What happens when a trustee's claim seems excessive?
There is no question that estate trustees are entitled to compensation for their work. But the amount they claim can be contentious. When a trustee’s compensation seems excessive, beneficiaries can contest the amount in court.
As Elines et. al v. Ollikainen and Elines illustrates, it's even possible to challenge compensation that would fall within accepted industry standards — provided the beneficiaries have a good argument for why the standard should not apply in their case.
Dorothea Elines died in August 2012, leaving behind an estate valued at $2 million. Her will named seven beneficiaries, and designated two of the beneficiaries — Jane Ollikainen and Frederick Elines — to act as estate trustees. Ollikainen administered the estate with almost no input from Frederick and, at the end of the process, claimed $45,000 in compensation for her work. This amount represented roughly 2.5 per cent of the estate’s value — a percentage that is generally regarded as acceptable for trustee compensation in Ontario.
The remaining beneficiaries brought an application requiring Ollikainen to pass accounts. A “passing of accounts” is a formal court hearing in which a court assesses a trustee’s statement of accounts to determine the reasonableness of the fees incurred. The account materials showed that the estate had spent approximately $50,000 on legal expenses; $15,000 on tax services; and $30,000 on a Chartered Professional Accountant (“CPA”) to prepare the accounts for passing.
The beneficiaries argued that the legal, tax, and accounting fees should be deducted from Ollikainen’s compensation, since these professional services reduced the amount of work that Ollikainen had to devote to the estate’s administration.
The court first considered the $50,000 in legal fees. Ollikainen’s lawyer could not clarify how he had spent time on the file, leaving the court to conclude that a significant portion of these fees ($37,500) related to the provision of estate administration services, rather than legal work. The court noted:
“It is clear law that where solicitors perform executors work, the estate cannot be charged for these services from two separate sources. Where the work being done by the solicitors is truly solicitor’s work, that is a legitimate disbursement of the estate and cannot be criticized.”
Lawyers often perform two types of services in relation to estates: legal work (such as preparing court documents or providing legal advice), and administrative work (such as notifying creditors or winding down accounts). Where a lawyer’s services are of the latter character, it is reasonable for fees to be deducted from the amount that the trustee claims in compensation.
Tax and accounting fees
The court noted that retaining tax accountants was a necessary expense and that the amount charged was not unusual given the estate's size. It, therefore, refused to deduct the $15,000 in tax fees from Ollikainen’s compensation.
Similarly, the judge declined to deduct the CPA expenses, even though these fees had been incurred to prepare for the passing of accounts hearing. The beneficiaries argued that Ollikainen could have avoided this considerable expense had she kept better track of the estate’s accounts, but the court rejected this argument. The courts do not hold estate trustees — particularly non-professional ones — to a standard of perfection.
The court concluded that $37,500 in legal fees should be deducted from Ollikainen’s compensation, entitling her to $7,500 for her services, rather than $45,000.
Ontario law does not strictly dictate how much trustees may claim in compensation, or how their compensation should be calculated. As a rule of thumb, 2.5 per cent of the value of an estate is generally an appropriate amount, although this amount can vary depending on the circumstances of the file. While it is entirely appropriate for trustees to engage lawyers to perform part or substantially all of the trustee’s responsibilities, they should not then expect to recoup the full 2.5 per cent of the value of the estate.
Estate beneficiaries can challenge the amount a trustee has claimed, but as Ollikainen demonstrates, this process can be expensive. In that case, the estate incurred $30,000 in fees simply to prepare the passing of accounts materials. The legal costs of the hearing would also have been considerable.
Our lawyers counsel estate trustees on their responsibilities as administrators, and provide guidance on reasonable compensation. We also perform estate administration services upon request. Finally, we have extensive experience with all aspects of estate litigation, including acting for trustees and beneficiaries in passing of accounts hearings.