An Estate Trustee is entitled to a fair and reasonable allowance for his care, pains and trouble and time expended for the performance of estate trustee’s work. In determining when to take compensation from estate assets, an estate trustee can either look to the will, if any, or seek to have the accounting record of the work they have done for the estate formally passed in court at which time the amount of compensation they propose to take will be confirmed. After the court has confirmed the compensation, the estate trustee will be authorized by court order to take the amount so established. The same option and process applies in the case of an attorney acting under a power of attorney.
A will may indicate that the estate trustee may take their reasonably foreseeable compensation from time to time prior to being approved by the beneficiaries or on the passing of accounts. Where such provision is included in a will, it is usually on condition that if they took too much compensation as determined by the court or the beneficiaries, the excess will be repaid to the estate. Even where such a provision is included in the will, it is normally advisable that the estate trustee seek the written approval of all of the beneficiaries of the estate or the court during a passing of accounts proceeding before taking any compensation. The same is true where the deceased died without leaving a valid will.
Estate trustees should also bear in mind the fact that their compensation is considered income for tax purposes, thus they may wish to take authorized compensation at regular intervals; waiting for long periods i.e. years before taking compensation may result in a large lump sum payment and, in turn, high taxes payable for the year in which it is received.
Where the estate trustee takes compensation without the authorization of a will, beneficiaries or the court, the action is often referred to as pre-taking compensation.
Relevant case law has some noteworthy commentary in this regard:
1. In one case, it was said that as the pre-taking was not authorized, the estate trustees should account for the interest lost by the premature payment of the compensation subsequently approved on the passing of accounts.
2. By pre-taking, the executors are, in effect, [mis]appropriating to their own use monies, which they hold in trust, constituting a breach of fiduciary duty.
3. As a result of the body of cases on this issue, corporate trustees have carefully ensured, through written consents of beneficiaries, especially where the payment and collection of income is involved, that there is approval to such payment before the accounts are audited or approved in final form by the beneficiaries.
4. It is irrelevant that an estate may be sufficiently large such that pre-taking of compensation does not jeopardize the estate’s ability to fulfill its obligations. By unauthorized pre-taking, the estate trustee(s) risks being found in breach of fiduciary duty and thus, personal liability for the financial and other remedies that may flow from such finding.
If you wish to discuss the timing or basis for estate trustee compensation, preparation of estate accounts or other estate administration issue(s), please contact Andrea Kelly.
*****
Andrea Kelly, Lawyer, has extensive experience in wills, trusts, powers of attorney and estate administration matters. She provides clients with a high standard of timely professionalism and expertise, incorporating a very thorough fact finding process. This is quite often enlightening for her clients and facilitates individually tailored services. If you would like to know more, feel free to use the easy contact form or read Andrea’s bio.