On Tuesday, September 29, I spoke at an OBA program entitled “The Family Business: Administration and Litigation of Trusts and Estates Holding Business Assets.” At the end of the program, there was an interesting discussion about the distinction between compensation for estate trustees and compensation for POAs or guardians of property appointed pursuant to the Substitute Decisions Act (“SDA”).
A regulation to the SDA sets out the prescribed rates of compensation for attorneys for property and court-appointed guardians. Currently, the rates prescribed under the SDA are: 3 per cent on capital and income receipts; 3 per cent on capital and income disbursements; and three-fifths of 1 per cent on the average value of assets as a care and management fee.
By contrast, section 61 of the Trustee Act merely provides 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.”
Although there is no prescribed tariff for estate trustees under the Trustee Act, certain “usual percentages” have emerged over time through the development of the common law. Those are: 2 ½ % of capital receipts; 2 ½% of capital disbursements; 2 ½ % of income receipts; and 2 ½% of income disbursements; plus a care and management fee of 2/5 of 1% per annum on the gross value of the assets under administration.
The figure produced by applying the “usual percentages” is then cross-checked against the five factors set out in the 1905 case Toronto General Trusts Corp v. Central Ontario Railway, namely:
- the size of the trust;
- the care and responsibility involved;
- the time occupied in performing the duties;
- the skill and ability displayed; and
- the success of the administration.
Applying these five factors, the Court seeks to determine whether the compensation figure produced using the “usual percentages” is fair and reasonable in the particular circumstances of the estate or trust.
One might assume that because they are prescribed by regulation, SDA rates of compensation are set-in-stone tariffs as opposed to guidelines subject to judicial adjustment (as is the case with estate trustee compensation). However, Justice Carole Brown confirmed in a 2013 case called Aber Estate that the prescribed percentages in the SDA are not conclusive. As with compensation for executors/ trustees, “the court must still be satisfied that the compensation calculated in accordance with the [SDA] percentages would be fair and reasonable.” The principles governing how to determine fair and reasonable compensation for estate trustees apply equally to attorneys and guardians under the SDA. First, the compensation should be calculated using the percentages prescribed by regulation, then that figure should be cross-checked against the five factors set out in Toronto General Trust Corp v. Central Ontario Railway to determine if it is fair in the particular circumstances.
I can think of at least three practical implications arising from this. First, even if the same person acted as both POA prior to death and estate trustee after death, (s)he should nevertheless do separate accountings: one as POA and one as executor. Among other reasons, the percentages applied are different and the governing documents (POA vs. will) may contain different directives for compensation. Second, as one fellow presenter at Tuesday’s conference pointed out, planners should be paying as much attention to compensation clauses in POA documents as they do in wills. Third, particularly in large estates, a POA may not be entitled to the full percentages prescribed by regulation to the SDA if the nature of the assets and work done by the POA does not otherwise warrant it. The safest advice to a POA may be to volunteer to pass accounts before taking a large sum in compensation.