get to grips with Alberta procedures. There are 6 legatees and 12 Bennies, all in 70,80 & 90 year range. Several could well have welcomed a partial distribution to help them in their later years. Our cousin died as lon ago as Nov 2010. The Exec declined to make any Interim Distribution saying it was unheard of. It has taken a year after Probate to get the Clearance Certificate -we understood it is usually up to 6 months in Alberta and 3 months in BC.

    We now await the Exec's 64 page report -omg - and we have to agree the requested fees! I really think Canada should start again and simplify the whole system. It is so important to specify in the Will the basis for fees. The 'Executors Year' has no bearing in this case !

    Regards

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  2. Hi,

    I'm glad you find the site useful. Given the number of questions I get here and by way of email and phone, I know people are looking for information.

    I always wonder about executors who refuse to make interim distributions. It is certainly not "unheard of". In fact, it is more the rule than the exception that executors try to get the estate out to the beneficiaries as quickly as possible. An interim distribution allows them to get the bulk of the estate out the door while holding onto enough to pay taxes and final expenses.

    The executors who hang onto every cent of the estate until the Clearance Certificate is received are within their rights to do so, but often there is no practical reason to refuse to make an interim distribution. And that just annoys people.

    Part of the problem, and I hate to say this as I'm a lawyer myself, is that lawyers will take on estate work when they are not familiar enough with it. When I did estate litigation I hated getting a "dabbler" on the other side who didn't have a deep enough understanding of the law. I should mention here that I have no idea who the lawyer was in charge of this estate so I don't know that it was a "dabbler". I throw my comment out there as a general observation.

    Clearance Certificates do take forever to receive, and as they are generated federally, the wait time should be the same everywhere in Canada. Six months seems about average to me.

    A 64-page report is going to be a pain to digest, but it beats the heck out of getting absolutely no information at all.

    Hopefully the estate will wind up soon and you can all move on.

    Lynne

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  3. When can an executor be reimbursed for expenses.

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  4. Thanks for your question about when an executor can be reimbursed. I'm going to answer this in a new blog post dated Feb. 18, 2012.

    Lynne

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    1. Lynne
      Thank you for your response. This estate has gone on since 2009 (due to a pending civil action with a contractor) and I have not taken anything for reimburement to this point. I have flights, hotel, car rental, mileage etc. and it is becoming a stain financially on me.

      Delete
  5. Informative site-thank you. My father was and executor of his cousins will. My father completed most of the work up til probate when he got ill and had to hand it over to the alternate executor. His out of pocket expenses (and mine as I had to drive him to Sask and back to Calgary to do some estate clean up etc) have not been paid. When we sent the receipts to the alternate she said that she has to clear payment with the benefactors (my father was not a benefactor). His costs have run up to several thousand dollars due to the estate being out of province. Is it me....or is there something wrong here?

    Thank you!

    RP

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    1. The general rule is that executors are to be indemnified for their expenses incurred in administering an estate, so long as those expenses are reasonable. This does not require the consent of the beneficiaries.

      Lynne

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    2. I am named in father's will as executor with my sister as a standby. My Dad moved up to live in my area as he didn't have a care giver after his wife passed away, I looked after my Dad' financial and medical for 2 years.When Dad passed away I carried his ashes on a flight to his hometown for burial. Can my flight, and hotel expenses be reimbursed from the estate? We had to move the date of the burial due to a family emergency and cancel the formal memorial but the burial did occur. My sister (lives in another town) wants the estate to pay for the tickets her and her husband didn't use as they refused to attend the funeral on the new date because the memorial was cancelled but not the burial.

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    3. Nobody's expenses to attend a funeral or burial or memorial service is supposed to be paid out of the estate, and that includes the executor.

      If the deceased asked the executor to carry out specific funeral or burial wishes, you would have an argument that those costs should be covered, but even then you're on shaky ground. At the end of the day, the executor is responsible for controlling the cost of funeral-related expenses, and for absorbing those costs if they are not reasonable. My guess is that your sister won't agree to these costs unless you agree to hers, even though that is not a reasonable position for her to take.

      Now, having said all of that, if you and your sister are the ONLY residuary beneficiaries, and you agree that the estate should cover each other's costs, you can do that. After all, taking something out of "the estate" means taking it from the residuary beneficiaries. It would be safer to have that in writing than verbally.

