Executor Fees in BC: How Compensation Is Calculated

Acting as an executor takes time, care and often months of work, and BC law allows an executor to be paid for it. Many people have heard that executors get 5% of the estate. That number is real, but it is the upper limit, not the starting point.

Whether you are an executor wondering what to claim, or a beneficiary reviewing what has been claimed, it helps to understand where the figure comes from, what else can be charged, and who has the final say.

Start with the will

The first place to look is the will itself. Some wills set the executor's compensation directly, for example a fixed amount, a percentage, or a gift to the executor that is meant to cover their work. Under section 90 of BC's Trustee Act, the statutory fee rules in sections 88 and 89 do not apply where the allowance is set by the document that created the trust.

If the will is silent, or simply says the executor may be paid, the Trustee Act fills the gap.

The 5% ceiling in the Trustee Act

Section 88(1) of the Trustee Act says an executor or administrator is entitled to a "fair and reasonable allowance" for their care, pains and trouble and the time spent administering the estate. That allowance cannot exceed 5% of the gross aggregate value of all the estate's assets, including capital and income.

Three points are worth noticing:

• It is a maximum. Nothing in the section gives every executor 5%. The test is what is fair and reasonable for the work actually done.
• It is measured on the gross value. The calculation looks at the value of the assets and the income they earn, not the net amount left after debts.
• It is separate from expenses. Under section 88(2), the fee is allowed in addition to reimbursement of expenses the executor actually incurred, such as probate fees, appraisals or professional fees paid from the estate.

Example only: an estate has assets worth $800,000 and earns $20,000 in income during the administration. The ceiling is 5% of $820,000, or $41,000. A simple estate, wrapped up quickly with a house sale and a few bank accounts, may justify a fee well below that. An estate with a business, rental properties, tax problems or a lawsuit may justify a fee closer to the limit.

The care and management fee for longer administrations

Some estates hold assets for years, for example where a will creates a trust for children until they reach a certain age. Section 88(3) allows a person entitled to the allowance to apply annually to the Supreme Court for a care and management fee of up to 0.4% of the average market value of the assets. This recognizes the ongoing work of managing and investing trust property over time, as distinct from the one-time work of settling the estate.

How the amount is decided, and who approves it

The Act's own wording points to what matters: the care, effort and time the executor put into the estate. In practice, that usually means looking at the size and complexity of the estate and how much work and responsibility it involved.

In most estates, the fee is settled informally. The executor sets out the proposed fee in the accounts given to the beneficiaries, and the beneficiaries approve it when they approve the accounts. Taking a fee from estate funds before the beneficiaries have agreed, or before a court has approved it, can lead to a dispute.

If the beneficiaries do not agree, the amount can be decided by the Supreme Court, or by a registrar of that court if the court directs, usually when the executor's accounts are passed (sections 88 and 89). A registrar's order or certificate can be reviewed by the court on an application made within 14 clear days (section 91). Our guide to executor duties in BC explains where accounting fits into the overall process.

Executor fees are taxable

The Canada Revenue Agency treats executor fees as income. If you are not acting as an executor in the course of a business, which is the usual situation for a family member or friend, the CRA treats the fees as income from an office or employment, reported in box 14 of a T4 slip, with income tax and CPP contributions deducted (but not EI). Fees earned by someone who acts as an executor in the course of a business are treated as business income instead.

Because a fee is taxed in the executor's hands, an executor who is also a main beneficiary sometimes decides to take a reduced fee or none at all. That decision has tax and family consequences, so get tax advice before making it.

If you are a beneficiary and the fee looks high

Before you approve an executor's fee, it is reasonable to ask how it was calculated. Practical steps:

• Ask for the accounts. Request a full statement of what came into the estate, what was paid out, and the proposed fee.
• Ask how the fee was worked out. A good account describes the work done, not just the percentage claimed.
• Do not sign a release you do not understand. Approving the accounts usually approves the fee.
• Raise concerns early. If discussion does not resolve it, the court can review the fee when the accounts are passed.

Our articles on your rights as a beneficiary in BC and estate disputes explain the wider options.

Settling an estate or reviewing an executor's fee? Get clear on the numbers

Our probate and estate lawyers can advise executors on a fair and supportable fee, prepare accounts for beneficiaries' approval, and help beneficiaries review or question a fee before they sign a release.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.