Executor Compensation in Ontario: How Fees Are Set and Taxed

If you are an executor (the law calls you an estate trustee), you may wonder whether you can be paid for the work and how much. If you are a beneficiary, you may wonder whether the fee claimed is fair. Both questions come up often, and the answers are less mechanical than many people expect.

Compensation also has a tax side. The money the executor receives is generally taxable, and the estate has paperwork to file. This article explains how the amount is set, how it can be challenged, and what happens at tax time.

The legal test: a fair and reasonable allowance

Under section 61(1) of the Trustee Act, an estate trustee is entitled to a fair and reasonable allowance for their care, pains and trouble and the time spent, as allowed by a judge of the Superior Court of Justice. The statute sets no percentage or formula.

You may hear that there is a standard percentage of the estate. Do not treat that as a rule of law. The only test the statute gives is whether the allowance is fair and reasonable.

The amount can also be settled even when the estate is not before the court in an action. In practice, that means the executor and beneficiaries can sometimes reach agreement without a lawsuit.

When the rules are different

• The will fixes the pay: section 61 of the Trustee Act does not apply where the will or other trust instrument itself fixes the allowance.
• The executor is a lawyer: where a barrister or solicitor is the estate trustee and has provided necessary professional services to the estate, the allowance may be increased.

If the will sets compensation, read the wording carefully. Whether a particular clause fixes the allowance can depend on the exact language, so a lawyer can confirm how it applies.

How a judge settles the amount on a passing of accounts

A passing of accounts is the court process where the executor's records are reviewed. Estate trustees must keep accurate records of the estate's assets and transactions. Accounts filed with the court must include assets at the date of death, all money received, all liabilities, and a statement of the compensation the estate trustee claims.

A judge passing the accounts may allow a fair and reasonable allowance for care, pains and trouble. This is how a court assesses the fee claim when a beneficiary objects. A beneficiary is an interested person who can compel accounts.

How a beneficiary can object to the fee

On an application to pass accounts, the estate trustee files the accounts verified by affidavit (Form 74.43), a copy of the certificate of appointment, and any earlier judgment on a passing of accounts. The notice of application and draft judgment must be served on every person with a contingent or vested interest at least 60 days before the hearing date, or 75 days if served outside Ontario.

A beneficiary who objects to the accounts, including the compensation claimed, must serve a Notice of Objection to Accounts (Form 74.45) at least 35 days before the hearing date. If no objection is made and the required record is filed, the court may grant judgment without a hearing.

Tax on executor fees and what to do next

For a non-professional executor, fees are income from an office or employment. They are reported in box 14 of a T4 slip, with CPP and income tax deducted but no EI. If someone acts as an executor in the course of a business, the fees are business income and are reported on a T4A slip rather than a T4. If the estate pays executor fees, it must file a T4 Summary and the related T4 slips.

The executor must also file all required returns for the deceased, make sure any balance owing is paid before distributing the estate, and confirm that all balances owing to the CRA are resolved.

• Check whether the will fixes compensation.
• Keep clear records of your time and the work done.
• Include a statement of the compensation claimed in any accounts.
• Beneficiaries: note the Form 74.45 deadline if you want to object.
• Ask an accountant how the fees should be reported, especially if you act as an executor in a business.
• Confirm all CRA balances are resolved before distributing.

If the amount is disputed or the estate is complex, speak with a lawyer or accountant before taking payment or filing an objection.

Frequently asked questions