ESTATE DILEMMAS

Reasonable Compensation

Discussing executor fees with clients drafting estate plans

Motivating a client to make a will, or update an existing one, can be a difficult and frustrating exercise. Clients may be reluctant to contemplate their own demise, and the process of making or changing a will can raise a number of thorny issues. For example, who will be the executors/alternate executors of the estate? Who would be a suitable choice as guardians of minor children? Should gifts go into trusts for young adult beneficiaries?

But there is one more tricky question your clients should address in drafting their wills. That is, what fees should the executors be entitled to receive for their services? In the absence of having clear directions in the will, the executor will look to provincial guidelines as to what is an acceptable and reasonable fee. For example, in Ontario the general rule of thumb is that executors are entitled to fees based on 2.5% of (capital received + capital disbursed), and 2.5% of (revenue receipts + revenue disbursed). Thus, on a $2-million estate, an executor could charge a capital fee in the range of $100,000. Depending on the circumstances, the executor may also be able to charge an annual fee for managing estate investments.

However, before collecting this fee, an executor must “ pass their accounts. ” This typically involves the executor providing an itemized accounting of all activities and expenses, and obtaining approval for payment by the beneficiaries. If the beneficiaries object to the amount of fees/ expenses they are entitled to go to court and ask that they be reviewed. The court has the ultimate power to approve executor compensation, which, in many cases, will not be determined solely by a strict formula. This process not only causes delays and more legal fees but can also result in discord between family members.

So, it’ s in everyone ’ s best interest for the testator to give careful thought to executor fees and set out guidelines in the will for calculating this fee. The first question to ask is whether it is appropriate for the executor to be paid for administering the estate. One might assume the answer will always be yes, as the role can be both timeconsuming and demanding. But where the executor is the deceased’ s spouse, and he or she is receiving all or most of the estate, the payment of fees is somewhat counterproductive, as gifts under the estate are tax free, whereas executor fees are taxable. To ensure that estate distributions are not challenged as executor fees, the will could specify that a spousal executor is not entitled to fees.

What if one of the children is acting as co-executor with the spouse? In this case there is a good argument that the child should receive an additional amount from the estate as an executor fee. Once again, establishing guidelines for calculating the amount of the executor fee under the will and/or having family discussions on this issue should reduce the potential of these payments creating dissent with other family members.

In other situations, the testator may want to appoint a trusted advisor (a lawyer, accountant, or financial advisor) as an executor or co-executor. An important step is to consult with that advisor to confirm they are able to act (provincial regulation or firm/employment guidelines may prevent such persons from acting as a client’ s executor) and are willing to accept this role. Once this is settled, there should be a discussion on their compensation. If the advisor/executor is expected to provide advice to the estate (legal, accounting, tax, investment related) that executor might be compensated on an hourly basis. The will should also provide clear guidance on whether such fees are in addition to regular executor fees or not.

Rather than naming a trusted professional as an executor, the testator can specifically identify one or more advisors in the will and request that they be consulted on behalf of the estate as needed. This is not binding on the executors but would allow them to utilize these trusted professionals for their specific expertise without having to pay additional executor compensation.

The testator may also want to appoint a professional trustee to administer the estate or act as co-trustee. Professional trustees are often selected when no other person is available or suitable for managing the estate. In most cases, a professional trustee such as a trust company will not agree to act unless a compensation agreement is signed at the time the will is executed.

Ultimately, it may be up to the court to decide the fee to which an executor is entitled. In doing so, it will consider a number of factors, including the size of the estate and type of assets, the complexity of the estate (minor beneficiaries, foreign assets, business assets), the time required to finalize and distribute the estate, the relevant skills and expertise of the executors, and the overall success of the administration.

KEVIN WARK, LLB, CLU, TEP, is the managing partner of Integrated Estate Solutions and tax advisor to CALU. He is the author of the bestselling consumer book, The Essential Canadian Guide to Estate Planning (2nd Edition).

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THERE’S ONLY ONE

GOLD

GAMA INTERNATIONAL CANADA’S

2021 Management Awards

2021 GAMA INTERNATIONAL CANADA MANAGEMENT AWARDS

The 2021 GAMA International Canada Management Awards recognize the highest leadership achievements in Canada’s financial services industry.

