Posted: September 3, 2021
By Amy Abbott, Partner and Kirsty Vogelesang, Associate
The personal representative of an estate is the person who manages and administers the estate of a deceased person. For example, an executor appointed in someone’s Will is the personal representative of that person’s estate when they pass away.
Managing and administering a person’s estate after they pass can be a time consuming and stressful task. If you are the personal representative, are you entitled to be compensated for your efforts?
The Surrogate Rules, which are the Court rules in Alberta specific to estates, outline the fundamental rules for compensation of a personal representative. The Surrogate Rules do not give a specific amount that the personal representative is entitled to receive for compensation. Instead, the Surrogate Rules state that a personal representative may receive “fair and reasonable compensation for their responsibility in administering an estate by performing the personal representatives’ duties.”
What is considered "fair and reasonable" compensation for a personal representative?
Some of the relevant factors in determining what is “fair and reasonable” compensation include the estate’s value, the amount of revenue received and disbursements paid, the time expended by the personal representative, and the complexity of the work for the personal representative in handling the estate. That said, just because an estate has a higher value does not necessarily mean it is harder to deal with. A personal representative administering a valuable estate is therefore not automatically entitled to greater compensation.
Compensation for a personal representative may also be set out in the deceased person’s Will. If the compensation is fixed in a Will, no greater amount can be charged by the personal representative unless the amount of compensation is varied with the agreement of the estate’s beneficiaries or by the Court.
How is compensation for personal representatives usually determined?
A common practice or methodology when it comes to determining personal representative compensation is:
- The personal representative keeps a record of the actions he/she has taken to administer the estate, the time spent, and the receipts and disbursements made;
- A lawyer for the personal representative reviews the records maintained by the personal representative. The lawyer assesses the complexity of the work and the reasonableness of the time spent in the context of the personal representative’s duties and responsibilities under the applicable legislation, and advises on the range of fees that would be fair and reasonable in the circumstances;
- The personal representative chooses a compensation fee to propose to the beneficiaries of the estate;
- The proposed compensation fee is included in an interim accounting and proposed distribution plan for approval by all of the affected beneficiaries; and
- If all of the affected beneficiaries approve the proposed compensation fee, the personal representative is paid when the estate is distributed.
Suggested Fee Guidelines (the “Guidelines”) for personal representatives were published by the Surrogate Rules Committee in 1995, and are often used as a reference point for personal representatives and lawyers in Alberta when assessing what amount of compensation would be fair and reasonable. However, the Suggested Fee Guidelines are exactly that – guidelines. The Guidelines were not incorporated into the Surrogate Rules. The Guidelines calculate compensation primarily on the basis of the estate’s value. Caution should be exercised in relying exclusively on the formulas provided in the Guidelines as there are other factors which must be considered when determining what is fair and reasonable compensation.
The Guidelines outline categories for compensation and for each category suggests a percentage to calculate the personal representative’s compensation:
1. Capital: This category determines compensation based on the value of the deceased's assets upon death
The personal representative may receive 3%-5% on the first $250,000.00 of capital; 2%-4% on the next $250,000.00 in capital; and 0.5%-3% on the balance of capital.
2. Revenue: This category determines compensation based on the revenues received by Estate while the Estate is managed, such as dividends
The personal representative may receive 4%-6% of revenue receipts.
3. Care and management: This category determines compensation based on the assets that are managed by the personal representative
The personal representative may receive 0.3%-0.6% on the first $250,000.00 of capital; 0.2%-0.5% on the next $250,000.00 of capital; and 0.1%-0.4% on the balance of the capital.
When will I be compensated for acting as a personal representative?
Generally, the personal representative is compensated after the administration of the estate is complete. There are some exceptions, including:
- where the Will allows for compensation to be taken before administration of the estate is complete;
- where all the affected beneficiaries agree to earlier payment of the compensation; or
- where earlier payment is directed in a Court order.
How is compensation for personal representatives treated for income tax purposes?
Compensation as a personal representative is income and therefore subject to income tax. Many personal representatives are not aware of this when they begin administering an estate, and can end up caught off guard when they find out they have to pay income tax on the amounts received as compensation for their efforts as a personal representative. Personal representatives are often well-served by seeking the advice and assistance of an accountant regarding the income tax payable, as well as other tax considerations in administering the estate. Reimbursement for out-of-pocket expenses would not be considered income, and therefore would not be subject to income tax.
How can Emery Jamieson LLP help
Emery Jamieson has extensive experience assisting with estate planning and estate administration. If you are a personal representative of someone’s estate, and are looking for assistance with administering the estate, we can help you understand your rights and obligations. If you’re considering providing your executor with compensation in your own Will, or need assistance with estate administration or litigation, contact a member of our Wills & Estates Planning Practice Group to discuss planning your estate.