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Wednesday, September 1, 2021

Executor's pay: where emotion and greed meet money and opportunity

Lately I seem to have a lot of files in which beneficiaries are disputing the amount of remuneration claimed by the executors. There are a few reasons for the disputes, of course, but the main one seems to be an executor claiming the maximum amount of pay when the beneficiaries do not believe the executor deserves that much. 

In some provinces in Canada, legislation sets out how to calculate executor's compensation. For the rest of us, we have to rely on statutes that simply say that executors are entitled to "fair and reasonable" compensation. The trouble is, people rarely agree on what is fair and reasonable. What is fair to one seems unreasonable to another. Where there is a set formula, the amount allowable comes to 5%. Where there is no schedule, the normal rate of remuneration is between 1% and 5% depending on various factors such as difficulty, time spent, and whether any extraordinary steps had to be taken.

The disagreement over the amount is not always the fault of the executor. In some cases, the executor earns every penny she gets because there are difficulties to overcome. Even when there are no court disputes to deal with, an executor often has to wind down a business, sell multiple properties, correct environmental damage on a property, or administer a trust for many years into the future. Perhaps an executor doing that much work feels that she is entitled to the maximum pay allowed. I'm sure anyone would, particularly if there are difficult beneficiaries to deal with along the way.

On the other hand, the disagreement is not always the fault of the beneficiary either. I cannot tell you how many times I've seen executors claim the maximum amount even though they have done sloppy work or not done the work at all, or have had to deal with only a small amount of money that took next to no trouble at all to collect and disburse. In a case like that, beneficiaries might feel that the executor is gouging the estate unfairly. 

So, when should an executor claim the maximum amount? What factors would reduce the executor's fee from the maximum 5% to somewhere lower on the scale?

An executor should not claim the maximum amount if:

  • the estate is small in terms of dollar value 
  • the estate has no real estate and no business interests in it
  • there are only a small number of beneficiaries, none of which are missing or require funds to be held in trust
  • there are only one or two assets in the estate
  • there are no tax issues to untangle
  • the executor has taken way too long to take action on the estate so that the estate assets have depreciated in value
  • there are no disputes that have to be resolved by a court, administrative tribunal, city assessors or any other official body
  • the executor is leaving all the work to the estate lawyer

In other words, if it's just your average estate with no big issues, don't overcharge. All that will do is upset the beneficiaries and delay things while everyone argues about a couple of percentage points. It might even end up in court to be decided by a judge. 

The last point on that list is one that I have seen frequently. An executor may ask the estate lawyer to handle things that are really the responsibility of the executor, such as providing the beneficiaries with details of expenses, instructing the accountant on taxes, and paying bills from estate funds. That's fine. But an executor who does that should not think that they also get to charge the maximum for their own work (or lack thereof). Any of the executor's work that is done by the lawyer should be deducted directly from what the executor might otherwise be paid. Why should the beneficiaries pay two people to do work when only one person did the work?

The working out of executor's pay isn't easy. It's where emotion and greed meet money and opportunity. I suppose that human nature being what it is, this will always be a tough issue for everyone involved.

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