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.