National Builder Award (NBA) WINNERS

This award recognizes outstanding achievement in agency-building, production and field development. ● NBA Gold Award Winners

Adrian K. Fung, CFP, CLU, CH.F.C ● Alain Marleau Alvin Matthew ● Amrita Paul, MBA, CLU, QAFP ● Angela Fu, CLU ● Annadette Clarke-Moore, CHS ● Blanche Tse, CFP, CLU, CHS, EPC Brian R. Kilback, CFP, CLU, CH.F.C ● Camilo Chacon Sandoval, CFP® ● Clarke Duncanson ● Colin James-Anil Whitehead ● Craig A. MacTavish, CHS ● Daniel Chuang ● Darin Calderwood, CFP Darren Rosenberger, CFP ● David Feldberg, CFP, CLU ● Dawn Ewing Dennis Mavrin ● Djebran C. Mehdawi, CLU, CHS ● Donald Der, CFP, CLU ,CHS, CH.F.C. Earnie B. Gonzalco Esther Po Yin Chu, B.Comm Gemma Mendoza ● Geoffrey Keleher, B.A., CFP Gerard Feliciano Harjott (Jimmy) Nijjar ● Ioannis (John) Panago, CHS, CFP ● James Phillips ● Jamie Benn, CFP, CLU, CHS ● Jamie Gilson, B.A. Jarrett Robertson, CHS ● Jason D. Poulton, CFP Jason McMahon, CFP, CHS ● Jennifer A. Tweddle,

CFP, CLU, CHS, TEP ● Jerome Pusung, CLU, CHS ● Jessica Buley Jing Wu ● John Cleminson ● Jordan Ingraham, CHS ● Joseph Raine ● Joshua Simpson, CFP ● Karl Krokosinski ● Kevin D. Jessup ● Marco Levesque ● Maria Cristina Mendoza, CLU, CHS Mark Dickson ● Mark Foster, CFP, CLU, BA, BBA ● Mark Lewans, CFP, CLU ● Michael Y.C. Liu ● Minetta McDonald, CFP ● Nila Mohibi ● Norberto T. Pepito ● Nubia C. Gomez, CLU, CHS ● Perminder Chohan ● Perry Badham, CLU, CHS, RPR ● Peter Gillespie ● Rajesh Sharma ● Ray Zadrey ● Sam Luong, CHS, CLU ● Sarah Cumpson Sarah Decker ● Scott A.Grant ● Scott McDonald, CFP ● Scott S. Woodman, CFP, CLU ● Shawn M. Smith ● Sonia Wu, CHS ● Sonny Sangemino, CHS ● Stephane Cyr ● Steven Ollson, CFP, CLU, CHS ● Taha Al-Dabagh,

CFP, CLU, CHS, RRC ● Ted D. Girard, CFP, CLU, CHS ● Wayne Kiryk, RHU, EPC Wes J. Scott Xu (Leo) Liu, MBA

NATIONAL MULTI-LINE EXCLUSIVE AGENCY MANAGEMENT AWARD (NMLEA) WINNERS

This award recognizes the growth of a Multi-Line Advisory team with a focus on exceeding various performance levels of the Agency Managers team in the areas of new Life Insurance, new wealth and new Property and Casualty sales.

● NMLEA Gold Award Winners ● NMLEA Bronze Award Winners

Daniel Chuang ● Darin Calderwood, CFP ● Dennis Mavrin ● Jesse Van Dalfsen ● Joshua Simpson, CFP ● Nubia C. Gomez, CLU, CHS ● Perminder Chohan ● Rajesh Sharma ● Sonia Wu, CHS ● Wes J. Scott ●

