When a person is named as the executor, estate trustee, or personal representative of an estate, there are a number of responsibilities involved. Personal representatives must ensure that the estate’s finances are managed and accounted for throughout the duration of the probate process; they must pay off the debts of the estate, and they must ensure proper distribution of the estate’s assets in accordance with the Will or with succession law in the event the deceased died without a Will. A personal representative is in a position of trust, acting as a fiduciary to both the estate and its beneficiaries.
Given the degree of responsibility involved in the position, personal representatives are entitled to compensation in the province of Alberta. However, they must observe certain rules when determining their compensation, which can change depending on the specific estate and the contents of the Will. When a personal representative exceeds the standards of executor compensation, they may find themselves involved in litigation with the estate’s beneficiaries and could face criminal charges.
Executor Charged with Fraud After Deceased’s Family Contacts Police
A Red Deer man was recently charged with fraud after paying himself over 40 per cent of the value of an estate he was overseeing. The man, JB, had met the deceased woman in 2008 after her husband passed away. JB purchased the husband’s accounting business and became friends with the woman, who named JB as the sole executor and trustee of her estate.
The woman became terminally ill and died in 2011. At the time of her death, her estate was valued at approximately $1.2 million. Over the next six years, JB managed the woman’s estate, paying himself compensation throughout. The woman’s family eventually grew suspicious of how he was managing the estate and contacted the police to investigate their belief that JB had been misappropriating funds from the estate. Another valuation of the estate’s assets showed a total value of $700,000, and police determined that JB had paid himself over $500,000 between 2011 and 2017. He was arrested and charged with fraud over $5,000 as well as theft over $5,000.
For a personal representative seeking to obtain fair and reasonable compensation, it is important to understand the rules. But what are the rules around executor compensation in Alberta?
When is a Personal Representative Entitled to Compensation from an Estate?
The entitlement to compensation for the estate’s personal representatives is sometimes set out in the Will. The Will might specify a specific amount or percentage of the total value of the estate which will be paid to the executor, or executors, for their role in managing the probate process. In other cases, a Will might specifically state that the named representatives are not entitled to compensation beyond reimbursement for out-of-pocket expenses. In these cases, a personal representative can petition a court for an order for compensation, or they can propose a form of compensation to the estate’s beneficiaries for approval.
Types of Compensation for Personal Representatives
A personal representative can claim two different types of compensation.
Reimbursements
Executors are often required to make certain arrangements that require the output of expenses before they are able to access any of the estate’s funds. For example, an executor might need to pay for the deceased’s funeral expenses, obtain notarized copies of documents, pay bills belonging to the deceased, such as utilities or lawyer fees. Executors must keep detailed records of any of these out-of-pocket expenses in order to claim reimbursement from the estate once funds are available.
Payment for Time & Effort Expended
In addition to being reimbursed for out-of-pocket costs, executors may also be entitled to payment for their time and effort in managing the administration of an estate. In a case where compensation is not addressed in a Will, or if the Will specifically prohibits compensation, an executor can put forth a compensation plan for approval by the beneficiaries or by a court if necessary.
The amount of compensation for time and effort can differ greatly from estate to estate. When considering what might be appropriate, a court will examine a number of factors as set out in Schedule 1, Part 1 of Regulation 130/1995 of the Judicature Act, known as the Surrogate Rules. These factors are listed as follows:
(a) the gross value of the estate;
(b) the amount of revenue receipts and disbursements;
(c) the complexity of the work involved and whether any difficult or unusual questions were raised;
(d) the amount of skill, labour, responsibility, technological support and specialized knowledge required;
(e) the time expended;
(f) the number and complexity of tasks delegated to others; and
(g) the number of personal representatives appointed in the Will, if any.
Alberta Executor Compensation Guidelines
A personal representative can expect compensation to fall roughly within the range of 3%-5% of the first $250,000 of an estate’s value. In the case discussed above, JB had paid himself approximately 40% of the value of the estate, significantly above and beyond the normal rate for a personal representative.
Executors may also be entitled to additional compensation in certain special cases. For example, if the estate holds assets that generate income, an executor may be entitled to a percentage of the income generated while they are managing the estate. Further, if the executor is required to take on responsibilities outside of the standard role of the executor, such as winding up a business or preparing the estate’s tax return, they may be entitled to additional compensation as well.
Contact DBH Law in Calgary for Assistance with Your Estate Disputes
If you are named as a personal representative for an estate, it is important to be aware of your right to compensation, as well as the limits on reasonable compensation, in order to avoid costly litigation with an estate’s beneficiaries.
If you are involved in an estate dispute, including a dispute over a Will, Power of Attorney, trust, or other estate planning mechanism, contact the experienced estate litigation team at Calgary’s DBH Law to see how we can help protect your rights and achieve the best possible resolution to your matter. We can be reached online or by phone at 403-252-9937.