      Lynne

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  6. I just learned that if a "Tax Free Savings account" is in the estate, the "Tax Free" part of it is indeed Taxable from the time of death.
    My advice to all executors is get the deceased investments into a non interest bearing checking account within the first year or you will have the estate tied up for many extra months waiting for your final clearance due to filing costly "Estate Returns" on any interest being generated after the final income tax return is filed.
    In Alberta the tax rate on interest earned in these cases is 25 percent!

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    1. People often forget or don't understand that once an asset goes from the deceased to his or her estate, it has legally changed hands. This is why RRSPs and RRIFs are taxable even if they fall into the estate. An estate is a trust, which is a separate taxpayer than an individual.

      Lynne

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  7. Hi Lynne, My father passed away in June of 2010 and my sister and I are now going to appear in court in front of a "master". My older brother is the executor of my dad's estate and he is being a total jerk and asking unreasonable payment for his services , which by the way we were totally kept in the dark about until we received a document from the lawyer last week. The reason we are going to court is because we had a younger brother who passed away 10 years ago and his fourth of the estate is left to his two underage children. My father requested that they not recieve anything until age 25.My older brother wants nothing to do with being a trustee so we were told we need to go to court to have the Master appoint a trustee and also to approve all the bills incurred by my brother. He is asking for over 10% of the total estate net worth. I am so frustrated as we were so shut out of anything that went on until this upcoming date. There was a farm property which sold last July 1st so of course there was a wait for final taxes to be paid, claimed etc. Please give me some advice.

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  8. Hi Lynne,

    This is an amazing blog. The information is very insightful.

    As this posts contains executor compensation I would like to ask two question as a executor/trustee. The question pertains to care and management fee (2/5 of 1%).

    1) This is a Ontario Estate. To make it simpler the question uses a rough amount. I have invested $100,000 with an adviser. The beneficiary will receive the funds when they are of age as outlined in the will. The mutual funds purchased through the adviser have a MER (Management Expense Ratio). Thus the capital invested is charged a management fee via the MER. This is the only fee. As the funds are managed and a MER is charged does this mean I do not collect a care and management fee as the funds are managed by the mutual fund managers? If I charge a C&M fee the capital is charged twice, so I am unsure if I can charge this. I am trying to do everything correctly.

    2) If I open a direct investing account and purchase individual stocks and the stocks eventually become de-listed and/or become worthless (0) is the amount invested deducted from my compensation? The will states I am indemnified from loses so I may not have to pay out-of-pocket but could the loss be deducted from my compensation? So if I invested $5,000 and the shares eventually have a value of zero, does this amount get deducted from my compensation?

    Thanks! Your blog has answered alot of my questions. It is a great resource.

    Chris

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  9. do neighbours and friends have the right to call the police to gain access to my friends property after she died? does the will have to be shown to these people because they feel they are entitled? they are not in the will or previous will. they are pushy I am executor and not sure what to do. No family and no children just greedy friends of 20 years. Who knew this would happen

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    1. So, these people call the police and say, "hello, I want to go into my deceased's neighbour's property but the executor won't let me. Will you please let me in?" Why in the name of God would the police go along with that? Don't tell me this has actually happened? Or are they just threatening you?

      Why do they want to go in? They must have given a reason. The only one that has any hope of being logical is that your friend was in possession of something they owned. Even then, the police surely wouldn't make you hand something over without the people providing proof that it was theirs.

      This just sounds so ridiculous.

      As an executor, you are supposed to protect that estate, so do what you need to do. Change the locks, take out ALL paperwork, take small items like jewelry and trinkets away and put them in a safe deposit box. Make sure the house and contents are insured. Install an alarm system or hire a security guard if you need to. Get that house emptied and on the market as soon as you can.

      If these people are not beneficiaries named in the will, they have no business with that house or its contents.

      People are disappointingly greedy, aren't they?

      Lynne

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  10. Can an estate trustee (executor) who is a also a lawyer take their compensation BEFORE the CRA has issued a Certificate of Clearance and before a Final Distribution is paid to beneficiaries? Can a beneficiary dispute this before a Superior Court of Justice (in Ontario)? What fees are involved? Is 2 1/2 years an unreasonable amount of time to wait for a simple estate with will to be executed? Must interest be paid for funds held in trust long periods of time (>6 months after a sale of property has taken place)?

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    1. An executor, regardless of what job he or she does during the rest of the time, cannot take compensation until it is agreed to by the residuary beneficiaries OR is allowed by the courts. If an executor wants to be paid before the clearance certificate has been issued, this can be done at the time the beneficiaries are paid, assuming that there is a holdback for the future taxes. When the executor presents his accounting to the beneficiaries, it should have a statement about how much compensation he is claiming. If the beneficiaries agree to all of the items in the accounting including the compensation, the executor may pay himself. If the executor has paid himself without either the beneficiaries' agreement or the permission of the court, yes a beneficiary (but only a residuary beneficiary) may dispute it.

