Executors in BC are entitled to a maximum compensation of 5% of the gross aggregate value of the estate under the Trustee Act, for their care, pains, trouble and time spent. Under a Will, there is typically a clause that deals specifically with the compensation of the Executors. Often, when the calculation of compensation is more complex, such as with corporate executors, the compensation of executors may be dealt with in a compensation agreement between the testator and the executor.
For these separate agreements to be valid, thereby entitling the executor to the fee under the agreement rather than the Trustee Act, the agreement must be incorporated by reference into the Will. The agreement should not be generally referred to in the Will, and it may be appropriate to have the agreement attached to the Will in some cases. As a result, the agreement must be in existence at the time of the execution of a Will or codicil.
Where the Will is silent as to the amount of compensation for the executors, the beneficiaries will often agree on a reasonable amount. However, where the beneficiaries cannot agree or do not have the legal capacity to agree, the compensation may have to be determined by the court. When the court is faced with the task of determining executor compensation, they will look at various factors, including:
- The magnitude of the estate;
- The care and responsibility involved;
- The time occupied;
- The skill and ability displayed; and
- The success achieved in the final results.
Other factors that may come into the analysis of compensation are the nature of the decisions that have to be made and the experience required. The court will endeavour to give compensation that is reasonable to both the executors and the beneficiaries, while not being liberal or slavish to the 5% maximum under the Trustees Act.
Although there is little British Columbia case law, it may invariably happen that beneficiaries will challenge the executor’s compensation set by a Will. The courts are, in the main, not willing to interfere with executors’ compensation when it has been set by a Will, although most of the cases are the result of executors asking for further compensation and not beneficiaries seeking a reduction in executor compensation.
Executor’s fees are considered to be expenses of an estate, and are generally paid from the estate, and in most cases, paid from the residue of the estate. When the estate is large, the fees can be substantial.
However, in some circumstances, you may not want to claim a fee. Why?
Fees received for services rendered are generally taxable income, and fees paid to an executor are no exception. This means that you must include the executor’s fees you receive as taxable income and pay tax accordingly. On the other hand, if you are a beneficiary, then you do not pay tax on any amount that you receive as a beneficiary.
If you are the executor and the only beneficiary of the estate, then it might not make much sense to claim an executor’s fee at all, since you would have to pay tax on that fee. If you waive the fee altogether, then more money would pass to you as a beneficiary on a tax-free basis. A similar situation arises where two or more siblings are the executors of the estate and the only residual beneficiaries.
If you are not the only beneficiary of the estate, but the only residual beneficiary of the estate, then you may wish to seek professional advice before making a decision on a claim for executor’s fees.
This is provided as information ONLY; it should NOT be construed as legal advice. You should consult with a lawyer to provide you with specific advice for your own situation. For more information on estate planning and to discuss your specific circumstances, please contact Vanessa DeDominicis on 250-869-1140 or [email protected]. Vanessa practices in the area of Real Estate, Wills & Estates and Intellectual Property at Pushor Mitchell LLP in Kelowna and would be more than happy to assist you.
