For those engaged in thoughtful Will planning there comes a point in the discussion with clients about who should be an executor, what the job of an executor is and whether and how much they should be paid. More often clients want to start the Will planning dialogue by telling me who they want to name as their executor. Sometimes the choice is coupled with the explanation that “He would feel slighted if I did not name him.” Or, “He’ll see it as an honour.” Or, “I have no choice but to name all my kids.”; even though the client has just told me that there is some tension in the relationship among the kids. My response to this inclination to start the discussion with the choice of executor, is always to say: “Let’s wait to see what your overall plan is, so we can get a sense of the job that needs to be done and where any potential challenges will be. Once we know that, we can discuss who may be an appropriate choice of executor.” In other words, let’s wait until the end of the discussion, to come back to the beginning.
There are many facets of the choice of executor that I could blog about. They include: (i) what does the job entail, (ii) understanding what qualifications may be needed to complete the job in a cost-effective, efficient and (hopefully) conflict-free manner, (iii) evaluating the potential options of persons who could be appointed by assessing the job as against the skill set needed, and (iv) determining what compensation may be appropriate for the person(s) appointed to do the job. In future blogs I will come back to some of these facets. The purpose of this blog is to focus on the matter of compensation.
Turning then to the matter of compensation for doing the job. In Ontario, an executor is entitled to receive compensation for their time and trouble expended in connection with the administration of the estate. The fees may be stipulated in the Will but if they are not stipulated the fees usually charged for an estate of average complexity are based on the following formula, sometimes referred to as the “Tariff”:
- 2 ½% of capital receipts (for example the realization of original estate assets), plus
- 2 ½% of capital disbursements (for example, payment of debts, distributions to beneficiaries), plus
- 2 ½% of annual revenue receipts, plus
- 2 ½% of annual revenue disbursements, plus
- an annual “care and management fee” of 2/5 of 1% of the average fair market value of the assets during the period of administration of the estate.
The upshot of the Tariff is that it may amount to an executor being paid up to 5% of the value of the estate. On its face, this may seem like a large amount. Without writing a blog that is pages long, I will simply note that there are some rules that apply to reduce that amount. Notwithstanding those rules, in some estates, relying on the Tariff will lead to over-compensation. This can be the case, for example, in larger estates. In this situation the challenge is how to come up with an alternative method of compensation that can then be provided for in the Will.
There are obviously many options for a compensation scheme a client can include in their Will. Some options are: (i) an hourly rate for time spent, (ii) a percentage approach but one that is lower than the Tariff, (iii) a fixed fee, with perhaps higher amounts in the initial year of administration, or (iv) some combination of the foregoing. The real challenge, however, is not in choosing an option. The real challenge is, in my view, in selecting an option that has appropriate regard to the risks inherent in the job of acting as an executor. To truly come up with a compensation scheme that is appropriate, you should have regard to those risks. To help you in understanding those risks, I refer you to a succinct but excellent article written by Risks in Estate and Trust Administration – by Paul Fensom – STEP Inside May 2018”, which first appeared in STEP Inside, May 2018, Volume 17. No. 2. I’ve attached a copy for your information. Hopefully after you’ve read Paul’s article you’ll have a better appreciation of the risks behind the job and give more careful consideration to the reward that may be warranted depending on the circumstances.
 This topic applies equally to the choice of trustee. For ease of writing and reading, however, references will only be made to an executor. However, given a trustee typically has an ongoing, longer term role than an executor, the points made become more paramount vis a vis the role of trustee.
 Anecdotally for those of you reading this blog who are of this mindset, I recently attended an event with employees of a corporate trustee. One of the guests was an executive trust officer – this means he’s been in the business for a number of years and seen a lot of estates. In discussing how clients address the choice of executor, his immediate response was: “I would never name a family member to do this job and I certainly don’t want my parents to name me over my sibling. I’d rather pay a professional trustee to do the job in order to make sure that I still have a brother at the end of the administration.”
 What I mean by this is where after the cheques are cut and mom’s tea cups are safely tucked away in Susie’s tea cabinet, Billy and Susie are still loving siblings who continue to look forward to the next family gathering.