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Trustee’s Compensation – Estate Admin 5/5

Estate trustees are generally entitled to reasonable compensation for their work, which is paid from the estate itself. However, determining and receiving this compensation involves understanding legal guidelines, court-recognized practices, and beneficiary approval processes.

Please note that many of the percentages mentioned in this article are conservative best-practice recommendations rather than absolute rules.

In this article, we break down the key aspects of estate trustee compensation, from general rules to special circumstances.

  • Capital Receipt:
    • Money or assets received by the estate, such as proceeds from selling a property.
  • Capital Disbursement:
    • Money paid from the estate to settle a debt or fulfill other obligations.
  • Revenue Receipt:
    • Income generated by the estate, like rent or interest.
  • Revenue Disbursement:
    • Expenses paid from the estate’s income, such as property taxes or maintenance.
  • In Specie Distribution:
    • Transferring an asset in its current form (e.g., giving a painting to a beneficiary rather than selling it and distributing the cash).

While estate trustees often seek beneficiary approval for their compensation, it is not always required. Trustees can take compensation without explicit approval in the following scenarios:

  1. By Court Order:
    • The court determines and approves the compensation amount.
  2. As Directed in the Will:
    • If the will explicitly provides for compensation and specifies the terms.
  3. By Agreement:
    • A prior agreement between the estate trustee and beneficiaries outlines the compensation.

The courts recognize standard percentages (or “tariffs”) for compensating estate trustees. These percentages include:

  1. Capital Transactions:

    • 2.5% of total capital receipts (assets realized).
    • 2.5% of total capital disbursements (assets paid out).
    • If assets are distributed in specie, trustees can only claim the fee once the distribution is completed.
  2. Revenue Transactions:

    • 2.5% of total revenue receipts (e.g., rental income).
    • 2.5% of total revenue disbursements (e.g., maintenance expenses).
  3. Care and Management Fee:

    • 0.4% annually of the average market value of the estate’s capital.
    • This fee applies to long-term estate management and is in addition to the standard 2.5% fees.

Trustees should not assume that following the tariff and submitting paperwork guarantees compensation. Courts increasingly require detailed evidence to justify the requested fees, assessing whether the trustee’s work and responsibilities warrant the claimed amount.

In cases of complex estates, trustees may request additional compensation. To support such requests, trustees must provide evidence of the estate’s complexity, such as:

  • Detailed memos outlining extra services.
  • Time dockets showing work performed.
  • Affidavits or witness testimony.

Complex estates often involve business interests or litigation, which justify higher compensation.

“Pre-taking” refers to an estate trustee taking compensation before a passing of accounts and without approval from all beneficiaries.

  • Old Law:
    • Re Knoch established a general prohibition against pre-taking compensation.
  • Recent Legal Developments:
    • Without explicit authorization in the will, pre-taking requires court approval.

Exception: The prohibition on pre-taking does not apply to legal fees.

Final Important Note

While this blog series provides a detailed overview of the responsibilities and duties of Estate Trustees, please note that the information offered is a general guide to the process. If you are an Estate Trustee or are about to take on this role and are uncertain about how to proceed, it is essential to seek professional advice.