Everything you need to know about Executor Fees in Ontario

Estate executors have a tough job.

They have to submit the deceased person’s will to probate court, file the deceased final tax returns, register estate accounts, make notifications of death, funeral arrangements, collect and itemize the estate’s assets, and deal with beneficiaries, just to name a few tasks from their long list of responsibilities.

Being an estate executor means you’ve taken on the responsibility of honouring your loved one’s wishes, but that doesn’t mean it’s necessarily done for free.

Executors are often entitled to compensation for their time and efforts spent on the settlement process which is paid out by the estate.

In some cases, an executor’s fee may also be determined by the probate court.

Here’s how it goes down:

Generally, an estate executor in Ontario gets paid 5% of the estate’s value.

The logic behind the 5% benchmark is as follows:

• 2.5% on all capital receipts and disbursements
• The remaining 2.5% represents all revenue receipts and disbursements.

Percentage Fees are not set in stone.

While Ontario courts allow executor compensation to total up to 5% of the estate's value - percentage fees are not actually set in stone.

And here's why..

Outlined in Section 6(1) of the Trustee Act states that a trustee is entitled to a such fair and reasonable allowance for the care, pains, trouble and time expended in administering the estate.

Although there is a practice of awarding estate trustee compensation based on a percentage of:

• Capital Receipts (money received from selling property)
• Capital Disbursements (money spent on fixing estate assets),
• Revenue Receipts (money received from selling goods or services), and
• Revenue Disbursements (money spent on things like salaries and supplies)
• along with an annual management fee of 0.4% on the total value of the estate assets.

This practice is not automatic or routine, and decisions on executor compensation are made on a case-by-case basis.

For example:

(A) For an estate with only 1 real estate property - the court may warrant less than a 5% executor compensation, seeing as it is a relatively simple estate.

(B) For a larger estate with multiple beneficiaries around the world, and several properties, a reasonable compensation may be higher than 5% seeing as it is a larger and more complex estate.

Ok, so we've determined the 5% executor fee may be a good rule to follow - however, the percentage structure may not be the most reasonable case for some.

So how do you actually determine a reasonable executor compensation?

In some cases, the deceased will actually outline specific instructions as to how the executor will be compensated. This may come in a form of a flat fee, hourly rate, or estate value.

In the absence of executor fee instructions left by the testator, the executor's compensation may be subject to negotiation between beneficiaries of the estate or left to the court to determine a reasonable fee.

When the court evaluates the suitability of compensation for an executor, they consider five key factors:

1. The size of the estate
2. The level of care and responsibility involved
3. The amount of time required to carry out the duties
4. The executor's skill and ability demonstrated
5. The overall success achieved in administering the estate.

Determining executor fees can be a complex and sometimes sensitive issue. Executors have a fiduciary duty to act in the best interests of the estate and its beneficiaries, and their compensation should reflect the level of care and responsibility required to fulfill that duty.

It's important for both the executor and the beneficiaries to have a clear understanding of how the executor's compensation will be calculated and what expenses are included.

Seeking guidance from a qualified professional can help ensure that executor fees are calculated fairly and in compliance with relevant Ontario estate laws, while also minimizing the risk of disputes or conflicts between the executor and the beneficiaries.

Are executor fees taxable income?

Yes. Any income or fees from the estate paid to the executor are subject to income tax in the year in which it was received.

In some cases, some wills (mostly prepared by savvy planners) may choose to give a gift to the estate trustee instead of payment to avoid this issue.

Does each executor get 5%?

No. Executor compensation is a flat fee for the entire job - no matter how many executors are involved.

The fact that there are multiple executors should not result in an increase in the total amount of compensation.

Rather, the aggregate fee should be divided among the executors in a just and equitable manner that takes into account the contributions made by each co-executor.