How estate trustee compensation is calculated: Key legal insights

Admittedly, the work of a trustee is burdensome, tiring, and stressful. So, when it comes to estate trustee compensation, we follow the old saying that there’s no such thing as a free lunch. Now, the questions are how is it calculated and what are the laws that should be followed? 

In this article, we’ll discuss the basics of estate trustee fees, the math behind these fees, and some laws to back up our numbers on. In any case, anyone can consult with an estate lawyer, especially when those figures are becoming too complicated. 

Is an estate trustee entitled to compensation? 

Under Canadian laws, trustees or administrators of estates, including executors of wills, are entitled to a just and fair compensation. Otherwise, we would be depriving these people of the time and services that they have provided, which are all for the benefit of the trust, beneficiaries, and even the decedent. 

Aside from being the will or trust agreement, estate trustee compensation is governed by provincial laws on trusts, estates, wills, or succession. Although the terms may vary, a trustee may also be also called an executor, depending on the province. 

For example, under Ontario’s Trustee Act, a trustee is entitled to a fair and reasonable allowance, specifically for the “care, pains and trouble, and the time” spent on the estate. This provision also applies to guardians and personal representatives. 

This video explains some of the compensation issues that can arise for executors, estate trustees, and lawyers handling someone else’s estate: 

If you need help arriving at an estate trustee compensation that is fair, consult the best estate lawyers in Canada as ranked by Lexpert. 

How is compensation of an estate trustee calculated? 

While the rule states that an estate trustee compensation is governed by the will or the trust agreement, the rates under the provincial or territorial law will instead apply when either: 

• compensation is agreed upon, but no computation is provided 
• a court decides that a trustee be paid according to these rates 

This means these statutory rates will apply in default as the basis for the trustee’s fair compensation. However, when the will or agreement offers another way of paying the estate trustee, then that will prevail over these laws, unless the court intervenes. 

Computation under the will or trust agreement 

Here are some examples of the ways a will or a trust document can structure how estate trustees are to be paid: 

• lump sum: after all the trustee’s duties are discharged 
• periodic payments: which is applicable when the trust is over a long period 
• hourly rate: depending on the time spent by the trustee in doing their duty 

Again, this will depend on the agreement between the parties to the trust agreement or according to the will of the decedent. 

Computation under the provincial or territorial laws 

Below is a summary of the estate trustee compensation in each province and territory in Canada: 

 
However, as discussed below, there are a lot of other considerations when calculating estate trustee compensation – and these percentages are just one of them. It’s better to consult a lawyer to help you arrive at a correct and legally acceptable amount.  

When looking for an estate lawyer, you can use our directory of the Lexpert-ranked best law firms for estate law in Canada. 

Factors to consider in paying an estate trustee 

In the case of Estate of Mary Thompson v. Olley, 2019 ONSC 4250, the court reiterated these factors to help parties in a trust compute the proper estate trustee compensation: 

• size of the trust 
• care and responsibility involved 
• time occupied in performing the duties 
• skill and ability shown by the executor or trustee 
• degree of success resulting from the administration 

These were originally laid down in Toronto General Trusts Corp v. Central Ontario Railway, (1905) 6 O.W.R. 350.  

Notably, these factors become relevant when the estate trustee compensation exceeds or is way below the rates prescribed by the provincial laws. Also, when writing a will or creating a trust agreement, the factors can also be used by the parties to arrive at a fair rate for the compensation. 

Courts can also use these factors in judging the fitness of an estate trustee compensation. 

For instance, the Court ruled in the Estate of Mary Thompson that the compensation claimed by the estate trustee is not justified. In applying the factors, it compared the compensation with the trust’s size, including the ease and time involved in passing on the subject property to the beneficiary. 

Other rules in calculating estate trustee’s compensation 

We’ve compiled some of the rules in computing an estate trustee’s compensation, which are sourced from common law and different statutes. If you’re confused on how these rules apply to your case, it would be best to consult a lawyer who knows the estate laws of your province or territory. 

