How much should you pay your executor?

Being an executor involves a lot of responsibility, considerable time pressure and a fair bit of risk.

It’s not a job you’d expect someone to do free. While we all understand executors deserve to be compensated, deciding what’s fair compensation is less straightforward.

A complex job

Even if an executor is a family member or beneficiary (or both), she has the legal right to be paid.

“It’s a difficult, complex job. It can take a year or longer. And somebody deserves to be compensated for doing that,” says Tom Junkin, senior vice president, Personal Trust Services, at Fiduciary Trust Canada in Calgary.

How much? While all provinces stipulate that executors are entitled to be paid, some require only that compensation be “fair and reasonable.” Others outline a range of 3% to 5% of an estate’s assets, based on five factors:

• The size and value of the assets,
• The care, responsibility and risks assumed (e.g., will the executor be exposed to personal liability?),
• The time spent by the executor,
• The skill and ability required,
• And the results obtained/success realized

“The percentages are a guideline,” Junkin says. He suggests thinking about estates on a complexity curve, with such guidelines aimed at estates in the middle. The more complicated the estate, the higher the fair compensation.

“There are lots of cases of executors who’ve gone in with a percentage calculation and have had their compensation reduced, because it wasn’t justified,” he adds.

If there are multiple executors, compensation doesn’t increase; it’s divided. As Junkin explains, that can lead to problems if executors disagree, or one person did more work. “The court will generally refuse to adjudicate such disputes,” he says. “[Executors] have to work it out themselves. [That] can potentially hold up distribution.”

Whoever it goes to, compensation is typically paid before distributions are made to heirs. If the estate lacks funds, executor compensation ranks ahead of those distributions.

No hard-and-fast rules

Barry Wilson, partner with Warren Sinclair LLP in Red Deer, Alta., says some testators stipulate exact amounts in their wills. But he doesn’t advise that. “You’re guessing at what might have to be done,” he says. “People write their wills, then live for another 10 to 15 years. [Assets] go up in value. Things become more complex.”

Wilson explains that by law, executors are entitled to “fair and reasonable” compensation, to be determined after duties have been fulfilled. At that time, the executor provides beneficiaries with a full account of costs incurred, assets managed, taxes paid and compensation owing, which beneficiaries must approve before receiving their portions.

Won’t an open-ended approach lead to disputes? “It usually only becomes a problem if beneficiaries are feuding,” Wilson says. That said, if a dispute can’t be resolved by agreement, the executor could apply for a court order directing disposition of proceeds of the estate, and determining the amount payable to the executor.

Since the vast majority of disputes happen when the executor is ready to make final distributions, beneficiaries have a built-in incentive to resolve problems quickly. So, Wilson says, “even if there’s an initial disagreement, it can often be resolved between the lawyers without having to go in front of a judge.”