An estate trustee is entitled to fair and reasonable compensation for performing his or her duties. The compensation or fees due to an estate trustee is usually calculated on the basis of receipts which come into the trustee’s hands and then disbursed to creditors and beneficiaries. Usually the fee is not increased if there is more than one estate trustee and they must decide amongst themselves how it should be shared.
An estate trustee’s fee is subject to beneficiary or court approval. It must not be taken in advance of obtaining approval or risk being returned with interest. It is usually calculated by a formula and then compared to the test of what is “fair and reasonable.
In addition, if an estate trustee uses his or her own money in administering the estate, he or she is usually (subject to beneficiary or court approval) entitled to be reimbursed for these amounts out of the estate. An estate trustee who reimburses him or herself for out-of-pocket expenses should ensure that back-up documentation exists.
One of the prime responsibilities of the estate trustee is to keep accounts and it is necessary to keep accurate, complete and detailed records of all transactions and your dealings with the estate. You should also keep a record of the time you spend in administering the estate as the time docket may be helpful in the event there is an objection to your compensation.
As your solicitor, our function is to obtain the Certificate of Appointment, advise you as to the interpretation and meaning of the Will, the entitlement of beneficiaries, and your duties as trustees, assist you in the preparation of accounts and in preparing and obtaining releases.
The responsibility of the administration of an estate is divided between the solicitors and the estate trustee, although at times the responsibilities appear to overlap. If a solicitor is paid to do the work of an estate trustee, then that part of the solicitor’s fees may reduce the compensation to which the estate trustee is entitled. In other words, if we do work on your behalf, our fees may have to be paid out of your compensation and not from the estate. Finally, the compensation paid to an estate trustee is taxable income and must be reported on your personal tax return, and depending on the identity and circumstances of the estate trustee, there may also be Harmonized Sales Tax (HST) on the compensation.
If compensation is not fixed by the Will, then in Ontario, the courts have held that determining what is ‘fair and reasonable’ is a two-step process. The foregoing tariff is just a guide and the court has the ultimate discretion to award a higher fee or reduce the fees if circumstances warrant.
Calculate 2.5% of the receipts and 2.5% of the disbursements. If estate or trust assets are invested or managed for a significant period of time calculate a management fee; usually 2/5ths of the 1% per annum of the average market value of the portfolio. If the trustees simply delayed or took a long time to settle due to inactivity or unknown reason, this fee is generally not applicable.
The mathematical result is then compared to the ‘five-factors’:
- The size of the estate
- The care and responsibility involved
- The time spent
- The skill and abilities shown
- The result obtained or degree of success in the administration.
The Court of Appeal has suggested the mathematical result is not to be considered the ‘floor’ but rather the ‘ceiling’ when determining the appropriate amount.
Corporate trustees (i.e. trust companies) have their own compensation agreements that typically result in greater total compensation, and this is usually agreed to by the testator at the time of making the Will.
The appropriate amount of compensation will vary from estate to estate and each claim must be looked at on its own merits.
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