      I believe that 2 1/2 years is too long for a simple estate. However, estates are rarely as simple as the beneficiaries think they are, simply because they don't see the behind-the-scenes stuff. Unless there was something unusual, yes, this has taken too long.

      Lynne

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  11. Hi, my Mother passed away recently and I am the Executor of her will. She left me everything, except for a few hundred dollars to each of my brothers. The value of her estate is zero, because her debts (large credit card bill) exceed her assets (approx $6,000 in stocks & bonds). It has been somewhat costly to be the executor (travel etc.) and I wondered if I am entitled to any compensation and what I would have to provide the lawyer with to get it, or am I automatically entitled to it? Someone recently told me I am, as Executor, entitled to 10% of the assets. Is this correct? This will is from BC.

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    1. No, you are not entitled to 10%. The going rate is between 1% and 5%, based on a number of factors. Since the estate is small and simple, I assume that you would be at the lower end of the range. You are automatically entitled to compensation from the estate, unless the will says otherwise, and you would not need a lawyer for that. However, as you have said that the debts exceed the assets, I don't see how you are going to be paid anything. If there is nothing to pay you with, you are out of luck.

      Lynne

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  12. Hi Lynn my mom resided in Edmonton Alberta and passed away recently. Not too long before she passed she added my cousin as an executor along with me. She felt since she lived there it would be easier for us to settle her estate. I am the benefactor along with my step brother who is a ward of the province. My mom's estate total is $6000.00. This includes her death benefit and money left in a bank account which is a joint with myself. She added me to it when I was in Alberta visiting one year. I have never personally used this account accept to withdraw some funds to pay a debt she owed (from the estate). My question is my cousin is doing most of the executor work. However I have some things I am settling. I offered to do her taxes and apply for the Death Benefit however my cousin said she was going to do it. Bottom line is since it being a small amount $6000.00 and a I would say a basic estate to settle what would be fair for my cousin to charge for her services? For some reason she thought she would get half??? I feel like she is going to try to take me on this. Also this was a joint account with my mom would this come into play? I want to be fair however not taken advantage of. Thank you

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    1. No, your cousin is not entitled to half. She is entitled to claim between 1% and 5% of the estate for her executor services (unless the will says otherwise).

      The bank account that is joint with you is part of the estate. I say this because it appears that your Mom added your name to it for convenience rather than to give it you.

      Lynne

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    2. Lynn thank you very much for the information. Its very much appreciated.

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  13. Hi Lynne, Can you recommend good Estate lawyer or Mediator in Alberta? We are having serious issues with Executor fees but would rather keep it out of court. After the Executor has inherited the bulk of the Estate and hired out most aspects of his job he belives he is entitled to 4.5% in executor fees but will do us the favor of only charging 1.6%. Between the Executor and the lawyer we are already at 3% of the estate. The lawyer is recommending we take this.

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    1. Edmonton, Calgary, or neither? If neither, what are you close to?

      Lynne

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    2. Calgary would be great, thanks.

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    3. The first person who comes to mind is Jason Sweeney, who works at the firm of Underwood Gilholme. I have worked a bit with Jason and can recommend him very highly. He is knowledgeable in wills and estates, and is personally very approachable and easy to talk to.

      Lynne

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  14. Hello and thanks for your input its really appreciated. My Mom had a small estate eight thousand dollars. There are 2 Executors my cousin and myself. My cousin has done most of the work however I also have taken care of some matters. My couisin has just sent me an email stating she not only wants to be compensated for being an executor but also compensation for taking care of my Mother over the past couple of years. My Mother never asked her to handle anything for her she just took over. Also my Mother also told me every time she was taken for groceries and doctors apts. etc that she paid her $20.00 for gas etc.. Is she entitled to being paid for these things out of her estate? The only benefactors in her will were myself (daughter) and her son. There was no mention of her accept as one of the benefactors. This is in Alberta where you say it is 1% -5% of the estate. Also for any costs she incurred settling the estate. I want to be fair however I don't want to be taken advantage of neither. This was a very small estate Mom didnt have any other assets. My cousin is very aggressive and I don't want to argue about money. I had every intention of giving her abit extra. Is it not just the estate that is involved when settling an estate?

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