One aspect of estate planning which is often not considered is how executors, trustees and attorneys should be compensated. Yet compensation claims are a frequent matter of contention and resentment, create disputes between executors, trustees, attorneys and beneficiaries, and can even result in litigation. Common scenarios include the executor, trustee or attorney claiming more than the beneficiaries believe they deserve, or the executor, trustee, attorney and beneficiaries not understanding what compensation is permissible and/or reasonable. Disputes can be minimized with advice and planning which address how the person who is going to do a very important job will be paid for their time and care.
The Trustee Act (Ontario) provides that executors and trustees are entitled to receive “such fair and reasonable allowance” for “the care, pains and trouble, and the time” they expend in administering an estate or trust but does not specify how compensation for executors and trustees is to be calculated and leaves it to the discretion of the Court. The Courts have however developed a “rule of thumb” tariff rate for executors and trustees which usually works out to approximately 5% of the value of the assets of an estate or trust, but which may be increased or decreased depending on circumstances and in accordance with certain developed rules and principles.
The Substitute Decisions Act, 1992 (Ontario), sets out compensation for attorneys for property in accordance with a prescribed fee schedule, although an attorney for property may request a higher fee and a Court may adjust the attorney’s compensation “in accordance with the value of the services performed”. However, unlike an attorney for property, an attorney for personal care has no statutory entitlement to compensation. Any right to compensation must be provided by the person giving the power of attorney for personal care, or the attorney for personal care must apply to Court to be compensated in this role.
The rules discussed above for compensating executors, trustees and attorneys may be modified by the Will, trust instrument or power of attorney. Importantly, when appointing an executor, trustee or attorney appropriate compensation for these roles should be considered. A method of calculating compensation different from the rules discussed above can be set out (or in the case of attorneys for personal care, allow for compensation to be paid). Examples of what can be provided include a different percentage amount, an hourly rate or a combination of both, or a fixed amount of compensation for acting as executor and/or an annual amount for acting as trustee or attorney. Fixed amounts can be indexed to ensure the intended value is not eroded over time.
A trust company or professional trustee will require a compensation agreement before agreeing to act. The will, trust instrument or power of attorney can allow for this agreement to be negotiated by the other executors, trustees or attorneys, if any, or by adult beneficiaries or family members. Alternatively, a compensation agreement can be negotiated by the person before executing their will, trust instrument or power of attorney and incorporated by reference.
You may think no compensation is appropriate in respect of certain appointments such as close family members, or major beneficiaries may not need or want compensation. If only one child of several is appointed, it may create resentment if he or she is compensated for being an executor, but on the other hand, he or she may be disadvantaged by not being able to claim compensation for his or her efforts. Each situation is unique and must be carefully thought through, in particular in large estates where the tariff rate may seem overly generous.
There are many factors to be considered in determining compensation to ensure the wishes and values of the person who is making the Will, setting up the trust or giving the power of attorney are reflected and given effect. Unfortunately, too often issues of compensation are left unaddressed, and one’s intentions are unknown and not carried out.
Dealing with compensation is an important part of the estate planning process. Including express provisions regarding compensation can achieve one’s wishes and minimize disputes and legal expense that often accompany claims for compensation.
– Susannah B. Roth
Don’t miss our next blog post on advance health care directives. In the meantime, if you haven’t had the opportunity to do so, we invite you to view a series of videos we recently created on a variety of general estate planning topics, including “Estate Planning: An Empowering Journey”, “Thinking About Your Legacy”, “Your Unique Team”, “Estate Planning: An Organic Process”, “Death and Incapacity: The Big ‘Taboo’ Subjects”, “Living Longer”, “Choosing Your Decision Maker” and “Losing a Loved One: First Steps”, which we hope you will find helpful and informative.
The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.