Everything you need to know about Executor Fees in Ontario

Being an estate executor means you’ve taken on the responsibility of honouring your loved one’s wishes, but that doesn’t mean it’s necessarily done for free.

Executors are often entitled to compensation for their time and efforts spent on the settlement process which is paid out by the estate.

Here is how the executors compensation is calculated:

As outlined by Ontario's Superior Court of Justice, estate executors in Ontario may charge a compensation of up to 5% of the estate's value.

The logic behind the 5% executor fee is as follows:

• Up to 2.5% on the value of assets or cash received
• Up to 2.5% on the value of assets or cash distributed

For a quick estimation based on the maximum rate, use our executor fee calculator below:

Executor Fees Are Guidelines, Not Fixed Rates

While Ontario courts allow executor compensation to total up to 5% of the estate's value, this percentage is a general guideline rather than a fixed rate.

Here's why:

According to Section 6(1) of the Trustee Act, a trustee is entitled to "such fair and reasonable allowance for the care, pains, trouble, and time expended in administering the estate" as may be allowed by a judge of the Superior Court of Justice.

Although there is a practice of awarding estate trustees compensation based on a percentage of:

• Capital Receipts (money received from selling property)
• Capital Disbursements (money spent on fixing estate assets),
• Revenue Receipts (money received from selling goods or services), and
• Revenue Disbursements (money spent on things like salaries and supplies)

Depending on the complexity of the estate, an executor may also charge up to 0.4% per year for "care and maintenance" as a management fee for the estate.

This practice is not set in stone, and executor compensations are actually made on a case-by-case basis.

For example:

(A) For an estate with only 1 real estate property - the court may warrant less than a 5% executor compensation, seeing as it is a relatively simple estate.

(B) For a larger estate with multiple beneficiaries around the world, and several properties, a reasonable compensation may be higher than 5% seeing as it is a larger and more complex estate.

Ok, so we've determined the 5% executor fee may be a good rule to follow - So how do you actually determine a reasonable executor compensation?

In some cases, the deceased will actually outline specific instructions as to how the executor will be compensated. This may come in a form of a flat fee, hourly rate, or estate value.

In the absence of executor fee instructions left by the testator, the executor's compensation may be subject to negotiation between beneficiaries of the estate or left to the court to determine a reasonable fee.

The Ontario Superior Court of Justice evaluates the suitability of compensation for an executor, five key factors:

1. Size of the Estate: The size and complexity of the estate can influence the compensation. For simpler estates, the court may award a lower percentage, while complex estates with multiple assets and beneficiaries may warrant a higher percentage.
2. Care and Responsibility: The level of care and responsibility involved in managing the estate is crucial. More complex estates require more time and effort, justifying higher compensation.
3. Time Spent: The amount of time spent performing the duties is another key factor. Executors who spend more time managing the estate are likely to receive higher compensation.
4. Skill and Ability: The skill and ability shown by the executor in administering the estate can also impact the compensation. Executors who demonstrate high levels of expertise and success may receive higher compensation.
5. Success of Administration: The success resulting from the administration of the estate is also considered. Effective management that benefits the beneficiaries can justify higher compensation.

Executors have a fiduciary duty to act in the best interests of the estate and its beneficiaries, and their compensation should reflect the level of care and responsibility required to fulfill that duty.

It's important for both the executor and the beneficiaries to have a clear understanding of how the executor's compensation will be calculated and what expenses are included.

Executors receive their fees from the estate once all outstanding taxes and bills are paid, assets are administered, and heirs are located - which is typically paid at the end of the estate settlement process. This process often takes about a year but can take longer if the estate is complex or if there are disputes among beneficiaries.

The Canada Revenue Agency (CRA) has clear guidelines on how executors' fees should be treated for tax purposes.

CRA’s Approach to Executors' Fees

The CRA classifies executors' fees as taxable income - either through business income or income from an office, depending on the circumstances. If the executor is acting within the scope of a business, the fees are considered business income and included under subsection 9(1) of the Income Tax Act.

On the other hand, if the executor is not acting as part of a business, the fees are classified as income from an office and included under paragraph 6(1)(c) of the Act. This distinction is supported by various CRA interpretations and legal cases, such as Messier et al v The Queen.

This classification has significant implications for the tax return process for executors, requiring careful documentation and reporting.

Issuing T4A Slips for Executors' Fees

For executors' fees considered as business income, the estate is required to issue a T4A slip to the executor. According to subsection 200(1) of the Income Tax Regulations, a T4A slip must be issued even if no income tax was withheld at source, unless the payment is under $500 and no tax was withheld. In cases where tax was withheld, the issuance of a T4A slip is mandatory regardless of the amount. The CRA has provided some leniency regarding the completion of Box 048 on the T4A slip until further notice.

Employment Insurance and Executors' Fees

If executors' fees are classified as employment income, the estate is not required to withhold and remit employment insurance premiums. This is because an executor in tenure of office is generally not considered to have insurable employment under the Employment Insurance Act, unless specific conditions are met, which typically apply to government and union officials.

Does each executor get 5%?

No. Executor compensation is a flat fee for the entire job - no matter how many executors are involved.

The fact that there are multiple executors should not result in an increase in the total amount of compensation.

Rather, the aggregate fee should be divided among the executors in a just and equitable manner that takes into account the contributions made by each co-executor.