Many taxpayers specify in their will the amount an executor will receive. Unless this is clearly stated in the will and is written in plain text, the courts may consider any amounts left to the executor as a gift which then allows the executor to demand compensation alongside the gift received.
The impact on the beneficiaries when it comes to the executors’ compensations ultimately depends on what is (or is not) stated in the will. If a will is clear and specifically states, the amount to be administered to the executor as their fee then no issues will arise.
If the will does not state the amount or there is no will at all, this can present problems within the family even if they agree to take on the administration of the estate for free. They will have the right to ask for compensation. There are several factors that are determined by the courts in determining a fair and reasonable fee:
- The amount of revenue
- Gross value of the estate
- Complexity
- The amount of knowledge required
- Amount of time used
- The number of personal representatives appointed to the Will
With these factors, the courts generally go with around 5% of the estate value plus 1% of the average annual value of the estate. Additional compensation may be given if it becomes too complicated.
The CRA views any fees received by an executor as taxable income. If a lump sum payment is received throughout X number of years, only during the year that the amount is received will it be taxable.
This is general comment, and you should contact Tax Partners for any questions by sending an email to [email protected] or (905) 836-8755.
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