Being an executor is a big job. It involves lots of responsibility, pressure and risk. It’s not a job you’d expect someone to do for free. So how much should you provide in your will for the executor’s compensation?
Even if executors are family members or beneficiaries, it is a good idea and in some cases a legal right to be paid. It’s a difficult, complex job and can take a year or longer. Someone deserves to be paid for that work.
While executors are entitled to be paid in all provinces, most only require that compensation be “fair and reasonable.” Others provinces outline a range of 3% to 5% of an estate’s assets, based on five factors courts have historically considered. See the five factors below.
The percentages are only a guideline. Think about complexity when deciding on a fair compensation. If the executor has to deal with foreign real estate or an operating business, it may warrant more compensation; an executor handling assets at a single institution may require less. For a complex estate you would probably want to appoint a professional trust company as executor. They too will cost in the 3%-5% range.
Compensation is considered taxable income. So, the testator could assign the executor a gift from the estate (generally not taxable) instead.
It is best to specify a percentage instead of a set dollar figure. You will likely pass on in many years and therefore want the compensation to be relevant in current dollars.
By law, testators are entitled to fair and reasonable compensation, to be determined after duties have been fulfilled. At that time, the executor would provide beneficiaries with a full account of costs incurred, assets managed, taxes paid and compensation owing, which beneficiaries must approve before receiving their portions.
Here are the 5 factors that courts look at in determining whether compensation is fair and reasonable.
Usually, the larger the estate, the more compensation the executor gets.
Disbursements with complicated instructions, or assets which if disposed expose the executor to personal liability, entitle him to more.
The more time the executor spends performing duties, the more compensation he gets.
Skill and ability
If the estate requires the executor to draw upon special skills or abilities, she gets more compensation. Conversely, if the estate is so simple that anyone could administer it, she gets less.
Executors who add value to an estate or make savvy asset management decisions are generally entitled to more compensation.