by Neil Mathieson, CPA, FICB
I encourage all persons to consider writing a will, or if you have one, consider updating it, should your circumstances have changed.
In the Spring 2014 Issue of this newsletter, I explored with you the importance of Estate Planning. One issue we discussed was the importance of choosing the right Executor. In this issue, we will talk about how much you should pay an Executor.
Most persons who have acted as Executors can advise you that it is a complex job that will require at least a full year to complete.
Sometimes people are surprised when an executor requests compensation. Even if an Executor is a family member, which can often be the case, he or she has a legal right to be compensated.
What should your Estate pay the Executor?
There are no hard and fast rules to answer this question quickly. The rule of thumb says 4% to 6% can be considered as fair and reasonable for a simple Estate. Executor compensation is a taxable income to the Executor. If so designated, a gift written into the will, in lieu of compensation, may not be taxable.
What is “fair”?
Factors to be considered include the size of the Estate, the complexity of the Estate, responsibility placed on the Executor, time required to prepare the Estate to obtain Probate and to disburse the Assets, the degree of skill and ability required and also the final result such as adding value to the Estate or limiting loss, by managing the assets appropriately.
From my own experience, securing a fair price for and from investment products is a relatively simple process.
On the other hand, I have had the sale of real estate take up to five to six years and during that time, managing the property as a rental was quite time consuming, until a satisfactory price was achieved.
Furthermore, an Executor who has to handle the sale of foreign real estate may find matters even more complicated, since they will also have to deal with tax laws and legal obligations outside of Canada.
Another example of a more complicated Estate for an Executor to deal with, is that of an operating business. All these factors can increase the level of compensation that an Executor should receive.
No matter how quickly an Executor can proceed, the beneficiaries should be kept up to date with the progress. They will need to be provided with a full account of costs incurred, the assets managed and the compensation due, prior to final disbursement to each of the beneficiaries.
It is always wise to review your will, and your choice of Executor at least every three to five years, or whenever your financial circumstances have changed.
If you need assistance with writing a will or updating it, do not hesitate to contact me for advice and direction. Proactive decisions you make today concerning your Estate, will impact your beneficiaries in a positive way later on.