Adam Proudfoot, BBA, CFP, CLU ● Adam Powell, CHS ● Andreas Zacharakis ● Angela Fu, CLU ● Annadette Clarke-Moore, CHS ● Blanche Tse, CFP, CLU, CHS, EPC Brad D. Unraw, CFP, CHS, RIS ● Branden Mosher, CFP ● Brian N. Gebbie, CFP ● Brian R. Kilback, CFP, CLU, CH.F.C ● Colin D. Kirby Craig A. MacTavish, CHS ● Daniel Chuang ● Darin Calderwood, CFP ● Darren Rosenberger, CFP ● David E. McPhee, CHS ● David Feldberg, CFP, CLU ● Dean E. Lariviere, CFP ● Dennis Mavrin ● Djebran C. Mehdawi, CLU, CHS ● Donald Der, CFP, CLU, CHS, CH.F.C. ● Eddy Tong, CFP, CLU, CHS ● Gemma Mendoza ● Gerard Feliciano ● Greg Taylor, CFP ● Herman Chan, CFP, CHS ● Ioannis (John) Panago, CHS, CFP ● Izuni Miki McGruer, CFP, CLU, CHS, CH.F.C ● James Phillips Jamie Benn, CFP, CLU, CHS ● Jarrett Robertson, CHS ● Jason D. Poulton, CFP ● Jason McMahon, CFP, CHS ● Jayson Mallari, QAFP ● Jerome Pusung, CLU, CHS ● Jing Wu ● John B. McCallum, CFP, CHS ● John Cleminson ● Joseph Raine Joshua Simpson, CFP ● Karl Krokosinski ● Katina Michelis, CHS ● Keith R. Vincent, CHS ● Kevin D. Jessup ● Kevin Wong, CFP ● Kris B. Kubin, CHS ● Ling Wang Maria Cristina Mendoza, CLU, CHS ● Mark Dickson ● Matthew Lane, CFP ● Michael Y.C. Liu ● Minetta McDonald, CFP ● Nina Lau-Choy, CHS, QAFP ● Norberto T. Pepito ● Nubia C. Gomez, CLU, CHS ● Perminder Chohan ● Perry Badham, CLU, CHS, RPR ● Peter Gillespie ● Peter H. Royster, CHS Rajesh Sharma Ray Zadrey Sarah Decker ● Scott A.Grant ● Scott McDonald, CFP Scott S. Woodman, CFP, CLU ● Shawn M. Smith ● Sonia Wu, CHS ● Stephane Cyr ● Steven Kennedy, CHS ● Steven Ollson, CFP, CLU, CHS ● Taha Al-Dabagh, CFP, CLU, CHS, RRC ● Ted D. Girard, CFP, CLU, CHS, ● Wes J. Scott ●

NATIONAL MANAGEMENT AWARD (NMA) WINNERS

This award honours achievement in agency management, particularly increases in production.

Colin D. Kirby Craig A. MacTavish, CHS Daniel Chuang Darin Calderwood, CFP Darren Rosenberger, CFP David Feldberg, CFP, CLU Djebran C. Mehdawi, CLU, CHS Donald Der, CFP, CLU, CHS, CH.F.C. Gemma Mendoza Gerard Feliciano Greg Taylor, CFP Herman Chan, CFP, CHS Ioannis (John) Panago, CHS, CFP James Phillips Jamie Benn, CFP, CLU, CHS Jarrett Robertson, CHS Jason D. Poulton, CFP Jason McMahon, CFP, CHS Jayson Mallari, QAFP Jerome Pusung, CLU, CHS Jesse Van Dalfsen Jing Wu John Cleminson Joseph Raine Joshua Simpson, CFP Karl Krokosinski Katina Michelis, CHS Kevin D. Jessup Kevin Wong, CFP Ling Wang Matthew Lane, CFP Meng Zhao, CFA Michael Y.C. Liu Minetta McDonald, CFP Murray Parks, CFP, CLU, CH.F.C. Nina Lau-Choy, CHS, QAFP Norberto T. Pepito Nubia C. Gomez, CLU, CHS Perminder Chohan Perry Badham, CLU, CHS, RPR Peter Gillespie Rajesh Sharma Ray Zadrey Sarah Decker Scott A.Grant Scott McDonald, CFP Scott S. Woodman, CFP, CLU Shawn M. Smith Sonia Wu, CHS Stephane Cyr Steven Kennedy, CHS Steven Ollson, CFP, CLU, CHS Taha Al-Dabagh, CFP, CLU, CHS, RRC Ted D. Girard, CFP, CLU, CHS, Wes J. Scott Zhong Chen, CLU, CHS

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