Naming an executor is one of the most important parts of making your will.
However, executors, the individuals responsible for managing and settling an estate after someone’s death, are typically entitled to compensation for their time, effort, and expertise.
This article covers how executor fees are calculated in BC, how to determine a fair and reasonable allowance, and how you can prepare your estate for these fees.
What are executor fees?
Executor fees are the compensation paid to the executor for administering an estate. Unlike probate fees, which your estate must pay if it goes through probate, executor fees aren’t always mandatory.
These fees cover the responsibilities and duties that come with managing your estate, which often includes legal, financial, and administrative tasks. Given the responsibility involved, executor fees ensure that estate executors are fairly compensated for their work.
The Trustee Act of British Columbia outlines the rules and responsibilities of trustees, including those acting under a will. It states that trustees, executors, or guardians are entitled to a fair and reasonable allowance for their work.
Compensation can vary depending on the complexity and size of the estate but cannot exceed 5% of the estate’s gross aggregate value.
How long does an executor have to settle an estate in BC?
There is no strict deadline for settling an estate. However, executors are generally expected to settle an estate within a year. This time frame is referred to as the “executor’s year.” More time may be given, depending on the estate’s complexity.
Executors can only receive their compensation after they’ve completed their estate settlement duties.
Are executor fees tax deductible in Canada?
No, executor fees are considered taxable income and should be reported on the executor’s income tax return.
How are executor fees calculated in BC?
Executor fees in BC are typically calculated at a maximum of 5% of the estate’s total value plus an annual fee of 0.4% of the estate’s average market value for every year assets are managed.
The gross aggregate value of the estate, which includes all the assets before debts and liabilities are subtracted, plays a key role in determining the fee.
For example, if an estate is valued at $500,000, the executor could be entitled to up to $25,000 for their services, plus an annual fee if they need to manage the estate over a longer period.
Remember that this is the typical maximum threshold. Many factors can affect the actual fee amount.
Additionally, while BC’s courts often adhere to this 5% threshold, they have the discretion to adjust fees if disputes arise. This means executors may be required to justify their compensation if beneficiaries challenge it.
Factors affecting executor fees in BC
Several factors can influence the amount of compensation an executor receives, including the complexity of the estate, the estate’s total value, the executor’s experience, and the overall time and effort needed to properly settle the estate.
1. Estate complexity
A complex estate may require more effort from the executor. For example, an estate with multiple properties, international assets, or legal disputes will likely need more time and expertise than a simple estate.
2. Total estate value
Higher-value estates may justify higher fees, but even small estates can require significant work if they involve complicated assets.
3. Executor’s experience
An experienced executor or a professional like a lawyer or estate administrator may charge a higher fee due to their expertise. Their experience can help the estate avoid unnecessary fees and even settle the estate that much quicker.
On the other hand, a family member might be less experienced as an executor, but they might charge less or even waive their fee because of their personal connection.
4. Time and effort
The length of time it takes to settle the estate, as well as the effort needed to settle the estate, can also impact executor compensation. Executors who spend more time handling legal matters, dealing with probate, or managing disputes may ask for higher compensation in return.
Negotiating executor fees in BC
While BC’s Trustee Act sets guidelines, executor fees are not always set in stone. In some cases, the executor’s fee can be negotiated.
This is especially true if the beneficiaries of the estate feel the fees are too high relative to the work performed or if the executor is a family member who is willing to reduce their fee.
Here are some tips for negotiating executor fees:
- If you are planning to appoint an executor, it’s a good idea to discuss compensation early. Clear communication can help avoid disputes later.
- In some cases, hiring a professional executor may be more cost-effective than appointing a family member. Professional executors typically charge fixed fees, and their expertise can help streamline the estate settlement process.
- If the estate is straightforward, it may not justify the maximum allowable fees. Beneficiaries can negotiate fees if the estate’s complexity doesn’t require extensive work.
What is a reasonable executor fee in Canada?
A reasonable executor fee really depends on the estate. Factors like estate complexity, value, management, the executor’s expertise, and location all contribute to what would be a reasonable fee.
Prepare for executor fees in your estate plan
Planning ahead can help you, and your beneficiaries, avoid surprises or conflict due to executor fees.
You can easily create your legal will and estate plan online with Willful and appoint someone you trust to look after your estate. You may even choose a beneficiary as your executor, which may encourage them not to seek compensation.
Ultimately, it’s important to discuss compensation with your chosen executor and determine the most reasonable path together.
