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paying estate executors
How is executor compensation calculated?

Can Estate Trustees and Executors Get Paid

If you have been named as executor, it can be something of a mixed blessing. Yes, it may be high praise that the deceased trusted you enough to run their affairs after they pass on, such as dividing up their property, settling their taxes and any outstanding debts, and other important tasks.

However, serving as an executor can mean a great deal of work! The duties of an executor are numerous, and they often take a fair bit of time and effort.  Of course, no one wants to work for free, and in most circumstances, they shouldn’t have to. Executors are entitled to compensation, but how much compensation and when can often be a contentious subject if emotions are running high.

How is executor compensation calculated?

As a rule, and based on past case law, executors are entitled to roughly 5% of an estate’s value as compensation. This is not 5% per individual in the case of multiple executors, but a total share that is divided amongst those involved. 

This 5% is comprised of a more specific formula wherein compensation is calculated at 2.5% of capital receipts, 2.5% of capital disbursements, 2.5% of income receipts, 2.5% of income disbursements, and 0.4% per year for ‘care and maintenance. These calculations offer guidance, but once again are not a ‘hard and fast’ rule.

Some wills may spell out specifically how executors may be compensated. It may also depend on other factors such as the size of the estate and its complexity, the knowledge and skill of the executor, the work that they put in, and the results that they achieve. An executor with specific skills who works hard may be entitled to a greater share than a lay about heir who does not participate in any of the work involved. 

The Court’s position is generally not to micromanage the handling of estates. Executors may make some wrong decisions, or decisions that other beneficiaries may disagree with. However, if they are making multiple decisions that are clearly wrong, or acting in their own self-interest, the courts may step in to adjust their compensation.

There may also be situations where the executors are totally overwhelmed, or are unsure what to do next, and need professional assistance for the administration of the estate, such as from an accountant or a corporate trustee. If the professional steps into the role of the executor, and assumes responsibilities that are otherwise those of the executor, those fees should come out of the executor compensation. However, if an executor retains counsel or an account to obtain general legal or accounting advice (e.g., assistance with tax filings), these expenses would not be deducted from the compensation. Rather, these expenses would be treated as a debt incurred by the estate. 

What happens to real estate in the estate?

Real property (or real estate) can become a valuable part of an estate but making decisions about what to do with that property can be both complicated and costly. If a house, for example, needs serious repairs before it can be put up for sale, who is going to fit that bill? How will executors be compensated for the work involved in coordinating these repairs?

As a general rule, executors should only be compensated on the net value of a home. Their obligation is to be able to get the maximum value of the home for the estate, which may mean repairs, home improvements, staging fees, et cetera. Once the home is sold, all of those costs will be paid out of (and the mortgage will be discharged) the proceeds of the sale, and the executor compensation should be based off of that net amount. 

Plan ahead

Executor fees can easily become contentious when there is a lot of emotion surrounding the deceased and their estate. If there is fighting between beneficiaries, for example, it can easily cause upset that someone is being paid to distribute assets they view as rightfully theirs, especially if the payment comes from their inheritance.

Many beneficiaries do not realize how much work goes into handling an estate. A small estate without complex property or accounting can still have a fair bit of paperwork, but more complicated estates with multiple properties and greater assets can be a lot to handle. The time and labour involved in doing things right is not insignificant. 

The simplest answer may be to plan ahead. When drafting your will and powers of attorney with a lawyer, speak about the management fees for the estate, where that money will come from and what it will look like. Making things clear directly in a will can help avoid confusion and disagreements when the time comes to begin doing the hard work. 

At Pavey Law our Wills and Estates lawyers understand the issues involving executor compensation and how difficult things can become when they are not discussed ahead of time. Estate planning is not a ‘one and done’ scenario but can involve a series of conversations to discuss the various issues that will eventually arise. 

We work with clients from across the Cambridge, Kitchener, and Waterloo region at drafting wills and powers of attorney, creating estate plans, drafting and providing guidance on trusts such as for beneficiaries with disabilities, and offering guidance and assistance for executors. Contact us today to set up a consultation with a lawyer on our team.