Can Executors Charge a Fee?
If you have been named as an executor of someone’s estate (and decide to accept the appointment), you are entitled to be reimbursed for out-of-pocket expenses you need to pay to properly administer the estate (these might include search fees, filing fees, and costs of delivering notices). In addition to this, you can also claim fees for your time and effort in administering the estate.
How much can you charge?
In some cases, a will-maker specifically states in his will how much an executor is to be paid for administering the estate (either as a fixed sum or a percentage of the estate). In other cases, a will-maker may enter into a contract with the executor setting out the executor’s fees. The most common scenario, however, is for the will-maker to state in the will that an executor is entitled to ‘fair and appropriate remuneration’ for the performance of his or her duties and obligations under the will.
When the executor’s compensation is not explicitly set out, the BC Trustee Act dictates how much the executor may charge. Under the Trustee Act, the maximum fee an executor can receive for their time and effort is 5% of the entire value of the estate (including capital and income). Generally, unless the estate is particularly large or complex, a ‘fair and reasonable’ fee for the executor would likely be around 2-3% of the value of the estate.
In addition to this fee, if an executor has to administer an ongoing trust under the will, they may also claim an annual care and management fee up to 0.4% of the average value of the assets being administered each year.
Keep in mind that professional fees (such as accountant or lawyer fees) are proper estate expenses. If an executor pays those fees personally, they would be entitled to be reimbursed by the estate. But, if an executor hires a lawyer to perform the executor’s duties (as opposed to legal work relating to the estate), the fees the lawyer charges to perform those duties must be paid by the executor or deducted from the fee the executor charges the estate.
How do you get your fees?
Compensation is usually claimed at the time the executor presents his or her accounting of the estate administration to the beneficiaries or the court.
When the executor’s fees are not set out in the will or a contract, the executor would usually propose a fee to the beneficiaries for approval. If the executor and the beneficiaries cannot agree on the fee (or if the beneficiaries are minors or do not have capacity to consent), the compensation may have to be approved by the court.
Some of the factors the court considers (and the factors that the beneficiaries may wish to consider in agreeing on the fees) include:
1. the size of the estate,
2. the time spent by the executor in administering the estate,
3. the complexity of the estate,
4. the level of care and responsibility required for managing the estate assets,
5. the skill and ability the executor has displayed, and
6. the results achieved by the executor.
Executor’s fees are considered to be an expense for the estate, and are usually paid from the residue of the estate. (‘Residue’ refers to the money that is left over after all the estate debts and specific bequests have been paid.)
When does it makes sense not to charge executor’s fees?
Fees paid to an executor are considered income for tax purposes. On the other hand, beneficiaries generally do not pay tax on any amount they receive as a beneficiary of a will. (I will note that there are cases where a gift under a will triggers taxes, but it is usually the estate that pays those taxes, not the beneficiary).
So if you happen to be the executor and sole beneficiary of an estate, you would probably not want to claim executor’s fees because they would be treated as taxable income for you. If you waive your fee, there would be more money left in the estate, which would pass to you as the sole beneficiary on a tax-free basis. This can also apply where two or more siblings are the executors of the estate and the only residual beneficiaries (since executor’s fees are generally paid from the residue of the estate).
Acting as an executor of an estate is a time-consuming and lengthy process. It also brings with it a lot of responsibility because executors are exposed to personal liability if the administration of the estate is not handled correctly. So it’s understandable that many executors would like to claim compensation for their time and effort in administering an estate.
If you are intending to charge a fee for acting as an executor, make sure to keep a record of the time you’ve spent and the work you’ve done because that will play a key role in how much you can charge and it is much more difficult to recreate this type of record after the fact.