Does the Executor of a Will Get Paid an Executor Fee?
Most people know they need to appoint an executor when making a will, but they may not realize that all executors are entitled to compensation from the estate assets, provided they fulfill their responsibilities.
So, what is a reasonable allowance for your executor, and how do you ensure they receive proper compensation from your estate? You will be gone, after all.
In this article, I’ll explain how executor compensation works and how much executors can expect to be paid. Here’s a hint: it depends on the province you reside in.
Are Executors Entitled to Compensation?
All executors in Canada are entitled to compensation for their work in administering an estate. Sometimes, executor compensation is laid out in a person’s will. But even if it’s not, the various provincial courts will dictate the rate at which an executor will be compensated.
What Are the Responsibilities of an Executor?
The executor is the person (or persons) responsible for administering an estate for a person who has died. An executor must gather the estate’s assets, pay any debts, and ensure that the residue of the estate is paid to the beneficiaries per the will.
While some estates are straightforward, an executor’s duties can be arduous and time-consuming for more complex estates. Being an executor is a lot of work.
For example, if the deceased owned property, like a house or vehicle, the executor oversees the sale and collects the proceeds. The same goes for assets held outside Canada in a foreign country.
Executors must also arrange the funeral, apply for probate, manage estate accounts, close accounts with various institutions, prepare a final tax return, and communicate with beneficiaries, who often reside in different provinces or countries, further complicating matters.
This executor’s checklist can help you better understand an executor’s full responsibilities.
Why Do Executors Receive Compensation?
It’s only reasonable that an executor is compensated for their work. Many estates take months, sometimes years, to settle, and an executor may have to take time away from work or other responsibilities to ensure the estate is administered promptly.
How Are Executor Fees Set In Different Provinces?
The courts in each Canadian province set their own guidelines regarding executor fees, and several factors determine what percentage of an estate’s assets can be claimed by the estate executor, such as:
- the gross value of the estate;
- the time spent;
- the skill and ability demonstrated by the executor;
- the amount of specialized knowledge required;
- the number of delegated tasks;
- the amount and number of necessary disbursements;
- the complexity of the work
And so on.
Rather than list the executor compensation guidelines for every province, let’s look at three of Canada’s most populous provinces: Ontario, British Columbia, and Alberta.
Executor Fees in Ontario
In Ontario, executors can charge up to 2.5% on both sides of the estate’s assets: amounts received and amounts paid out. For an estate valued at $500,000, the executor’s compensation would be $25,000, generally speaking.
But other factors can result in a higher or lower fee being awarded. For example, if the $500,000 only had one beneficiary, and the entire value was held in a bank savings account, then the estate would be considered straightforward, and a smaller compensation level might be more suitable.
On the other hand, if the $500,000 were wrapped up in multiple real estate properties in Ontario and Arizona, and trusts needed to be established and maintained for the care of minor children, then perhaps a higher compensation would be justified.
Suppose the executor had to manage an estate’s assets for an extended period before settlement. In that case, they might be permitted to charge a management fee of 2/5 of 1% of the average value of the assets managed, in addition to the basic executor fee.
Executor Fees in British Columbia
There are two ways to determine an executor’s compensation in British Columbia.
- Compensation is outlined in the will;
- Executor fees are dedicated by s.88(1) of the Trustee Act of British Columbia.
According to the act, the Estate executor cannot charge more than 5% of the estate’s gross aggregate value for remuneration. In addition to the executor’s fee, the executor can apply annually to the Court for a care and management fee for not more than 0.40% of the value of the managed assets. The approval decision lies with the court.
Executor Fees in Alberta
In Alberta, the Executor Fee Guidelines contain four parts. These guidelines do not form the law, but the courts reference them when deciding executor fees.
- Capital-Based Estate Compensation: The executor fee is a tiered rate based on the total estate value:
- 3% – 5% of the first $250,000;
- 2% – 4% of the next $250,000;
- 3% – 5% of all remaining capital.
- Revenue-Based Compensation: If the executor is responsible for managing the ongoing revenue of estate assets, they may be entitled to the following compensation:
- 4% – 6% of the estate’s receipted revenue.
- Estate Care and Management:
- 0.6% – 3% of the first $250,000;
- 0.5% – 2% of the next $250,000;
- 0.4% – 1% of all remaining capital.
Do All Executors Receive Compensation?
Many executors are close friends or family members of the deceased and don’t request compensation. Perhaps they view their role as a final act of service to their friend or family member.
Are Executor Fees Considered Taxable Income?
Generally, executor fees are considered taxable income because they are considered services rendered. If you are the executor AND beneficiary, you may want to waive your entitlement to executor fees and receive your share of the estate as a beneficiary only. Beneficiaries are not required to report amounts received from an estate as income. If you are faced with this decision, I recommend consulting with an accountant or estate lawyer who knows your situation.
Should I Set Executor Compensation in My Will?
If you are in the process of creating your will, you’ll need to decide whether to address executor compensation in the will or leave it for the courts to decide after you pass away. The correct answer depends on your situation and the complexity of your estate.
By setting an executor fee, you are letting everyone, including your beneficiaries, know your wishes. This can be helpful to your executor, especially if you foresee potential disputes amongst your heirs.
On the flip side, if you set an amount that’s too low and your estate turns out to be highly complex, your executor may not be fairly compensated. By leaving the decision to the courts, they can decide on an appropriate amount after considering all aspects of the estate.
Are executor’s fees taxable income? Can a beneficiary make a gift of an equivalent amount to the executor rather than having the estate pay the executor. This would allow the executor to avoid being taxed.