A number of years ago we touched on the complicated area of what your executor also known as an estate trustee will be paid for fulfilling their role in administering an estate.
In the 2022 decision by the Honourable Mr. Justice F. Bruce Fitzpatrick of the Ontario Superior Court of Justice in Winkworth v. Murray, the court had to deal with a number of complicated issues. The case revolved around the late mother’s estate and her three surviving adult children.
Two of the children were named as executors and all three were named as equal beneficiaries. The case is yet again another example of why this author’s initial inclination is against having multiple executors. It is a frequent comment by our clients, that they do not wish to favor one child over another, that they love all of them equally and as such want to name all of their children as executors. Our response is that you can show your love by naming all of them as equal beneficiaries, but generally speaking, multiple executors in the absence of complete cooperation can lead to unexpected difficulties, costs and delays.
The two executors in this case, despite being siblings, fought for 7 years over the administration of their mother’s relatively straight-forward estate, repeatedly appeared before the court seeking its assistance when there really should have been no need for a single court application.
For reasons beyond this author’s comprehension, one of the arguments before the court was what executor’s compensation should the two estate trustees receive. Considering that any fees that the executors receive are deducted off the top of the estate, and that the two executors are entitled to two-thirds of the estate, they are by and large paying themselves. Not only are they paying themselves, but they are converting a tax free inheritance into taxable income. Another manifestation of a family having deep-seated problems.
Justice Fitzpatrick, justifiably spent a great deal of time lambasting the executors, raised a number of important points that we will canvass in this blog.
What should the court do when a adult child continues to live in the home of the now-dead willmaker rent free? How should the estate deal with this issue, which is a relatively frequent occurrence. The case strongly infers that compensation be paid and that it should be along the lines of occupation rent, a subject not unheard of in the family law context. One can look at the market value of the of the benefit being received by the child over staying in the home.
As we discussed in our blog article posted some 8 years ago titled Paying your Estate Trustee, there are a number of guiding principles for estate trustees and the courts in determining what compensation or executors’ fees should be paid.
Justice Fitzpatrick accurately summarize the law. It is not only found in the Trustee Act section 61 (1) but also there is much judge made law on the point. As a launch pad we have the rough 5% tariff of the total value of the estate assets which is described by Justice Killeen in the 1990 Jeffrey Estate decision. However, that is only the starting point and there are five factors that the court will look at in determining the amount of executors’ compensation to be paid. Those five factors were first set out in the 1905 decision RE Toronto General Trusts Corp. and Central Ontario Railway and also confirmed in the 2021 decision of the Ontario Divisional Court in Feinstein v. Friedman. The five factors are:
a. The size of the trust;
b. The care and responsibilities involved;
c. The time occupied in performing the duties of trustee;
d. The skill and ability shown by the trustee; and
e. The success resulting from the administration of the estate by the trustee.
In the decision of Justice Fitzpatrick, he sarcastically commented that the two executors demonstrated significant ability in finding ways not to cooperate to complete the estate administration. Justice Fitzpatrick expressed the simple common sense opinion “I think being an estate trustee means having to compromise”.
In the end, Justice Fitzpatrick granted the executors compensation of approximately 2.5% rather than 5% of the value of the estate. Note that this figure is taxable and the legal fees spent in pursuing this in addition to resolving other petty complaints would have far outweighed anything that was received.
Another interesting point raised in the decision is the often-overlooked provision of the Estate Administration Act section 9. It holds that even in the absence of probate, generally speaking, title to property is vested in the beneficiaries even without a conveyance. An executor has the ability to register that legal transfer. This is only of modest benefit as few executors can wait for three years to elapse before transferring real estate. However this is an esoteric area of real estate/estate law that estate lawyers keep tucked in their back pocket.
