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Everything you need to know about Executor Fees in Ontario

Generally, an estate executor in Ontario gets paid 5% of the estate’s value. However, this percentage fee isn't always the case. Read on to learn more.

Executor fees in Ontario

Key Takeaways

  • Executors in Ontario can charge up to 5% of the estate’s value for their time and efforts, divided into 2.5% on assets received and 2.5% on assets distributed.
  • The 5% is a guideline, not fixed. Actual compensation is determined by the complexity of the estate and can be negotiated or decided by the court based on factors like estate size, care level, time, skill, and success in administration.
  • Executor fees are taxable income. The CRA classifies these fees either as business income or income from an office, and executors must report them accordingly, possibly requiring a T4A slip.
  • Executors are paid after settling all estate bills and taxes, typically at the end of the estate settlement process, which usually takes about a year but can vary depending on complexity.

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.

Here is how the executors compensation is calculated:

How much are the executor fees in Ontario?

Determined by Ontario's Superior Court of Justice, an estate executor in Ontario can charge up to 5% of the estate’s value.

The logic behind the 5% benchmark is as follows:

  • Up to 2.5% on the value of assets or cash received
  • Up to 2.5% on the value of assets or cash distributed

For Example:

The average estate size in Ontario is $250,000.

So if an executor were to fulfill their fiduciary duty in settling the estate, based on the 5% benchmark, the courts would allow the executor to receive a maximum compensation of $12,500.

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 trustees 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)
  • Depending on the complexity of the estate, an executor may also charge up to 0.4% per year for "care and maintenance" as a management fee for the estate.

This practice is not set in stone, and executor compensations are actually 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.

How are Executor fees determined?

Ok, so we've determined the 5% executor fee may be a good rule to follow - 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.

The Ontario Superior Court of Justice evaluates the suitability of compensation for an executor, 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.

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.

Important to note:

If a testamentary gift is linked to the executor’s duties, the entire gift may be treated as taxable executor compensation. The Canada Revenue Agency (CRA) scrutinizes will language to determine if an inheritance is tied to executor responsibilities. Clear and precise wording in the will is essential to avoid unintended tax consequences for the executor.

When Does an Estate Executors Get Paid?

Executors receive their fees from the estate once all outstanding taxes and bills are paid, assets are administered, and heirs are located - which is typically paid at the end of the estate settlement process. This process often takes about a year but can take longer if the estate is complex or if there are disputes among beneficiaries.

Executor Fee Reporting Requirements to the CRA

The Canada Revenue Agency (CRA) has clear guidelines on how executors' fees should be treated for tax purposes.

CRA’s Approach to Executors' Fees

The CRA classifies executors' fees as taxable income - either through business income or income from an office, depending on the circumstances. If the executor is acting within the scope of a business, the fees are considered business income and included under subsection 9(1) of the Income Tax Act.

On the other hand, if the executor is not acting as part of a business, the fees are classified as income from an office and included under paragraph 6(1)(c) of the Act. This distinction is supported by various CRA interpretations and legal cases, such as Messier et al v The Queen.

This classification has significant implications for the tax return process for executors, requiring careful documentation and reporting.

Issuing T4A Slips for Executors' Fees

For executors' fees considered as business income, the estate is required to issue a T4A slip to the executor. According to subsection 200(1) of the Income Tax Regulations, a T4A slip must be issued even if no income tax was withheld at source, unless the payment is under $500 and no tax was withheld. In cases where tax was withheld, the issuance of a T4A slip is mandatory regardless of the amount. The CRA has provided some leniency regarding the completion of Box 048 on the T4A slip until further notice.

Employment Insurance and Executors' Fees

If executors' fees are classified as employment income, the estate is not required to withhold and remit employment insurance premiums. This is because an executor in tenure of office is generally not considered to have insurable employment under the Employment Insurance Act, unless specific conditions are met, which typically apply to government and union officials.

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.

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