Executor compensation

Appointing one child as the executor of our estate over another can be uncomfortable enough but add a significant executor fee and you’re asking for a palace revolt.

In last week’s column, I wrote about the law covering executor compensation, which assesses compensation in large part on the value of your estate.

I referred to a recent case as an illustration, where executor fees totalling more than $75,000 were assessed for an uncomplicated $1.8 million estate. The judge described the care and responsibility involved by the executor as minimal. I also gave another illustration where the maximum (5%) executor fees were assessed, but that amounted to only $12,125 because the total value of the estate was $242,503.71.

Our home is often our most significant estate asset. It takes the same executor work to deal with a $1.5 million home as it does with a $150,000 modular home. But the executor fees are dramatically different.

The executor chosen to handle the larger estate will be looked at by their siblings with envy. Siblings of the executor handling the low value estate will be feeling relief.

One solution might be to name all your children as executors. That way, each of them is entitled to share in an executor fee.

It’s a good idea in theory, but maybe not so much in practice. You will be forcing your children to work together, taking on tasks they are likely unfamiliar with and making decisions they might well disagree about, all while second-guessing who is shouldering the larger burden.

I was always the splitter when I was growing up. You can get close to equal share when ripping a donut in half to share with your brother, but there are never exactly the same size. He always ended up with that little bit more and me with that little bit of resentment.

Expecting your children to split up unfamiliar executor tasks to be equal and fair, particularly if one of your children is the organized doer and the other is a little more towards the disorganized procrastinating end of the spectrum, might be asking for trouble.

I don’t subscribe to the “they’ll just sort it out” parenting approach. Sure, they’ll sort it out, but with personality and power dynamics, not necessarily in the fair way you hope for.

If co-executors and beneficiaries don’t agree on the amount of executor remuneration or how it should be shared between the executors, that disagreement is resolved by the court, and what an ugly court application that would be.

There is another solution. You can set the amount of executor compensation in your will.

The law says a will-maker’s determination of executor compensation is final.

There is a very interesting legal decision out of Ontario, where this issue came to a head. (Robertson, 1949 CanLII 89 (ON SC)).

In that case, executor compensation was set in the will for each of the five named executors at $100. It was an estate that required years of administration and had a value of millions of dollars.

Ontario has similar legislation as British Columbia. It has a section in its Trustee Act that allows for “fair and reasonable” executor compensation. It also has a provision that eliminates the application of that section if the will sets the amount of compensation. The Ontario Court decided the executors were stuck with the $100.

British Columbia has an almost identical provision. It works both ways however. An executor might be stuck with an unfairly low amount of compensation. On the other hand, they could receive an unfairly high amount.

There’s nothing stopping you from specifying executor compensation at, say, $500,000. That would be as binding as the will specifying $100.

If you think that $25,000 is fair compensation for your executor, regardless of whether your estate is $250,000 or $2.5 Million, you can specifically set out that amount as executor compensation in your will.

You could include a discussion about executor remuneration with your children at the same time you discuss who will be your executor.

Consensus can hopefully be achieved about who will shoulder the burden of being your executor and how much compensation will be paid out of the estate for that work.

If the amount of compensation feels fair to everyone and the role of executor is viewed as the work that it is, rather than an honour, bad feelings that would otherwise arise after your death can be avoided.

If it feels like a competition between your children about who will be chosen as your executor, you can drop the amount of compensation until the competition ends.

It’s just like I strived to do when splitting the donut. I knew I had it right when my brother took time to try to figure out which half was the bigger one.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.