This month’s blog post was written by Matthew Rendely, Partner at Loopstra Nixon LLP.

It is a commonly held belief that bestowing the role of estate trustee upon someone is a badge of honour that speaks to the level of the relationship. As such, spouses, children, close relatives, friends, or even professional advisors are often selected, together or separately, to be estate trustees. While the sentiment for such an appointment is principled, it is typically made without a fulsome understanding of the realities of the job of an estate trustee for which a corporate trustee is often better suited. I use the term “job” because the role of an estate trustee is professional in nature. It is complex, time consuming, and inherently fraught with conflict. For these reasons, the role is more than an honour to bestow; it is a paying job that should be given careful consideration in view of the following issues.

First and foremost, an estate trustee is subject to personal liability for their own skill and diligence in managing the assets of the estate, and for the deceased’s debts and taxes owing under the Income Tax Act, Excise Tax Act,and Estate Administration Tax Act. An estate trustee is also subject to being sued for errors made during their administration of an estate, which errors may not be covered (in whole or in part) by insurance. An individual estate trustee will therefore be required to post a bond (except in very narrow circumstances) to the court in an amount equal to double the size of the estate. While this bond can be waived or reduced on a motion before a judge of the Superior Court of Justice, such a motion incurs legal fees to the estate and the outcome is not guaranteed but case specific. Depending on the size of the bond, it can be a significant obstacle and expense for an individual to post and maintain. On the other hand, a regulated trust company, such as Cidel Trust Company (“Cidel”), is insured so that it need not post security to administer an estate under the Loan and Trust Companies Act.  

Further, the right to compensation is set out in the Trustee Act, which says that unless the amount of compensation is fixed by the trust instrument appointing the trustee (including a Will or Codicil), an estate trustee is entitled to as much compensation as a judge of the Superior Court of Justice deems fair and reasonable in compensation of the trustee’s “care, pains and trouble, and the time expended in and about the estate”. Ontario courts have upheld 100-year-old case law, which sets out that the rule of thumb for an estate trustee’s compensation to be as follows:

• 2.5% (on all capital receipts and disbursements);
• 2.5% (on all revenue receipts and disbursements); and
• 2/5 of 1% (as an annual care and management fee of the gross assets under administration).

The ultimate discretion, however, lies with the court on a passing of accounts.

Therefore, due to the professional nature of the job of an estate trustee, individuals and corporations alike are presumptively entitled to such compensation. Yet, there is a common misconception that only corporate trustees charge and take compensation. Depending on the size of the estate, the amount of compensation to an estate trustee could deplete the assets of the estate and frustrate gifts made in the Will. This can be a significant source of conflict and even cause for litigation between the disappointed beneficiaries and estate trustee on a passing of accounts. My partner, Daniel Paperny, will explain what a passing of accounts is in our next article, which will be featured in Cidel’s Wealth Matters-Our Insights in July 2024.

However, when appointing a corporate trustee, it is possible to negotiate their fees and to fix them in the Will at the outset. This kind of planning can provide peace of mind to the deceased and their beneficiaries in knowing that the gifts in the Will can be carried out by a sophisticated and professional service provider for a fixed charge. This can allow the corporate estate trustee to be the impartial voice unimpacted by conflicting interests and emotions.  Furthermore, a corporate trustee such as Cidel has the infrastructure and knowledge of estates, trusts and tax law to manage even the most complex of estates, including being exempt to post a bond to secure its administration.  

In considering the scope and risks involved with the job of an estate trustee, it may be prudent to select a professional trustee such as Cidel to administer an estate instead of an individual, especially bearing in mind the complexity and size of the estate. Please speak with a lawyer before and when making any such appointments in your Will or Codicil.

Thank you for reading.

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