Executor’s Compensation through the Eyes of a Beneficiary

Concerns of a Beneficiary:
A beneficiary under a Will often feels helpless with respect to the administration of the estate by the executor. Fortunately, as an interested party to the estate, a beneficiary has the ability to question particular decisions and claims made by the executor. A frequent point of contention is the amount of compensation the executor claims. Compensation is often stated as being five percent of the value of the estate. However, the true amount of compensation is more complicated and often fact specific.

The Usual Percentages:
The general accepted percentages of compensation are:

• 2.5% of capital receipts


• 2.5% of capital disbursements


• 2.5% of revenue receipts; and


• 2.5% of revenue disbursements

Although these percentages are generally used, particular attention should be made to the details of the estate. The following factors are considered when deciding upon an appropriate amount of executor’s compensation:

• Size of the estate


• Care, responsibility and risks assumed by the executor


• Time spent by the executor


• Skill and ability of the executor; and


• Results and degree of success by the executor
  

Approval of the Beneficiaries:
An executor may not take compensation unless they receive approval from all beneficiaries of the estate or the Court. Court approval of the compensation amount is granted through a Passing of Accounts application. During the application process the beneficiaries are given the opportunity to review detailed accounts of the estate, including the assets, transactions, distribution of funds and proposed compensation.

Other Considerations:

• Specific reference in the Will to compensation – The Will may prohibit or specifically state the amount of compensation the executor is able to claim.


• Pre-taking of compensation – A beneficiary may claim a loss of income or penalty related to compensation taken before approval was given.


• Executor is also the lawyer of the estate – Where a lawyer is acting as both the executor and the lawyer the services and fees should be accounted for separately to ensure that there is no overlap in compensation.


• Lawyer Fees – Any legal fees paid in relation to services that could have reasonably been provided by the executor may be deducted from the executor’s compensation claim.


• Preparation of income tax returns and estate accounts – In some cases, the cost of retaining an accountant or other professional to prepare tax returns or prepare estate accounts can be deducted from the executor’s compensation.


• Size of estate – The usual percentages may result in a compensation amount that is unreasonable when compared with the work involved. A beneficiary may argue a reduction in compensation for larger estates or with respect to larger assets of the estate.


• Assets transferred In Specie – Compensation may be reduced on those assets that are transferred to a beneficiary in kind. Example: transfer of the family cottage directly to a beneficiary.

David Henderson
Trusts, Estates and Wills