Many of us are called upon to act as an executor (estate trustee) in an estate. By Ontario law (section 61(1) of the Trustee Act), “A trustee, guardian or personal representative is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Superior Court of Justice”. Traditionally, there have been two methods used to determine what amounts to “fair and reasonable”, the five factors approach and the percentage approach.
The five factors approach comes from an old court decision and they are: (1) the magnitude of the trust; (2) the care and responsibility springing therefrom; (3) the time occupied in performing its duties; (4) the skill and ability displayed; and (5) the success which has attended its administration.
In order to bring some consistency to compensation, the practice of determining compensation as a percentage value of the estate developed. The current guidelines are:
a) 2.5% charged on capital receipts;
b) 2.5% charged on capital disbursements;
c) 2.5% charged on revenue receipts;
d) 2.5% charged on revenue disbursements; and
e) If the estate is not immediately distributable, an annual care and management fee of 2/5 of 1% on the gross value of the estate.
In most estates, the care and management fee does not come into play. The easiest way to calculate the compensation in paragraphs a) to d) in a straight forward estate is to simply take 5% of the value of the assets of the Estate at the date of death. Thus, for an estate valued at $750,000.00, using the percentage method, the executor compensation would be $37,500.00.
In a more recent court case, the two methods were combined basically. Quoting from the Judge's decision, “To me, the caselaw and common sense dictate that the audit judge should first test the compensation claims using the "percentages" approach and then, as it were, cross-check or confirm the mathematical result against the "five-factors" approach”. It is important to discuss this with the solicitor who is handling the estate to hopefully avoid problems with beneficiaries.
Michael Cobb is a lawyer at the law firm of Cobb & Jones LLP. Should you have any questions for Ask A Lawyer, please direct them to the Simcoe Reformer or ask a lawyer of your choice. For more articles, visit the Library page at www.cobbjones.ca.