Trusts and Trustee Compensation Demystified
We often get asked how executors and trustees of ongoing trusts are compensated. While there is no set amount there are some guidelines to be found by statute and the common law in Ontario.
To begin, Section 61(1) of the Trustee Act, R.S.O. 1990, c. T.23, states:
“A trustee, guardian or personal representative is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Superior Court of Justice.”
Unfortunately, the Act fails to give any specific rules as to the calculation and amount of the compensation. Thus, over time, the courts have defined a general tariff. It is only under special circumstances that a court will reduce or increase the compensation.
The general tariff is as follows:
•2.5% to 3% of capital receipts;
•2.5% to 3% of capital payouts;
•2.5% to 3% of income receipts;
•2.5% to 3% of income payouts;
For ongoing trusts, the tariff is as follows:
•2/5 to 3/5 of 1% of the average annual market value of the trust assets;
•5% to 6% of income generated by the trust.
Of course, if there is provision in the Will or Trust it must be followed. If not specified, compensation to Executors and Trustees is usually paid at the end of the administration of the estate or trust.
If the tariff does not result in fair compensation for the Executor or Trustee, the courts have developed five factors to consider when awarding larger compensation. The five factors are as follows:
(1) the magnitude of the trust;
(2) the care and responsibility arising from the trust;
(3) the time occupied in performing duties;
(4) the skill and ability displayed;
(5) the success in administering the trust.
In addition, a judge may consider whether an extra allowance should be made for other management issues based on special circumstances. In the end, the process is less than scientific although it does provide a general guideline to demystify trustee compensation.