Avoiding Conflicts Over Compensation For Estate Trustees
An estate trustee is entitled to compensation for his/her endeavours in the administration of an estate. However, the quantum of compensation can result in litigation if the beneficiaries perceive the proposed amounts to be unreasonable. A recent decision by the Ontario Superior Court provides guidance to estate trustees claiming compensation for their administration duties.
Estate of Mary Thompson v Olley, 2019 ONSC 4250 (CanLII)
Ronald Wojcicki (“Ronald”) was one of three children of Mary Thompson (“Mary”) and the trustee of her estate. Ronald brought an application to pass his accounts as estate trustee. The objectors were Mary’s other two children, Thomas Wojcicki (“Thomas”) and Melissa Olley (“Melissa”).
The estate accounts included payments made to Ronald for work he performed as estate trustee of Mary’s husband, Terence Thompson (“Terence”). Terence predeceased Mary by one year and left his entire estate to Mary, consisting of a 2.2-acre cottage. Years before Terence’s death, Mary suffered a stroke and moved to a nursing home while Terence continued living at the cottage. Under Terence’s care, the cottage fell into disrepair. As the estate trustee, Ronald cleaned and repaired the cottage so that it was fit for sale. Neither of Mary’s other two children were able to assist Ronald in this endeavour.
Ronald administered Terence’s estate but did not seek compensation immediately for the expenses he incurred to clean and repair the property. There was no money to pay to Ronald at the time as none of Terence’s assets were liquidated. Ronald opted to rent the cottage property rather than sell it in order to provide an income stream for Mary. When Mary died and Ronald sold the cottage, he rendered three accounts, consisting of the following:
- $21,138.55 for the cost to clean and repair the cottage property;
- $24,941.24 for executor’s compensation for Terence’s estate; and
- $26,250.00 for executor’s compensation for Mary’s estate
The issue in this case was whether the compensation paid to Ronald as estate trustee was reasonable.
What is the Appropriate Quantum of Compensation for an Estate Trustee?
S. 61(1) of the Trustee Act states that the trustee is entitled to such fair and reasonable allowance for his/her care, pains and trouble, and his/her time expended in and about the estate.
Generally speaking, in Ontario, an estate trustee is entitled to compensation to 2.5% of capital receipts and disbursements, and 2.5% of all revenue receipts and disbursements above the expenses incurred to properly administer the estate. This is often referred to as roughly 5% of the estate’s value. Any deviation from this amount must be assessed against the following five factors:
- the size of the trust;
- the care and responsibility involved;
- the time occupied in performing the duties;
- the skill and ability shown by the estate trustee; and
- the degree of success resulting from the administration
In this case, the court concluded that when cross-checking the amounts claimed against the “five factors”, the size of the trust, the time involved and the ease of transmitting the cottage interest to Mary did not justify the full amount of compensation claimed. Ronald was ordered to re-pay $10,000.00.
What is the Standard of Performance Expected of an Estate Trustee Claiming Compensation?
The court held that an estate trustee is not held to a standard of perfection but, rather, to a standard of reasonable behaviour.
Must an Estate Trustee Notify the Beneficiaries Prior to Seeking Compensation and Reimbursement for Out-of-Pocket Expenses?
The court held that an estate trustee is authorized to pay the debts of the estate. Therefore, an estate trustee is not required to seek approval from the beneficiaries prior to claiming reimbursements for his/her out-of-pocket expenses related to same.
Can an Estate Trustee Claim Compensation for Repairs and Improvements to a Property?
The court concluded that an estate trustee has the authority to arrange for repairs and improvements to a property as doing so would typically result in a higher sale price and an advantage to the beneficiaries. Therefore, such compensation for these duties is reasonable.
When Can an Estate Trustee Pay His/Her Legal Bills from the Estate Account?
In Ontario, an estate trustee who improperly pre-pays the estate’s legal bills will have to re-pay the funds to the estate, together with pre-judgment interest. However, there is a body of conflicting case law regarding when such pre-payments are considered acceptable. In this case, the court declined to provide an opinion since the objectors withdrew their objection on the issue prior to trial.
Implications for Estate Trustees
Challenges to an estate trustee’s compensation are far less likely to arise if careful steps are taken prior to the passing of accounts. Estate trustees should consider undertaking the following measures:
- Draft a will or separate agreement between the estate trustee and the testator if the rate of compensation intended to be paid to the trustee exceeds the usual tariff of 2.5% on capital income receipts and disbursements;
- Keep a clear accounting of the assets, debts and any payments of the estate;
- Seek legal advice in the administration of an estate to obtain guidance on allowable expenses and reimbursements; and
- Speak to the beneficiaries about the proposed rate of compensation prior to the passing of accounts, keeping in mind the five factors outlined above.
By Sasha Willms and Sarah Mack, Articling Student