Estate Trustee compensation – put it in your will!

The administration of a deceased person’s estate is the responsibility of the Estate Trustee. The Estate Trustee is entitled to be compensated for their work, but the question is: how much?

The first place to look to answer this question is the appointing instrument – the Will. Any formula for compensation in the Will takes precedence. But if there are no compensation instructions in the Will, you have to look to the legislation.

In Ontario, the legislation provides that a trustee is entitled to a fair and reasonable allowance for their care, pains and trouble, and for the time expended by the Trustee in and about the estate. So now the question becomes: what is fair and reasonable?

We have to go to the common law to answer that. However, the common law does not provide an exact formula; it provides steps to take to assist in determining fair and reasonable compensation:

Step 1:
Calculate compensation at the usual percentages at the rate of 2.5% of each of the estate’s capital receipts, capital disbursements, revenue receipts and revenue disbursements together with, in appropriate cases, an additional management fee calculated as 2/5th of 1% per annum of the gross value of the estate after the first year.

Step 2:
Test the results of Step 1 against the actualities of the estate by applying to its unique
factual situation the following five factors:

1. the size of the trust;
2. the care and responsibility involved;
3. the time occupied in performing the duties;
4. the skill and ability shown; and
5. the success resulting from the administration.

As you can see, this is a complicated process, and the formula does not produce exact results. There is a lot of inherent flexibility in determining what counts as ‘fair and reasonable’ at common law – flexibility that can create awkwardness, unwanted conflict, and, ultimately, litigation.

The solution to avoid all this is simple: speak with an experienced Wills and Estates lawyer about adding a proper compensation clause in your Will!

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