How does an executor get paid when the beneficiary is unable to approve compensation?

Recently a client came in to my  office to chat about an interesting situation that might sound familiar to some of you readers. The client is the executor of the will for a family member who died recently. The family member left the estate to his son, who is mentally disabled. The will directed that the son's inheritance be held in a Henson-style trust. So far, so good.

The executor has sold the major assets and converted them to cash. Now the executor is ready to set up the son's trust and close the estate, but before doing so would like to claim an executor's fee. The will doesn't say anything about compensation, which unfortunately is a pretty common omission. Because there is nothing in the will about paying the executor, the compensation must be agreed by the beneficiary.

This is where it gets tricky.

The son who inherited the estate is an adult. His disability is severe enough that he cannot handle his own money. Nor will he ever be able to create an Enduring Power of Attorney to appoint someone to handle his money for him. This means that the executor is the trustee of the son's trust and in that role represents the son regarding the trust. The same trust against which the executor wants to claim fees. Consenting to the fees on behalf of the son would be a direct conflict of interest. The executor is a person of integrity and wants to stay on the right side of the law.

I can see two ways forward.

One is to have someone appointed by the court as a guardian for the son. This would put someone in place who would be legally bound to act in the son's best interest and could consent (or object) to the payment of executor's fees. This comes with drawbacks, though. One is that it would cost money to appoint that person. Two is that there would then basically be two trustees in place but only one (the one appointed by the will) would have any actual assets to manage.

The trust funds would not be paid to a court-appointed guardian to manage for the simple reason that once the son passes away, the executor is legally bound to share the funds among contingent beneficiaries. The executor is responsible for ensuring that inheritance continues to exist and for accounting for all expended funds after the death of the son. The executor is the person given the instructions under the will. Therefore the executor should maintain control and possession of the funds.

And in any event, so far there does not seem to be a family member available locally to take on the job of guardianship.

That leads us to the second possible way forward, which is asking the court to set the compensation for the executor. This is always a step available to an executor when approval cannot be obtained from the residuary beneficiaries. Usually it's because the beneficiaries refuse to provide the approval for various reasons, but it also works where the beneficiary is unable to represent himself and give approval.

This application to the court will be a form of passing of accounts. The executor will show the court the records of all transactions and describe the work that has been done, the time and effort that have been expended, and the risk that the executor has shouldered while administering the estate. Based on all of that, the executor will request a wage and the judge will decide what is reasonable.

There will be nobody contesting the application in court so it will not be a difficult or traumatic case. The cost of the application should be paid from the estate and not by the executor personally because this is an issue directly related to the administration of the estate.

I hope describing this case to you will be useful to readers who may find themselves in similar situations and are feeling stuck as to how to resolve the issue of being paid.