Executor fees in Ontario are a critical aspect of estate administration and they play a major role in ensuring the smooth and accurate distribution of a deceased person's estate assets. Executors, also known as estate trustees, carry out many, potentially complex and time-consuming responsibilities when settling an estate, and executor compensation is a matter of significance for both the executor and the beneficiaries (whose inheritance may be affected by executor fees).
In this context, it is essential to understand the regulations, guidelines, and factors that determine executor fees in Ontario. This brief overview will shed light on the key considerations surrounding reasonable compensation for an executor in Ontario. It will also provide valuable insights for those planning their estate so that they can better understand the responsibilities involved in being an executor and see why they deserve fair compensation.
What are executor fees?
In Ontario the main guideline to determine executor fees is based on a percentage of the estate. Generally, executors are entitled to receive up to 5% of an estate’s value. The 5% is based on an executor receiving 2.5% on all capital receipts and disbursements, as well as 2.5% of all revenue receipts and disbursements. Depending on the size of the estate, the executor may even be entitled to a yearly management fee of 0.4% of the estate’s value.
Keep in mind that the compensation the executor receives from managing the estate are viewed as taxable income and will need to be reported to the CRA. Occasionally it may be possible to draft a will in such a way that the estate trustee is gifted funds instead of being paid compensation directly and may thus be able to avoid taxation.
Finally, it’s also important to note that there is no strict rule that an executor must receive 5% as payment. Some people set out a specific fee or they outline details in their will about how an executor should be compensated. This includes options like having the executor receive no compensation, or even having the executor be reimbursed for any out-of-pocket expenses that may occur in addition to receiving compensation.
Section 61 (1) of the Trustee Act merely states that: “A trustee, guardian or personal representative is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Superior Court of Justice.”
So as long as the executor is compensated fairly, you don’t have to stick to 5%. If an estate is straightforward with few beneficiaries, the court may set a lower percentage rate of compensation for the executor.
Conversely, if the estate is large, with many different kinds of assets and properties and clearly involves a lot of leg work and time on behalf of the executor, the court may award a higher percentage as compensation in recognition of all the complexity and responsibilities involved in settling the estate.
Interestingly, even if an estate executor is being compensated for managing the disbursement of an estate, they can be (and often are) named as a beneficiary in a will. Being an executor does not preclude someone from also getting compensated for their hard work, though it’s not uncommon for an executor who may also be a close family member to waive fees if they are also benefiting from the estate.
Calculating Executor Fees
Executor fees in Ontario are typically calculated based on a percentage of the estate's total value. A common rule of thumb is that an executor is entitled to 5% of the estate's worth as compensation.
To illustrate how this calculation works, let's consider an example:
Suppose you have an estate with an approximate total value of $500,000. If you apply the rule of thumb of 5% for executor compensation:
Executor's Fee = 5% of the Estate's Value
Executor's Fee = 5% of $500,000
Executor's Fee = 0.05 x $500,000
Executor's Fee = $25,000
How to Save on Executor Fees
While executor fees are typically set at 5% of an estate’s value, this is not a hard and fast rule. As noted previously, fair executor compensation will depend greatly on the size of the estate and how complex the calculation and disbursement of estate assets will be. For example, for a very large estate with an improperly drafted will (or worst yet, no will), with lots of assets and debts, the executor would be entitled to a larger amount of compensation due to all the responsibility involved.
Here's a quick overview of the circumstances that can affect executor fees:
- The estate’s size. Just because an estate is large, however, does not mean it will necessarily trigger a larger fee for the executor. If the majority of assets are going to the remaining spouse, then the executor will not have much to do and will thus be entitled to a lower fee.
- How much work will be involved in fulfilling their duties? Are their tasks pretty straightforward or will they involve a lot of research and care?
- How long will it take the executor to fulfill their tasks?
- The competence and capabilities of the executor. For example, do they have any legal experience or familiarity with the law, or will they be navigating the legal system as a newbie.
- Are there a lot of properties involved that will have to be sold?
- How skilled is the executor was at completing their duties? If an executor is not organized, does not keep good records and does not act in the best interest of the estate and beneficiaries, they may receive less compensation.
Responsibilities of an executor
Depending on the size and complexity of an estate, being an estate executor can be a massive undertaking. Here is a brief overview of some of the duties of an executor:
- Locating Assets: An estate executor must identify all the deceased’s assets, which may include real estate, bank accounts, and personal belongings.
- Probate: The executor may have to go through the probate process.
- Notifying Beneficiaries: Executors are responsible for notifying all beneficiaries about their entitlements and the provisions of the will.
- Distribution of Assets: Executors oversee the distribution of assets to beneficiaries as outlined in the will, ensuring it is done according to legal requirements.
- Reporting to Authorities: They may be required to submit tax returns on behalf of the deceased person and the estate, and report the estate's financial status to relevant authorities.
- Records: An estate executor is expected to keep complete records of all estate details.
- Communication: They must keep all concerned parties up to date with how the estate administration is going.
Prepare your estate plan today
Knowing what’s in store for your estate after you pass, and who will become your estate’s executor, starts with making a will. Choosing your own executor in your last will and testament gives you peace of mind that your estate will be settled according to your wishes by someone you trust.
And now, you can create your full will, executor, beneficiaries, and all, in just 20 minutes!