Contesting an Estate Trustee’s Compensation

Estate trustee compensation becomes a contentious area of litigation when beneficiaries believe the estate trustee to have excessively benefitted from compensation.  It is common for a Will to be ambiguous as to the detail and extent of an executor’s compensation by not including how to calculate the final amount. 

An estate trustee should not expect that all they need to do is obtain compensation under the tariff to set out the calculations and submit the statement of compensation with the accounts to be passed.  At the same time, beneficiaries do not have to accept a compensation claim just because it is consistent with the tariff amount.  In recent instances, the court has emphasized finding evidence to substantiate the quantum of compensation claimed by the trustee. 

Unless a contrary intention appears in a testamentary instrument, determining the amount of compensation an estate trustee is entitled to is done by referring to a court-recognized tariff.  This tariff has never been formally legislated but has developed as a guideline in determining the amount of compensation an estate trustee is entitled to. 

Section 61(1) of the Trustee Act states that a “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”. 

Section 61 mentions “fair” and “reasonable” as a measure to determine if the tariff calculation is appropriate.  In Re Toronto General Trust v Central Ontario Railway Co. (1905), 6 O.W.R. 350 the court shared a factual analysis of what is considered, they include the following 5 things:

• Value of the estate assets
• Skill & ability of executor(s)
• Care, responsibility, & risk assumed by the executor(s)
• Time spent by the executor(s) to carry out administration responsibilities
• Results and degree of success associated with the executor(s) efforts

Since no formal tariff outline exists, the percentage calculation has been developed through case law, which now serves as the baseline for the calculation of executors’ compensation.  The executor can be entitled up to approximately 5% of the total value of the estate, but this amount is subject to change.  Regardless of how many executors there may be, the 5% is to be split among them. 

The 5% tariff is broken down into specific calculations:

• 5% capital receipts
• 5% capital disbursements
• 5% income receipts
• 5% income disbursements
• 4% per annum for ‘care & maintenance

Estates can vary depending on how many beneficiaries there are, the value of the assets if there are any claims against the estate, and how much expertise is required of the executor.  Since the 5% rule does not account for intangible work, the court tries to consider all relevant factors so as to avoid inadequate or disproportionate compensation.  Issues with executor compensation are avoidable given the correct circumstances and thoughtful deliberation.  Executors ought to factor in both the tariff as well the 5 considerations before presenting their compensation amount to the beneficiaries so as to be “fair” and “reasonable”. 

In Ontario law, when a Will leaves a legacy to an estate trustee/executor, there is a presumption that the legacy is intended to be in lieu of compensation.  This is rare and only happens when the gift is made to the executor from the deceased in their capacity as trustee.  What this presumption does is give way to any indication that the gift was not intended to replace compensation.  This issue relates to the interpretation of Wills and the basis of an executor(s) entitlement to compensation.

Before the development of the 5% rule, traditionally, an executor would not have been entitled to any compensation unless the Will clearly established an amount for compensation or the beneficiaries agreed to it.  In Ontario, compensation has been the standard for a while, and so the traditional rule of compensation does not apply.

What the courts will generally do is assess the numbers above and consider the relevant factors.  Estate trustees are relied upon to make important decisions at their own discretion.  The court expects trustees to keep accurate and organized records supporting their decision-making.  If an executor makes unreasonable and self-centred decisions then it is common for the court to reduce their compensation.   

Why Choose Us? 

At Bickhram Litigation we represent both executor(s) and beneficiaries where a challenge to compensation has been made.  For more information, please contact us for your personalized complimentary consultation.