Conditions before the payment of estate trustees 

As a way of diligently exercising their fiduciary duties over the estate, a trustee’s compensation is usually conditioned on the following: 

• after the payment of taxes and the estate’s debts 
• when the beneficiaries receive their allocations 
• upon accounting of the estate and its approval 

This also helps the estate trustee prevent any issue on the compensation they’re about to receive. It’s also to show that the trustee is doing their duties in good faith. 

Courts can adjust estate trustee compensation 

Especially in cases where there are disputes between the beneficiaries and the trustees or executors, the court can step in and settle these disagreements. Afterwards, courts can adjust the compensation—either increasing or decreasing it—depending on the circumstances. 

Agreement in the trust or will is a priority 

However, with all the might of a court in settling disputes over estate trustee compensation, there is one common law exception to this intervention. That is, when the compensation is already fixed by trust agreement or by the decedent through their will, then the parties (the trustee and beneficiaries) should abide by such terms. 

Advance payments can be a yes or a no 

In practice, estate trustees are paid after they’ve accomplished something for the trust or the beneficiaries, but not prior to it by way of advance fees. Nevertheless, upon application, a court can check if these disbursements, such as advance fees to the estate trustee themselves, are unacceptable and improper. When found to be so, the trustee can be ordered to reimburse the estate for these disbursements. 

When the trustee’s jobs were delegated 

From keeping the estate’s assets to doing an accounting of all the income and expenses, an estate trustee has a lot on their plate. As it’s not entirely prohibited, estate trustees may hire third parties to do certain jobs. Of course, this would affect the compensation they’re entitled to. 

In such a case, law and equity would tell us that estate trustees:  

• should not be paid for these outsourced roles, or  
• that it should be deducted from their overall fee 

Also, estate trustees cannot claim compensation for the disbursements in paying these third parties. 

Is estate trustee compensation taxable? 

To answer it simply: yes, estate trustee compensation is taxable in Canada, when given as it is during the year that it was received. This is because the Canada Revenue Agency (CRA) considers these payments as taxable income on the part of the estate trustee. 

The CRA says that there are two tax implications of this compensation, depending on the estate trustee: 

• if the estate trustee is an individual: the compensation will be normally reported under their taxable personal income (e.g. the trustee or executor is just a family friend of the decedent) 

• if the estate trustee is a professional: the compensation will be reported as income of their business, for which they can also charge HST for their services (e.g. the trustee or executor is a lawyer or an accountant) 

However, there are many ways to avoid paying such taxes. Watch this video to learn about how to avoid paying tax on estate trustee compensation: 

Bookmark our Legal FAQs page to get regular articles on estate laws, taxation, and other aspects of the law. 

When would an estate trustee not be paid? 

There are many instances where an estate trustee would not be entitled to compensation, such as when the: 

• will or the trust agreement says so 
• trustee waives the compensation 
• trustee breached their fiduciary duties 

Again, these can occur either by agreement of the parties to the trust or when ordered by the court. 

Breach of fiduciary duties 

The case of Zimmerman v. McMichael Estate, 2010 ONSC 2947, is an example of a case that involves a violation of the trustee’s fiduciary duties. In this application for passing of accounts, the estate trustee was found to have breached his fiduciary duties, which include the: 

• failure to properly account, which is his most basic duty as a trustee 
• improper and unauthorized payments to himself out of the trust 
• co-mingling of the trust property and his own, which he also interchangeably used 

As a result, the Court disallowed compensation due to the estate trustee and ordered him to restitute to the estate what was lost when he was its trustee. 

Based on this case, we can say that trustees and executors must be careful in exercising their fiduciary duties for the estate and the beneficiaries. Otherwise, there would be grave legal consequences that can even affect the compensation they’re looking forward to. 

Estate trustee compensation: a trustee’s fair and equal share 

One way of saying thank you to the trustee after doing an exhausting job is giving them a fair share of the banquet through compensation. But as we’ve discussed, it’s not just simple arithmetic, since there are a lot of laws and rules to consider. However, when the math is not adding up, estate lawyers are here to help everyone get to an equal footing. 

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