A Reminder When calculating Trustee Compensation


Written on December 15, 2014 – 10:49 am | by Jasmine Sweatman

Pascale v. Stark a recent decision of Justice Douglas reviews (in some cases based on old decisions and the Jenkins’ textbook) some estate trustee compensation issues when calculating compensation.

The estate trustee made application to pass her accounts and passed away before responding to the Notice of Objections so that the succeeding estate trustee had to rely on the affidavit of the legal assistant of the lawyer acting for the estate trustee at the hearing. This may explain some of the results in this case.  There was also as best we can determine no discussion of any particular language in the Will that may have addressed some of these issues; nor was there any reference to a compensation agreement.  The decision again confirms that the “usual percentages” are not automatic and is only a guide.

A summary of the rules and directions covered:

Investment Losses: the value of the loss is to be deducted from the capital disbursements on which the compensation is to be claimed.

Value of Real Property: The amount of any encumbrances, real estate commission, taxes (HST and property) and legal fees are to be deducted from the value of the property prior to calculating compensation if these transactions were not dealt with by the Trustee.

Large Receipts & Disbursements: the application of the usual percentages (i.e. 2.5%) is to be scrutinized using the five factors on large transactions, such as the sale of real property and subsequent disbursements. The usual percentage (2.5%) on a large transactions, such as the sale of a house is typically reasonable given the sale of a house generally requires more work, but is not as reasonable on the distribution of the net proceeds as this requires relatively little action on the part of the Trustee.

Payments to the Trustee: transactions in which money is paid to an executor are excluded from the compensation calculation.

Professional Fees: simple accounting services, such as those pertaining to preparing the accounts for passing are properly deducted from the compensation of the estate trustee. Only the legal fees incurred for advice and assistance to the trustee in relation to their duties is a proper expense of the estate (in this case since they were not and had to refunded there was no comment on whether compensation can be taken on the legal fees that are considered proper).

Timing of Compensation: The estate trustee is entitled to compensation for all transactions undertaken by him/her after assuming the role of trustee, which is often before the issuance of a Certificate of Appointment. Trustees should take note of the date they begin acting/assumed the role as any transactions prior to that date are not to be included in the compensation calculation.

Overall this decision reminds us of the difficulties in dealing with compensation – leading to the conclusion that we may be better serving our clients if we engage in more fulsome discussions about compensation and start incorporating compensation agreements in our wills and powers of attorney.

Until next time,

Jasmine Sweatman/Leigh Sands

 

Share and Enjoy
  • email
  • Facebook
  • Twitter
  • Google Bookmarks
  • LinkedIn
  • Digg
  • Delicious

    Tags: ,

    Tax Deadlines & Charities


    Written on December 12, 2014 – 6:15 am | by Malcolm Burrows

    The 10-week period prior to December 31 is the busiest time of the year for charitable giving, as there is nothing like a tax deadline to sharpen the mind. In my world, this includes creating short-term donor advised funds in Aqueduct Foundation to receive immediate gifts and grant 100% of capital in following years. The grants could be to a private foundation set up the following year or to not-yet-determined charities. Receipt today and start the charitable work tomorrow.

    In the estate planning world, a new tax deadline is looming. It is part of the “estate donation” rules and will likely transform planning and administrative practices. The new estate donation rules come into effect in 2016 and the legislative proposals were released on August 29, 2014. The estate donation rules provide up to five years to claim a gift by will or direct designation gift of life insurance or registered funds. The period includes the final two lifetime returns plus the first 36 months of the estate, which will be known as the Graduated Rate Estate or GRE. The good news is the expanded claim period will provide more planning flexibility and contribution room to claim large donations. However, a major concern remains.

    The current proposal imposes a hard 36-month deadline for the property to be transferred to charity. If the funds are received after 36 months, the five-year claim period is lost and a mismatch of tax liabilities and credits is inevitable. While the majority of estates can be distributed within 36 months those with illiquid assets or delayed by a legal challenge may have no administrative recourse to extend the deadline. The result will be more tax and less to charity. Organizations such as the Canadian Association of Gift Planners are making representations to the Federal Government to seek an administrative provision for an extension to the 36-month period. Similar provisions exist in the Act in subsections 85(7.1) and 70(6).

    Meanwhile, estate lawyers will soon need to draft wills to mitigate these risks. This challenge is especially acute due to proposed changes related to the taxation of alter-ego and joint spousal trusts. There will be fewer planning alternatives.

    Assuming the hard 36-month deadline remains for estate donations, I anticipate there will be greater use of private foundations and short-term or “bridge” donor advised funds in estate plans to ensure complex and illiquid assets can be transferred within deadline. These structures will allow grants of capital after the majority of assets are received and receipted. By using a “bridge” charitable structure the administration period for large and complex estates may be extended, therefore protecting the intended gift. In other words, receipt today and start the charitable work tomorrow.

    Share and Enjoy
    • email
    • Facebook
    • Twitter
    • Google Bookmarks
    • LinkedIn
    • Digg
    • Delicious

      Alcoholism Not Enough To Negate Testamentary Capacity: A Clinical Response


      Written on December 11, 2014 – 6:00 am | by Ken Shulman

      Diane Vieira’s blog (November 17, 2014) about a recent Saskatchewan court decision raises important issues and principles related to the determination of testamentary capacity.  The court found “that a history of alcoholism, short term memory loss and unusual behaviour was not enough to sustain a Will challenge”.  This decision only serves to underline the fundamental principles behind the notion of testamentary capacity.  Mental capacity is not tied to any specific medical or psychiatric condition.  It is state dependent not trait dependent, i.e. — capacity is task-specific and situation-specific.  One can have capacity despite suffering from Alcoholism, Alzheimer’s disease or Bipolar Disorder.

      Having the capacity to execute a Will is assessed by court-determined operational criteria.  Unfortunately, the specific legal test and operational criteria are interpreted differently depending on the specific jurisdiction and the judge.  We are currently left with a core of the traditional Banks v Goodfellow (1870) criteria, which do not address many relevant clinical issues in modern society including the increasing complexity of families, complicated estates and more sophisticated knowledge of clinical neuroscience, capacity and cognitive functioning.  From my clinical perspective, there is a need to develop a legal test for testamentary capacity that is widely accepted and more relevant and detailed than the current Banks v Goodfellow criteria, which one must say, have served us quite well for almost 150 years!  But isn’t it time to get with the 2015 program?

      Share and Enjoy
      • email
      • Facebook
      • Twitter
      • Google Bookmarks
      • LinkedIn
      • Digg
      • Delicious