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Wills Variation

Executor’s Fees BC: Assessing “Fair and Reasonable” Remuneration

In BC executor’s fees are often disputed. If the executor’s fees are not set out in the will and the executor and the beneficiaries cannot agree on remuneration for the executor, the dispute will have to be settled by the court. Sangha (Re), 2018 BCSC 54, a recent judgment obtained by our firm, contains a helpful restatement of the legal principles that apply when calculating an executor’s fees in BC. It also serves as a reminder that incompetence on the part of the executor can be taken into account when assessing remuneration.

Facts in Sangha (Re): The will and subsequent BC estate litigation

Ms. Sangha died January 7, 2011 at the age of 59. She was predeceased by her husband and one of her two sons. Ms. Singh’s last will and testament dated May 18, 2010 named her surviving son as her sole beneficiary. In her will, Ms. Sangha appointed her brother, Mr. Sandbar, as executor. Ms. Sangha’s estate consisted of a home in Vancouver on East 51st Avenue with a relatively small mortgage in the amount of $86,888; jewellery in a safety deposit box; a 2001 Toyota 4Runner; an RRSP GIC; and an investment account which contained mostly gold stocks. At the date of death, the estate was valued at $984,555.

The sole beneficiary took issue with the will, which provided that he was not to take title to the Vancouver home until his 45th birthday. The beneficiary commenced legal action on January 12, 2012 challenging the will and alleging undue influence on the part of the executor. Matters became further complicated when the beneficiary discovered that the deceased’s bank records disclosed financial transactions, some of which were paid to the executor. The commencement of the legal action by the beneficiary against the executor fractured what relationship there had been between them.

Sale of estate assets to fund litigation

As a result of the beneficiary’s lawsuit, the executor retained counsel. Unfortunately, Ms. Sangha’s estate lacked funds. Consequently, the executor made the decision to sell the deceased’s jewellery to fund the estate litigation. At the time of sale, the jewellery was weighed after all the stones and pearls were removed. This resulted in the accepted offer of $10,100 (which the court ultimately concluded was the appropriate monetary value).

The executor did not consult with the beneficiary before selling the jewellery, which had immeasurable sentimental value to the beneficiary. The executor did not photograph the jewellery which was sold, nor did he obtain a documented itemization of what was sold contemporaneous with the event. Further, the executor threw away the stones and pearls removed from the jewellery without consulting the beneficiary. When he learned of the sale of the jewellery, the beneficiary was extremely upset.

Passing of Accounts: BC executor’s fees and the Trustee Act

The legal action commenced by the beneficiary was eventually discontinued. It was agreed that the outstanding issues, which included the sale of the jewellery and the executor’s fees, were matters which could be resolved in the passing of accounts. In cases such as the Sangha matter where the deceased’s will does not specifically outline the executor’s fee, then s.88 of BC’s Trustee Act governs remuneration and the executor is entitled to be paid a “fair and reasonable allowance, not exceeding”:

(i)  a maximum of 5 per cent of the gross aggregate value of the estate,

(ii)  a maximum of 5 per cent of the income earned during the administration of the estate, and

(iii)  an annual “care and management fee” of 0.4% of the average market value of the assets.

Executor’s fees BC: Legal principles and factors for consideration

In Sangha (Re) at paras. 101 to 108, District Registrar Nielson summarized the legal principles relevant to a registrar’s passing accounts, including the calculation of an executor’s fee in BC. Here are some of the key points:

  • The percentages in s. 88 of BC’s Trustee Act are a rough guide to assist in appropriate computation of an executor’s fee in BC. In the end, the court must be satisfied that the remuneration “bears some reasonable relationship to the work and responsibility involved”.
  • Various factors are to be considered when determining whether the proposed executor’s fee is “fair and reasonable” including but not limited to:

1. the magnitude of the estate,

2. the care and responsibility involved,

3. the time occupied in the administration,

4. the skill and ability displayed, and

5. the success (or lack thereof) achieved in the administration.

Application of the factors in Sangha (Re)

The executor sought remuneration of 4% of the capital of the estate, being $91,644 but did not seek a care and management fee. After reviewing the factors, District Registrar Nielsen concluded that remuneration of the low end of the scale was appropriate and recommended that the executor be awarded $35,000 as his total remuneration.

In applying factors 1 to 3 set out above, District Registrar Nielsen noted that the bulk of Ms. Sangha’s assets were static, requiring minimal active administration or participation on the part of the executor. The executor did follow the typical steps in order to obtain probate, but overall the responsibilities of the executor in relation to the estate’s assets were minimal and the actual work done by the executor was not complex or time-consuming.

Factors 4 and 5 were of particular significance to the finding that remuneration of the low end of the scale was appropriate:

  • Skill and ability of the executor: District Registrar Nielsen found that the sale of the deceased’s jewellery was handled in the worst possible way and demonstrated a level of naivety and incompetence on the part of the executor. While the executor’s actions with respect to the jewellery were high-handed and incompetent, they were not dishonest (in other words, the executor’s actions were taken in the honest belief that they were necessary in order to fund the estate and defend the legal action taken by the beneficiary). Nevertheless, the sale of the jewellery was a matter properly taken into account when assessing the executor’s remuneration.
  • Success achieved in the final result: the fiasco surrounding the jewellery diminished the success achieved in the final result. The issues surrounding the jewellery occupied a significant amount of time on this passing of accounts. Had the executor handled the sale of the jewellery in a more open and transparent manner, this passing of accounts may have been unnecessary. Further, not all assets of an estate can be measured monetarily. The jewellery had substantial meaning and sentimental value to the beneficiary. The loss of the jewellery was a significant loss to the estate when viewed through the lens of the sole beneficiary.

The bottom line on BC executor’s fees

In BC executor’s fees must either be set out in the will or agreed to by the executor and the beneficiaries. In the majority of cases, the parties will agree on a reasonable amount of compensation for the executor, as they both recognize the effort carried out by the executor, and want to avoid the cost and delay of asking the court to settle the matter for them. If the parties cannot agree on the executor’s fees, the dispute will have to be settled by the court by application of the BC Trustee Act and consideration of the factors set out above. As the Sangha (Re) matter demonstrates, incompetence on the part of the executor can impact remuneration.